The week gone by was topsy turvy but showed signs of consolidation after the sharp fall witnessed over the previous week. Markets gained and lost and ended with two days of gains and three days of losses. BSESENSEX lost 307.09 points or 0.38% to close at 81,381.36 points while NIFTY lost 50.35 points or 0.20% to close at 24,964.25 points. The broader indices like the BSE100, BSE200 and BSE500 gained 0.01%, 0.20% and 0.30% respectively. BSEMIDCAP was up 1.11% while BSESMALLCAP gained 1.17%. 

The Indian Rupee lost ground and was down 9 paisa or 0.11% to close at Rs 84.06 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two sessions. It was up 511.11 points or 1.21% to close at 42,863.86 points. 

RBI in it’s bi-monthly meeting kept policy rates unchanged. This was the 10th consecutive meeting where rates were kept unchanged. The stance at the meeting is now hinting that there could be some softening of rates in the December 24 meeting if inflation remains at similar or lower levels. 

FPIs have in the month of October sold equity worth Rs 58,711 crores so far. It’s a massive number and explains the fall in the market as well. China was expected to announce some stimulus over the weekend which has not met market expectations. One may expect that post this event the massive selling witnessed in Indian markets may take a back seat. If this were to happen, domestic funds who are not only flush with funds but have been matching FPI selling with buying, may actually press the pedal and buy aggressively. If this were to happen, one may see the markets seeing some buying and helping them regain partially lost ground. 

The week ahead sees the largest ever IPO hit the market. The issue from Hyundai Motor India Limited is tapping the capital markets with its offer for sale of 14,21,94,700 equity shares in a price band of Rs 1,865-1,960. The issue would garner Rs 27,870 crores at the top end of the price band, way above what has been talked about from the time that the company planned and filed its DRHP.  This number hovered around Rs 24-25K.

The fact that the grey market premium was being quoted in the region of Rs 700-725, brought a big smile on the faces of the merchant bankers and the promoters of the company, and they felt it appropriate to charge higher from the issue which is entirely an offer for sale issue. In doing so, they achieved two things. Firstly, the issue size went up by about Rs 3,000 crores. Secondly, the premium of around Rs 700 is now way below Rs 100. Clearly the market in what is being termed as the largest issue ever, investors expect to have listing gains and if the company thinks that everything should be earned by them, they are surely mistaken. 

The anchor would be available late on Monday night and it would be very important to note whether the same is FPI driven or there is a fair share of domestic institutions and participation as well. 

Coming to the company, Hyundai hovers between the second and third largest automobile manufacturer in the company after Maruti and Tata Motors. They have a single location plant currently at Chennai and have a capacity of 8.24 lakh cars per annum. They are in the process of setting up a new plant at Talegaon near Pune which would have an initial capacity of 2.5 lakh cars. The plant is running at near optimum capacity and roughly 80% of its production is sold domestically while 20% is exported. The company enjoys better margins than Maruti, simply because Hyundai never made entry level cars like Maruti-800, Alto and Wagon-R which were the mainstay for Maruti in the initial years. This helps Maruti capture the lion’s share of market but affects the margin. In the case of Hyundai, they don’t have such products and therefore earn higher margins. 

With lack of capacity and new plant about 15 months away, the company will struggle with growth and market share. The PE multiple is comparable with Maruti but the discount not sufficient considering they are the market leaders and dominant players. Finally, there is a global discount that Korean products are available at when compared with Japanese products. 

Considering the present pricing, lack of adequate capacity, higher pricing and sharp drop in grey market premium, the issue looks expensive from the listing day and short term prospects. Readers should invest only for the long term and may take that call even after listing. 

Coming to the markets in the week ahead, we seem to be trading in a broad band of 24,700-750 on the lower side and 25,300-400 on the upper side. Similar levels on the BSESENSEX are at 80,650-800 points on the lower side and 82,450-750 points. Markets need to break out of the upper range for a meaningful rally and a breakdown from the lower level if we are to fall further. The course of direction will be decided by the upcoming quarterly results and what FPIs do in the coming days. As a strategy it makes sense to move to the large cap stocks as the volatility there is better contained and you have options to hedge yourself. 

