Sheela Foam Limited which had tapped the capital markets with its offer for sale to raise Rs 510 crs was subscribed. The price band was Rs 680-730. The issue had received very poor response on the first two days but excellent QIB support saw the overall issue getting oversubscribed on QIB response itself. The last day also saw HNI’s oversubscribe their portion 3.35 times. Retail portion remained undersubscribed and total bids were for 0.44 times the bucket size. The number of applications were 28,552 which on number of applications meant that the issue was subscribed 0.21 times. This effectively meant that the average application size was substantially higher at 40.79 shares per application against the lot size of 20 shares. This meant that the value of each application was Rs 29,779.

The issue is through but promoters and merchant bankers would have to come out with new ideas to get the retail interest back post the demonetisation move effective 8th November. The active grey market which saw applications and shares being traded has ceased to happen. The immediate fallout was the non-settlement of accounts of PNB Housing issue. This has caused a complete stoppage of any new transactions and brought the grey market to a standstill position.

Going forward until things normalise, issues tapping the capital markets would have to keep in mind that the issue would have to be subscribed on the strength of QIB’s alone. HNI’s would not be able to borrow as NBFC’s would not lend without a grey market. The cycle would be vicious and therefore the only alternative would be to get the issue subscribed 3-4 times from QIB’s and romp home safely.

Let us see how things pan out in the future, but for now Sheela Foam Limited is through.

November futures expired on a weak note and this series saw a massive loss of 650 points or 7.54%. This was the biggest loss in the calendar year 2016. Friday was the first day of the December series and markets saw a huge rally gaining close to 1.7%. The week ended with the BSESENSEX gaining 166 points or 0.64% to end at 26,316.34 points and NIFTY up 40 points or 0.50% to close at 8,114.30 points.

The 9th November lows on the SENSEX were 25,902.45 and 8,002.25 on the NIFTY. They were retested and broken last week with the levels being 25,717 and 7,916 respectively. The rally from there has been swift and markets have risen about 2.3-2.5% from there. What is significant is we have yet to cross the close of 9th November of 27,252 and 8,432 respectively. Currently these levels look quite far from Friday’s close gone co there would have to be significant news flow to get there.

Markets would look at the central bankers from next week in India and USA. RBI meets on Tuesday the 6th of December for the bi-monthly review where a rate cut is a forgone event. The size of cut would be important where the market is now expecting a cut of 50 basis points against a 25 basis points earlier. The excess liquidity post demonetisation gives RBI the confidence to cut rates deeper. They have also in a move on Saturday asked banks to deposit the cash received with RBI. This effectively means that the CRR has been raised to 100% and banks would earn no interest on the excess cash that they hold. In such a scenario a rate cut of 50 bps looks more or less on the cards.

The markets would certainly welcome a move of this kind. Immediately after RBI, in the following week US Fed meets to decide their policy where they are expected to raise interest rates by 25 bps. One hopes that it finally happens as the uncertainty and impending rate hike is affecting flows globally.

There is an IPO opening on Tuesday the 29th of November from Sheela Foam Limited. The issue which is an offer for sale would be raising Rs 510 crs in a price band of Rs 680-730. The issue closes on Thursday the 1st of December. The company manufactures mattresses under the brand name ‘Sleepwell’ and is the market leader in its segment. It is a well-recognised brand and has good returns and operating efficiencies. India as a market has a very large number of sizes of mattresses unlike the developed markets where it is just four namely single, double, queen and king. Needing to supply mattresses made to order in as quick a time as possible, the company has 11 units in India currently.

Everything about the company seems in order except the fact that current market environment does not seem conducive for an IPO. I may be wrong in my assessment but it would be prudent to wait for the company to list and then commit oneself. Secondly the product it sells is by and large a cash product and the use of cheque or credit card is not prevalent in this sector.

Markets are volatile and are likely to remain so. The pullback has been decent and needs to continue much further for comfort. However that seems unlikely and we are likely to see some more pressure in the latter part of the week. Use any rallies to exit and wait for dips to buy.