The markets were on a roll last week in the short four day trading week. The better than expected andresounding win in India’s largest state Uttar Pradesh had pollsters scratching their heads and saw markets rocking. The BSESENSEX is less than one and a quarter per cent away from its all-time high while NIFTY hit the same on opening post the long weekend.
The BSESENSEX gained 702.76 points or 2.43% to close at 29,648.99 points while NIFTY gained 225.50 points or 2.52% to close at 9,160.05 points. There were no sectoral losers during the week while the top gainer was BSEREALTY up 5.34% followed by BSEFMCG at 4.70%. In individual stocks one saw Tata Steel gain 7.32% followed by SAIL 7.09%, Hero Moto 7.06% and ITC 6.82%.
The Indian Rupee recorded sharp gains up Rs 1.14 or 1.71% to close at Rs 65.46 to the dollar. US Fed increased interest rates by 25 basis points on expected lines and the reaction to it saw US and global markets rising. The expectations is that if the world’s strongest economy is improving it is positive for the world as a whole. The Dow Jones however ended flat or virtually unchanged gaining a mere 11.64 points or 0.06 % to end at 20,914.62 points.
The present rally began on the 26th of December 2016 and is roughly three months old. In this rally the BSESENSEX has moved from a low of 25,807 and gained 3,841 points or 14.88% to reach a level of 29,648 points. Similarly NIFTY began from a level of 7,908 and gained 1,252 points or 15.83% to reach 9,160.05 points. Markets have gained the customary 13-15% in a mere 3 months. This rally has been quite swift and a large part of the same happened when there was disbelief. Further if one considers the rally from just before the announcement of 8th November we have gained roughly half the level after first correcting and then gaining.
There is plenty of action in the coming week as far as the primary market is concerned. There are two issues opening and closing during the week. Further the mega issue of this year Avenue Supermarts Limited would be listing on Tuesday the 21st of March. The company had launched its issue to raise Rs 1,870 crs and garnered subscription worth almost Rs 1.40 lakh crs with the HNI portion subscribed 282 times.
The first issue which opens on Monday the 20th of March and closes on Wednesday the 22nd of March id from C L Educate which is planning to raise though a combination of a fresh issue and offer for sale between Rs 238-239 crs in a price band of Rs 500-502. The company is into the space of education and provides technology enabled education products, services, content and infrastructure.The company had generated revenues of Rs 296.68 crs in the year ended March 2016 and Rs 160.69 crs in the six months ended September 2017. The profit after tax was Rs21.67 crs and Rs 12.91 crs respectively. This translates into an EPS of Rs 17.71 and for six months ended September 2016 on an annualized basis to Rs 21.54. The PE multiple based on this is 28.34 times for March 2016 and 23.30 times based on six months annualised basis. This sector has not generated returns for the investor and some past examples of issues in this sector are Career Point, Educomp, Everonn and M T Educare. It makes sense to avoid the issue currently and look at it once the schools and college are sold and the money realised. Once this is done the returns from the investments would increase and the return on capital improve significantly as well.
The second issue is from Shankara Building Products Limited which opens on Wednesday the 22nd of March and closes on Friday the 24th of March. The issue comprises of a fresh issue to raise Rs 45 crs and an offer for sale of 65.21 lakh shares. The price band is Rs 440-460 and the company would be raising between Rs 332 crs to Rs 345 crs. The company is one of the leading organised retailer of home improvement and building products company in India. As of 31st December the company operated 103 stores across 9 states and one territory. The company being headquartered in Bengaluru is very strong in the five southern states and one union territory. The company has three verticals which are Channel trade, Enterprise sales and retail sales with retail enjoying the highest margins. The EPS based on March 2016 earnings would be Rs 18.88 translating into a PE ratio of 23.30-24.3. If one were to annualise the nine months results the EPS would be Rs 25.32 and the PE band 17.37-18.76.
The focus of the company would be to grow the retail business and spread itself going forward. To expect the present 103 stores to grow by about 15-20 every year would be a very reasonable number. The same store growth in sales is about 28%. This company looks attractive from an investment perspective and even more so considering the government’s initiative for housing and affordable housing in particular. Shankara is present in a very large range of products which go into home making and home improvement. This gives it the size of opportunity and therefore becomes an interesting play.
The week ahead would be volatile and a new high on the BSESENSEX is certainly on the cards. Enjoy the rally but book profits as the situation demands.
