It’s interesting to note that when all the action in a particular week happens on the last trading session of the week, the following week sees action in the opposite direction. This time around the same is likely to happen as well. BSESENSEX gained 1,289.57 points or 1.59% to close at 82,408.17 points while NIFTY gained 393.80 points or 1.59% to close at 25,112.40 points. BANK NIFTY gained 725.50 points or 1.31% to close at 56,252.85 points. It would be interesting to note that of the 1,289 points gain for the week, 1,046 points or 81% came on Friday for the BSESENSEX. Similarly, of the 393 points, 319 points or 81% of the gains on NIFTY came on Friday. The geopolitical scenario since trading closed for the week in India has undergone a sea change to warrant any up moves on Monday. 

US President who was aspiring to be nominated as Nobel Peace prize winner and falsely claimed to have brokered peace between India and Pakistan in their four day skirmish, launched an attack on Iran’s nuclear facilities. Even if he is at some point of time able to bring Russia and Ukraine to the table and sign a declaration of peace, his dream of emulating President Obama who won the 2009 Nobel Peace Prize stand shattered. This would also delay the possibility of 25,150-25,200 on NIFTY being violated and sustained. Effectively the markets have been lulled into yet another round of building steam, momentum and making the dash to cross this hurdle, which gets even stronger as attempts are made and fail. 

Apologies for not giving details on market movements as my computer crashed and I am getting permanent alternate arrangements made. In the meanwhile am making good with borrowing a standby laptop just to write the article. Sincerest apologies to all my readers for the same. 

The week is again full of action on the primary markets front. We have as many as four issues opening during the week. The biggest of them is from HDB Financial Services Limited, which consists of a fresh issue of Rs 12,500 crores. The issue would open from Wednesday the 25th of June and close on Friday the 27th of June. Currently, HDFC Bank owns 94.32% of the company’s shares while 5.44% are owned by the public which has come through stock options. The remaining 0.24% are held by employee Trusts. The price band is Rs 700-740. 

Interestingly, until a week ago, shares of HDB Financial were traded in the unlisted markets at a price of Rs 1,200 a share. The share issue band has come as a surprise to this segment of people and is a body blow to the unlisted markets, as people took it for granted that the traded price would be the issue price. Kudos to the company, its management and merchant bankers who are as many as twelve in number to stick to basics and fundamentals. The restated diluted EPS of the company for the year ended March 25 is Rs 27.3. Based on this EPS, the PE multiple is in the band of 25.6-27.1. The price to book for the company is at 3.72 which is marginally higher than the average of 3.6 times of the peer set but lower than the highest at 5.9 times. 

The biggest risk factor that the company has is that going forward there could be a sharp dilution in the promoter’s shareholding if draft RBI circular issued in October 24 is implemented. The short of this circular states that the company cannot offer similar services and products as those offered by the bank. In this case as much as 92.54% of the revenue comes from services which are similar to what HDFC Bank offers. If the draft circular becomes law, the company going public would have to ensure that the shareholding of the promoter is reduced to less than 20% or as stipulated and the time frame would be 2 years, if it wants to continue the business of doing what it does.

Besides the above the performance of the bank has seen a decline with profits declining, quality of assets seeing stress and leading to some deterioration in key KPI’s. In the year of going public, the company has also reduced the provision coverage ratio. The AUM of the NBFC, going public is Rs 1.06 lakh crores. The companies who are peer set competitors include names like Bajaj Finance Limited, Sundaram Finance Limited, Shriram Finance Limited, Cholamandalam Investment and Finance Limited, Mahindra & Mahindra Financial Services Limited and L&T Finance Limited. A small point here would be in order to highlight the big risk mentioned, that none of the competitors have a bank which is part of the group or therefore the promoter of the NBFC. 

There are three more companies IPOs opening during the week which include real estate player, Kalpataru Limited, Steel maker Sambhv Steels Limited and industrial gases manufacturer Ellenbarrie Industrial Gases Limited. More on these issues subsequently. 

Coming to the action in the Middle East where USA has bombed Iran to support the lone ranger Israel. Iran has closed the Strait of Hormuz, which will make shipping routes longer and more expensive. Oil will become volatile and tend to move upwards as geo-political uncertainties increase. Not that it matters, Pakistan is making noise about the Indus water as it realizes how the shoe pinches. They are wanting to talk about water but not terrorism, as they deny they have any terrorists in their country. Things on the geo-political front will keep world markets on tenterhook and it may be a good idea to lie low for a couple of days. In any case after the rally on Friday, one would have waited for a pullback before taking fresh positions. 

The key resistance for the market would be levels of 25,150-200 and this would have to be violated, broken upwards and sustained. On the support side levels of 24,500 would act as solid support. God forbid, this were to break we have support at 24,000 points. 

