If trading in the first week of the new financial year is any indication the benchmark indices should more than double as a bare minimum in the next twelve months. The first three trading days saw the markets gain close to 3% which if extrapolated in the 250 odd days of trading would result in a gain of over 250%. Life is not so easy and history says that markets fall faster than what they rise. If this is true then the rise in the three days is just not sustainable and the correction is inevitable sooner than later.
The SENSEX lost 2,776 points from its 3rd March lifetime high of 30,024.74 points in 17 trading days. The rate of fall was an average 163 points per day. The three day rise from close of 27th March to 1st April was 801 points or 267 points per day and we all know that markets fall faster than they rise. This clearly establishes that this rise is certainly unsustainable going forward.
What drove the market? It was a combination of factors which included a long week end with a mere three trading days of which Wednesday was a bank holiday on account of annual closing of banks, low volumes and also NAV propping. The BSESMALLCAP gained a staggering 6.76% against the just under 3% rise by the benchmark indices.
There are positive cues for the market with the initial nuclear deal being signed in Iran and in India the government promulgating the land ordinance. The markets are not going to surrender the start without a fight and they will be choppy. Early indicators of corporate India being under some pressure on the performance front were visible when the largest forex earning sector in services the IT sector lost ground when everything else went up in the market. Results season kicks in and with March quarter and annual results to be declared, the season would start later with the biggies declaring results in the week starting 20th April onwards.
The mega merger of pharma major Ranbaxy with Sun Pharma has been cleared and next week is the record date for such entitlement and trading in shares of Ranbaxy would be suspended from Wednesday. RBI has cleared the merger of ING Vysya Bank with Kotak Mahindra.
RBI meets for its bi-monthly monetary policy review meet on Tuesday where the consensus is that there would be no change in rates considering that there was a surprise rate cut in March.The key takeaway from the meet would be the views on inflation and the roadmap the bank has for the year ahead.
SEBI the capital market regulator has done a great job in making legislation but is found wanting in two key areas namely consistency and conviction under the law. Under consistency we have the recent cases where for non-disclosure in a prospectus of the company going public SEBI debarred the promoters and key personnel from fund raising and accessing the capital markets while in a similar case they fined the merchant banker. The first case was DLF where there was no onus on merchant bankers and the second case was CARE where only the merchant bankers were held responsible for the violation. It’s a separate case where DLF went to the tribunal and had the case squashed or dismissed. Why should law be so ambiguous or allow the interpreter or executioner of the law take such diverse views.
The second issue is of conviction where we find so many high profile cases still pending after so many years have passed. The regulator for reasons best known to them is sitting on these cases. We all know that ‘justice delayed is justice denied’. Any regulator to be known as world class has to expeditiously clear cases of wrong doing detected with appropriate punishment and deterrent. Compared to our regulator see what happened in the case of Cooper Tire and Apollo Tyre? There was a merger talk which began way back in April 2013 and then the deal was almost done and then cancelled. Cases were filed and in December 2014 the issue was all over. Last week there was detection of insider trading and profiteering in the deal and the case has started. One hopes that when we make the SEC a role model we should also follow in principle and practice this vital part where proof of the pudding is in eating. If law cannot convict why have law?
Primary market sees listing of Adlabs Entertainment on Monday. The company had tapped the capital markets with its fresh issue and offer for sale in a price band of Rs 221-230 which was subsequently revised downwards to Rs 180-215. The issue was subscribed and allotted at the lower price of the band at Rs 180. The other issue Inox Wind Energy is likely to list on Wednesday 8th April.
Many other companies are on the threshold of launching their IPO’s in the coming few days. The success or otherwise of these issues would be dependent on the valuation. If the primary market is to help in raising capital for corporate India, promoters and merchant bankers would have to strike a balance between fair and rational. To expect investors to participate in a new company about which a lot is not known there must be a compelling reason which could vary from business model or ultimately boil down to attractive valuation. The market needs to revive before it can walk or eventually run. I request merchant bankers and promoters to leave something on the table so that people who invest make money in the medium term. No one wants a lottery on day one but if after a few months the stock is down 50% someone has to take the blame.
Diversified companies were the flavour of the day and they were into infrastructure of all kinds. Coincidentally they came mainly from the southern part of the country. GMR infra was one such company which ran into difficulties because of being over leveraged. Over the last few quarters this company has sold some assets to reduce the debt and also the capex is virtually over with under construction projects being commissioned and now earning revenue. The company has a rights issue currently on and market price of the share is marginally higher at Rs 16.50-16.80 against issue price of Rs 15. The company looks a turn around and is attractively priced. This company also owns the Delhi airport. The company merits attention.
The week will be interesting on both the primary and secondary market fronts. More of it next week. Till then have a great week.
