The week gone by was volatile and saw markets gaining on three of the five trading days. It also had one day of loss where BSESENSEX lost 354 points while NIFTY lost 87 points. The net weekly change was minor losses with BSESENSEX losing 95.12 points or 0.24% to close at 38,767.11 points while NIFTY lost 22.50 points or 0.19% to close at 11,643.45 points. The broader indices saw the BSE100, BSE200 and BSE500 lose 0.14%, 0.17% and 0.15% respectively. BSEMIDCAP lost 0.53% while BSESMALLCAP was down 0.16%.
The Indian Rupee gained 7 paisa or 0.10% to close at Rs 69.15. Dow Jones was also virtually flat losing 12.69 points or 0.05% at 26,412.30 points.
The week ahead has two trading holidays on Wednesday for Mahavir Jayanti and on Friday for Good Friday. These two holidays are interspersed with the second round of polling on Thursday. These holidays would break market momentum. On the flip side there could be sharp movement on three different days depending on global cues. These could be Monday, Tuesday and Thursday.
Results of TCS and Infosys were announced on Friday the 12th of April. While the results from both the companies were on expected lines, those of Infosys seem to pale in comparison. While TCS reported revenue growth of 19% and a profit growth of 21.9%, Infosys reported revenue growth of 17.2% and an EPS degrowth of 0.3%. Expect price movement in the two counters on similar lines where shares of TCS rise while Infosys remain subdued. Both the results were announced post market closure on Friday. The guidance from Infosys was just about flattish with the company guiding for revenue growth of 7.5% – 9.5%.
In primary market news shares of Rail Vikas Nigam Limited listed on Thursday and gained 75 paisa or 3.95% during the week. In the week ahead, shares of Metropolis Healthcare Limited would list on Monday the 15th of April while Polycab India Limited, the wires and cable maker would list on Thursday.
Metropolis Healthcare would debut with a fairly unheard-of phenomenon where the promoter even after an offer for sale would have his shares pledged on day on of listing. The promoter owns roughly 58% of the company which at IPO price was valued at Rs 4,400 crs. Post the offer for sale and retiring some shares, the net debt would still be Rs 400 crs. This would be on sale after 13 months of listing as there is a contract where the upside of the market price and issue price in a given formula would flow partially to the promoters. They would therefore ensure that no sale happens in 13 months and the price moves up to derive maximum advantage. The pricing of the issue was very aggressive and will face pressure on listing.
Readers would recall that SEBI had issued a show cause notice to Ajay Bijli and PVR in a similar case involving the two and PE investor Multiples Asset Management and L Capital. The understanding was that they would share profits beyond a specified amount in a pre-determined ratio. The company settled the case through consent terms and paid Rs 20.40 lacs as fee by the promoter Ajay Bijli and 2,80,500 by the company PVR.
The issue being raised in the case of Metropolis is that they have entered into two agreements, one which was completed on the successful allotment of the IPO and the second to happen on the end of the 13th month from the listing of the IPO. The question that everybody was asking was why the issue was so steeply valued gets automatically answered because the promoter had a very big upside to gain with the higher valuation. Here the difference between the predetermined valuation of Rs 2,600 crs and the IPO valuation of Rs 4,400 gets factored. The partially exiting PE investor would be selling shares at a price to capture this difference to the promoter.
Here again one understands that all shares of other than promoters are locked in once the IPO opens. Not quite sure about the window of post allotment and pre listing being available. It sure is a grey area. If this goes through unchallenged, would open up a huge window for manipulation by promoters, PE investors and ever obliging and willing merchant bankers.
The second issue from Polycab India Limited would list on Thursday the 18th of April. The issue consisted of a fresh issue of Rs 400 crs and an offer for sale of 1.75 cr shares. The issue received exceptionally strong response from all quarters and was oversubscribed 52 times with QIB portion over 93 times and HNI portion subscribed 110 times. Funding has happened in this issue after the NBFC crisis for the first time and the fall-out has been that interest rates are up 50% at 7.5% interest. Cost of funding is between Rs 85 and 86 and share will have to open at Rs 624 or higher for leveraged investors to make money.
The short week would be super volatile and there would be sharp intra day movements. Use rallies to sell and dips to buy. With interested buying by FII’s and results of the elections due on 23rd May, the rally still has legs.
