The week gone by was short with a mere three days for trading. The last two days were trading holidays, yet the market registered impressive gains and rose significantly. The BSESENSEX rose 952.91 points or 3.86% to close at 25,626.75 points. NIFTY was up 295.25 points or 3.91% at 7,850.45 points. Gains were sharp even in the broader market and there were no sectoral losers. The market is looking strong technically and many stocks have given breakouts or are on the verge of the same.
The reason for the strong rally was the weather forecast about the monsoon from the IMD (Indian meteorological department). They said that there was a 33% probability that the rainfall would be between 96-104%, a 16% probability that the rainfall would be between 104-110% and a 17% probability that it would be between 90-96%. What this also means is that there is a 66% or 2/3rd chance that the rainfall would be between 90-110% of long term average. Market was waiting for such news and simply lapped it up.
The present value of the indices is almost similar to what we were when China hit the global markets on Monday the 4th of January and markets around the world fell. The level at close of that day was 25,623.35 points. There is yet another positive news, which would impact the markets when they open today. Infosys declared results on Friday and they were way ahead of what the street expected.
Infosys reported revenues of 16,550 crs in the fourth quarter, a growth of 23.4% and for the full year revenue of Rs 62,441 crs, a growth of 17.1%. Its net profit for the quarter was Rs 3,597 crs, a growth of 16.2%, while for the year it was 13,491 crs, a growth of 9.40%. It has guided for a revenue growth of 11.5%-13.5% for the coming year. This positive set of numbers will see Infosys shares open with a huge gap on Monday morning. Its ADR closed with gains of 8.4% on Friday post the announcement of results.
In primary market news the IPO from Equitas Holdings Limited which had tapped the capital markets would be listing on Thursday the 21st April 2016. There is an issue which was wrongly conveyed to the analyst and broking community during the roadshow in Mumbai. The company and merchant bankers informed the gathering in reply to questions that the company raising money would be the entity which would become the SFB (small finance bank) while in reality this is not the case. The entity going public would be the holding company and would form a 100% wholly owned subsidiary which would be the SFB. This in effect is as per RBI a two tier structure and perfectly in order.
What is puzzling and worrisome is why the concerned people chose to misguide people and how they stood to benefit. There can be no reason to misguide without some benefit which I have not yet understood. One hopes that the company management and its team of merchant bankers do use the post listing ceremony conference to clarify the issue.
I may also mention that the company or entity which would function as a SFB would have to list within three years of beginning operations. It’s a separate issue that at a later date people would begin to talk of a holding company discount and not value the company as a multiple of its book value.
Markets are looking strong and if there are a few more positive surprises, the strong momentum would continue. The monsoon is a good 4-5 weeks away but it has the potential to keep markets buoyant.
Trade cautiously.
