Primary markets continue to be in demand – Secondary markets at new highs

Markets were on a roll last week and continued making new highs with the BSESENSEX gaining 329.35 points or 1.10% to close at 30,188.15 points. NIFTY gained 115.60 points or 1.24% to close at 9,400.90 points. So strong was the market breadth that there was just one sectoral loser in BSEPSU down 0.29%.

The action though seems largely concentrated in the primary market space. There was last week the issue from Hudco which was very well received. The issue opened on Monday the 8th of May and closed on Thursday the 11th of May and was oversubscribed 79.55 times. The issue was for 20.40 cr shares in a price band of Rs 56-60. The QIB portion was subscribed 55.45 times, HNI 330.36 times and Retail 10.79 times. What is heartening to note that the share received applications from 20.13 lakh investors and created a new record beating the previous one of 19.75 lakh application in D-Mart. What is really heartening from a capital market perspective is that these new investors are coming from Tier2 and Tier3 towns. New demat accounts of over 3 lakh investors have been opened in the last couple of months. Also the SIP flow into mutual funds is now Rs 4,200 crs monthly. A large portion of the incremental flows is again from these same towns.

Shares of S Chand and Company Limited listed on Tuesday the 9th of May and just about survived a big scare, managing to close with minor gains of about one percent. The share issue was very heavily subscribed with HNI portion subscribed a massive 204.65 times. The overall issue was subscribed 59.49 times. At close of the week the share closed at Rs 622.05, down Rs 47.95 or 7.15%. One wonders what ails the education sector with issue after issue failing to rise upto expectations. The previous issue was from C L Educate which continues to trade below the issue price.

The week ahead sees the issue from PSP Projects Limited which opens on Wednesday the 17th of May and closes on Friday the 19th of May. The company is raising between Rs 206.64 crs to Rs 211.68 crs in a price band of Rs 205-210. The company is into the business of construction and is a contractor developing special projects in Gujarat particularly Ahmedabad.

After the runaway success of India’s first ever INVIT, is the issue during the week from India Grid Trust which opens this Wednesday the 17th of May and closes on Friday the 19th of May. The trust is raising Rs 2,250 crs in a price band of Rs 98-100. The lot size is 10,206 units and in multiples thereafter of 5,103 units. The success of IRB invit is unlikely to be seen in the this issue because of one fundamental difference where the returns to investors in the issue of India Grid in the initial few years would be entirely by way of interest income while in the case of IRB it was a combination of interest and dividend. The interest component was initially to be higher and then reduce as time went by. The interest income would attract tax for individuals and therefore reduce the net returns from the product. By Friday we would know the overall response to the issue which is into transmission lines and offers the investor an asset with income earning capacity for over 30 years. This issue would be closely watched as the listing of IRB is probably going to happen on Thursday the 18th of May.

Strange things seem to be happening in Shilpi Cable. The company on 11th May informed the exchange that the board would meet for issue of bonus shares on 28th May. This notice was issued at 14.28 hrs. At 15.20 hrs it issued a notice that the Company secretary has resigned with effect from 1st May. At 16.07 it issued a notice that the CFO has resigned with effect from 1st May. At 16.14 it issued a notice that the independent director has resigned with effect from 3rd May. The timing of the bonus issue and the resignations raise lot of question marks. One hopes the regulator looks into the same before it’s too late. The share price in recent times has fallen from Rs 225.60 on the 20th of April to Rs 67.45 on Friday the 12th of May.

Markets are likely to continue their upward momentum and there would be bouts of selling in the middle as well. Use rallies to exit and corrections to enter.

Performance of Newly Listed Shares as on 12th May 2017

Name Date of listing Issue Price closing price closing price % gain loss change over
12th May 5th May over week lssue price
Sheela Foam Limited 9th December 730.00 1321.42 1374.40 -7.29 80.99
Laurus Labs Limited 19th December 428.00 556.60 556.85 -0.06 30.05
BSE Limited 3rd February 806.00 981.80 995.10 -1.65 21.81
Music Broadcast Limited 17th March 333.00 340.25 349.25 -2.70 2.18
Avenue Supermarts Limited 21st March 299.00 751.45 808.65 -19.13 151.32
CL Educate Limited 31st March 502.00 450.65 441.45 1.83 -10.23
Shankara Building Products Limited 5th April 460.00 705.75 704.55 0.26 53.42
S Chand and Company Limited 9th May 670.00 622.05 NA -7.16 -7.16

HUDCO Issue subscribed over 79 times – Retail subscription at new high

The offer for sale from HUDCO was oversubscribed 79.53 times. The company had tapped the capital markets with its offer for sale of 20.40 cr shares in a price band of Rs 56-60. Retail and employees were offered a discount of Rs 2 per share. Retail subscription saw a new record with 20.13 lakh applications. This beat the previous best in the issue of Avenue Supermarts the company which runs the D-Mart chain of stores which had received 18.75 lakh subscriptions.

The new applicants are coming from Tier-2 and Tier-3 towns and this trend is also being witnessed in mutual funds where SIP’s have reached a level of 4,200 crs. The other confirmation of this fact is that the total retail subscription was 10.79 times while in terms of applications it was 5.75 times. This number of 10.79 times means that people have applied for more than one lot which would be from first time or nee applicants who are not aware of allotment.

The subscription in the HNI category was 330.36 times and it garnered subscription of almost Rs 60,000 crs. The cost of interest for the leveraged investor assuming 6% interest is Rs 22.78 per share. The share needs to trade above Rs 85 if the HNI is to make even token profit in his application.

Bucket Size Shares Applied for Times oversubscribed
QIB 100095000 5550374000 55.45
HINI 30028500 9920235800 330.36
Retail 70066500 755896600 10.79
Employee 3868747 2860600 0.74
Total 204058747 16229367000 73.53

This cost of funding would be the comfort factor for the lucky retail investor who gets allotment.

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