For the next couple of days concentrate on four primary issuances in the markets staying away from secondary markets. A food for thought would be to analyze the unlisted price of NSE and the fact that many investors have got caught in some scams involving purchase of such shares at Rs 100 cheaper and now looking for the seller who has vanished with the money in his bank account. In light of what happened in the case of HDB, this would be time well spent. 

Apologies once again for not providing complete data points this week. 

Trade cautiously.

Markets have a way of testing the patience of people and this week was a great example of that. We crossed the level of 25,150 points on NIFTY for each of the first four days of the week but failed to close on any day above 25,150 points. Finally they succumbed  to pressure which came from the Israel-Iran skirmish as of now, but has the potential to become something much bigger if not contained. USA bombed Yemen and the Middle East is boiling. Crude which was hovering around 60-62$ has again risen quite sharply to around 74-75$ and could be another surprise as the war in its fourth day gets nastier and ugly. On a side note, Ukraine -Russia war is like the never-ending soap opera which continues on and on. 

What has all of this done to our markets? They seemed to be on the verge of a breakout and faltered badly. While like I mentioned earlier four consecutive intraday moves past 25,150 points on NIFTY and one touching 25,222 points, not one close above 25,150 points. Friday, the last day of the week saw NIFTY fall intraday to as low as 24,473 points before recovering smartly to close at 24,718 points. In all this turmoil we saw the week end with BSESENSEX losing 1,070.39 points or 1.30% to close at 81,118.60 points while NIFTY lost 284.45 points or 1.14% to close at 24,718.60 points. BANKNIFTY lost 1,051.05 points or 1.86% to close at 55,527.35 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.14%, 1.14% and 1.08% respectively. BSEMIDCAP lost 0.84% while BSESMALLCAP lost 0.13%. The bright spot was BSEIT which gained 2.72%. Call it index balancing or a sign of things to unravel with June quarter results due in a fortnight’s time, not sure. Markets lost on three of the five trading sessions and gained on two. 

The Indian Rupee was under pressure and lost 44 paisa or 0.51% to close at Rs 86.08 to the US Dollar. Dow Jones lost on one trading session and gained on two. On the remaining two sessions it was flat with net change of a single point. Dow lost 565.08 points or 1.32% to close at 42,197.79 points. 

The primary markets seem to be getting active again. The issue from Oswal Pumps Limited has tapped the capital markets with the same having opened on Friday the 13th of June. The issue would close on Tuesday the 17th of June. The issue consists of a fresh issue of Rs 890 crores and an offer for sale of 81 lakh shares in a price band of Rs 584-614. The PE band for the company is 59.47-62.53 times its earnings of Rs 9.82 for the year ended March 24. 

The company manufactures solar-powered and grid connected submersible and monoblock pumps, electric motors comprising induction and submersible motors as well as solar modules which are sold under the ‘Oswal’ brand. They are actively engaged under the PM KUSUM YOJANA, under which turnkey solar pumping systems are installed at the farmers fields. Bulk of the revenue of the company has come under this scheme and it is over 75% in FY24 and 85% in nine months December 24. The company has emerged as one of the largest suppliers under the scheme. 

Revenues in year ended March 24 were at Rs 758 crores which have risen to Rs 1,065 crores in the nine months period. Profits for the whole year were at Rs 97.66 crores which have risen to Rs 216.70 crores in the nine months. EPS has risen from Rs 9.82 to Rs 21.77. The company would be increasing its capacity for pumps from 2 lakhs to 5 lakhs. 

The increase in sales in the short period is primarily from the fact that they have started supplying under the government scheme the full package which includes the pump, controls and the solar panel and infrastructure which increases the cost of the whole package, compared to just the pump earlier. Margins of the company are substantially higher than its competitors as they have done backward integration to almost manufacturing everything other than basic raw materials. The advent of solar has made a sea-change in the lives of farmers and one can expect these welfare schemes to continue and help the company achieve faster and sustainable growth. Investment in the company is warranted with a medium-term perspective. 

There is likely to be a flurry of activity in the primary market with half a dozen IPOs planned in the next 10 days. These would be companies who want to tap the markets with December 24 numbers, for whom the deadline would expire on 30th June. 

Coming to the markets in the coming week, expect markets to keep global cues in mind and react accordingly. The G-7 would be holding its annual event in Canada this time where the agenda is trade talks but would certainly discuss geo-political tensions in different parts of the world. Key resistances for the markets continue to remain the taking out of 25,150 and closing above it for NIFTY. Key support becomes Friday’s low of 24,473 on NIFTY and 80,354 on BSESENSEX. If these were to break, next levels would be at 24,000 around on NIFTY and at 79,000 points on BSESENSEX. 

The strategy would be to refrain from doing trade unnecessarily. Understand that many of us are compulsive and need to do something. You may trade in shares that you own and do intraday trades where you may sell and buy or buy and sell. The next few days are crucial as Iran is nuclear powered and has oil fields as well. Both of these are targets of Israel and anything could happen. 

Trade cautiously.