It was yet another week of gains for the market with the small-cap and midcap stocks leading from the front. The benchmark indices saw the BSESENSEX and NIFTY gain 1.57% and 1.24% respectively. BSEMIDCAP gained 2.00% while BSESMALLCAP was up 3.09%. I am not sure what to make out of this but every Tom, Dick and Harry stock seem to be gaining 20-50% on a weekly basis if not hitting upper circuit daily.

It’s not that I am against the market rising and these smaller stocks getting higher valuation, but one needs to see fundamentals as well and in most cases, they just are not there.

The primary market saw two issues open and close for subscription. They were Mahindra Logistics which was subscribed 7.90 times and New India Assurance Company Limited was subscribed 1.19 times. In the former it appears HNI’s were not comfortable and hence subscribed the same a mere 2.07 times. In the case of the latter the poor response on listing from GIC RE weighed on the minds of investors.

The coming week sees HDFC Standard Life open its issue for subscription. The company would be offering 29.98 cr shares through an offer for sale in a price band of Rs 275-290 and raise Rs 8,845 crs. The issue on an embedded value basis is more expensive than SBI Life which listed a month ago. SBI Life in turn was more expensive than ICICI Prudential which listed last year in September 2016.

Net effect of the same is that ICICI Prudential trades at a premium currently to its issue price after struggling for the first four months while a month into its listed life is struggling at a discount of over 8%. What does however go in favour of HDFC Standard Life is the brand and the pedigree it brings to the table. It is for an individual to decide what premium over premium he is willing to give for this brand or name.

Primary market which was at the forefront in the last few months seems to be suffering from fatigue and things look like cooling off. The subscription in recent issues is a pointer to that. It may also be that the number of issues from the insurance sector which have all come in a bunch, has killed the interest of investors. It goes without doubt that were big issues, expensively valued and sucked out liquidity from the market. ICICI Lombard about Rs 6,000 crs, SBI Life about 8,400 crs, GIC RE about 13,000 crs, New India about 9,600 crs and HDFC Standard about 8,845 crs. In a span of under two months the insurance sector has mopped up about Rs 46,000 crs. Its huge by any standard.

Markets are looking tired and are getting ready for the inevitable correction. It is indeed tough to predict what would be the cause but there could be mnay reasons for the same. It makes sense to be light in one’s commitment to the market at this time and await opportunities. Trade cautiously.

New India Insurance Company Limited which had tapped the capital markets with its fresh issue of 2.4 cr shares and an offer for sale of 9.6 cr shares was fully subscribed. The price band was Rs 770-800 with a discount of Rs 30 for retail shareholders and eligible employees.
The overall issue was subscribed 1.19 times with the bulk of the response coming from QIB’s. LIC OF INDIA was a big subscriber and helped in getting the issue through. Retail and HNI’s were wary of subscribing on the back of a poor listing of GIC RE a little over a week ago.

While QIB portion was subscribed 2.34 times, HNI portion was undersubscribed at 0.12 times and retail at 0.11 times. The employee quota was also undersubscribed at 0.21 times. With very little HNI and retail subscription, one is unlikely to see any sort of selling pressure in the stock on listing. Certainly people would like to short the share on listing expecting to make a quick buck, but that could be dangerous as institutions alone hold the shares.

Full details of the subscription bucket wise are given below:-

Mahindra Logistics Limited which had tapped the capital markets with its offer for sale of 1,93,32,346 equity shares were subscribed. The issue was in a price band of Rs 425-429. Earlier the company had allotted 57,62,203 shares to 15 anchor investors comprising of 19 entities. The highest allocation of 5,36,112 shares or 9.30% has been made to four investors which include 2 FPI’s and 2 domestic funds.
The issue was subscribed overall 7.90 times with QIB portion subscribed 15.60 times. The HNI portion was subscribed 2.02 times while retail was subscribed 6.10 times. In terms of number of applications, the company received 10.04 lakh applications and the retail portion was subscribed 5.08 times in terms of lots.

The overall response from HNI was disappointing and this stems from the fact that they were quite certain that the issue would not receive triple digit over subscription in their category and hence not be able to get funding on a low margin. Hence the poor subscription. Its time that the regulator looked at the bucket size and took action where if allocation is not allowed to a particular category from undersubscription in that category, do not allow them to bid for that category. The case in point is that QIB portion if undersubscribed cannot be transferred to either retail or HNI. In that case why allow HNI to bid for QIB portion and distort demand. This present system needs to be looked in and this gross disruption in demand be stopped at the earliest.

Full details of shares applied in each category are given below: –