Trade cautiously.

Markets were hit badly by the FPI selling in Indian markets and they moving in the short term to investing in China. The fall which was witnessed for the 5th consecutive day shook markets quite severely. We lost on all four trading sessions of the week and this fall began with the onset of October series. BSESENSEX lost 3,883.40 points or 4.54% to close at 81,688.45 points while NIFTY lost 1,164.35 points or 4.45% to close at 25,014.60 points. The broader markets saw BSE100, BSE200 and BSE500 lose 4.32%, 4.21% and 3.94% respectively. BSEMIDCAP lost 3.20% while BSESMALLCAP was down 2.01%. 

The Indian Rupee was under some pressure with escalation in the Israel-Iran war. Crude has been rising and one wonders what could lead to the end of this war. The first anniversary will fall on the 7th of October, two days away and one can only hope that things don’t get any nastier. The Rupee lost 26 paisa or 0.31% to close at Rs 83.97 to the US dollar. Dow Jones gained on three of the five sessions and lost on two. It closed virtually flat having recovered the losses with a sharp rally on Friday. Dow closed with a flattish weekly gain of 39.75 points or 0.09% to close at 42,352.75 points. 

The primary markets are getting ready for the large issue from Hyundai and Afcons to hit the market in what could be termed as Dusshera-Diwali dhamaka. The roadshow for Hyundai is likely to be held later during the week with the issue opening and closing in the following week. Last week one saw the listing of Diffusion Engineers Limited on Friday.  

There is an issue from Garuda Construction and Engineering Limited which would open on Wednesday the 8th of October and close on Friday the 10th of October. The issue consists of a fresh issue of 1.83 crore shares and an offer for sale of 95 lakh shares. The price band is Rs 92-95. It is a little surprising that with a 5% price band being mandatory by SEBI, how this issue just has a three-rupee difference between the lower price and the cap price. Strange are the ways that some companies and their merchant banker works.

During the four-day week, FPIs sold cumulatively over Rs 40,000 crores in the cash market. This was in the new October series. There sales in the futures segment was separate and larger, but difficult to understand as options also happen. There selling was matched almost 80% with domestic institutions chipping in with net cash purchases of Rs 32,000 crores. 

What does the week ahead hold in store for us is the key question on everyone’s mind. While the fall has been huge and shaken all those optimists who believed that every dip in the market is a buying opportunity, the fall does throw up interesting opportunities as well. This fall has shown the vulnerability and at the same time, the correction has removed some froth in the valuations. The result season is upon us and if corporate India obliges with better results, everything would be taken in the market’s stride. A note of caution is the fact that over the last nine quarter’s results have not lived upto expectations and the last one saw the slowest growth. The expected improvement is a tall order and performance needs to be of top class for expectations to be met.  

In yet another measure to control SME, the exchanges have introduced ASM measures on the segment with effect from Tuesday. This effectively means that price movement on SME stocks where doubling and then trebling was the norm would not happen with the same amount of certainty. They would be subject to the same mechanism as prevalent or applicable on the main board. On a stock coming under the ASM net, they would be subject to trade-to-trade restrictions with circuit filters of 2% and 5%. Its time to relook at your SME portfolio and at least separate the wheat from the chaff. 

Coming to the week ahead, expect markets to be under pressure in the early part of the week. The fall has been big and has shaken many. While we need a recovery, for it to be meaningful it also needs to be reassuring. This means that a lot of time (couple of days) would be spent in first the initial reversal from negative to positive and then actually the rise, regaining the fall we witnessed of over 4,000 points on BSESENSEX and 1,200 points on NIFTY. 

The strategy would be to play with the ear to the ground and look at international cues from Israel-Iran and how China and its markets behave post the holiday season. They have already gained over 21-22% over the last few days. It would make sense to look at large cap stocks in the initial phase as maximum and fastest recovery would happen there first before spreading. Further, the small cap has not actually participated in the fall as yet. While cherry picking may be done, we are still sometime away from where one can go full steam into buying the markets. 

Trade cautiously.