April series expired on a negative note but the month consisted of very sharp moves both upwards and downwards. It’s one of those months where both bulls and bears made money and also one where neither bulls nor bears made money. If you held on to your position for the duration of the month you hardly made anything but if you were a day trader you had opportunities both sides provided you were nimble footed.
FII’s turned big sellers and the ‘MAT’ issue seems to be really upsetting them. With the matter in court there is only that much that the government can do and therefore the issue is hanging fire. There is a case slated for hearing in the Mumbai High Court on Wednesday the 6th of May and one hopes that there is some clarity post this matter and the pounding of our markets stop.
In the primary market Friday saw the listing of a very successful IPO VRL Logistics Limited. The shares of this company were sold at Rs 205 and was oversubscribed by HNI’s some 250 times. There is an anomaly in the way subscription is happening. HNI’s and QIB’s rightly or wrongly are allowed to subscribe upto one time of the entire issue. This category of investors borrow money at margins as low as 1% and apply for the issue. For example an HNI wanting to subscribe to the entire issue of VRL needs to give upfront a cheque of roughly Rs 4.70 crs for subscribing to one time of the entire book.
In this issue there were 11 applications in the HNI category who subscribed cumulatively for 17,31,13,330 shares or 17.31 cr shares which corresponds to over 50 times the HNI book and 7.58 times the entire book. This is certainly over inflating the demand and causing a lumpy book which does not give the correct picture of demand. With multiple people applying in high numbers and all using the same leverage formula, the share needs to list at a price substantially higher than the issue price to first cover the cost of funding and then leave some profit for investors. When that does not happen and the share on listing day starts trading at below cost, the share crashes. Some examples of this were MOIL and Punjab & Sind Bank.
One hopes that the regulator SEBI is looking into this rampant distortion of demand and taking some corrective action at the earliest to restore sanity to the markets.
Parliament is likely to take up the contentious bills for discussion in the current week. If they get eventually passed it would send positive signal to the world that India means business. The handling of opposition parties would be the key to passing these bills and it appears that the support of the two parties from UP, West Bengal and Tamil Nadu would be the key to decide how these bills are passed.
Results for the quarter are not upto the mark and have aided in the correction. Markets would look for cues for rallies in the coming week from Parliament and some global cues.
Trade cautiously and use dips to invest into the market.
