Markets in the week gone by saw gains but surrendered all of it to end in negative territory. They gained on three days and lost on two. In what makes interesting read, they lost on the first day of the week and the last day of the week. BSESENSEX lost 491.90 points or 0.84% to close at 58,152.92 points while NIFTY lost 141.55 points or 0.81% to close at 17,374.75 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.95%, 1.00% and 1.27% respectively. BSEMIDCAP was down 2.02% and BSESMALLCAP lost 3.40%.
The Indian Rupee lost 68 paisa or 0.91% to close at Rs 75.38 to the US Dollar. Dow Jones lost 351.68 points or 1.00% to close at 34,738.06 points. There is huge concern on the rising inflation and the subsequent rate hike which will follow. This led to the Dow Jones losing 500 points on Thursday and Friday. Dow Futures at the time of writing this article do not point to a promising start either. The fall in Nasdaq has been more pronounced than Dow Jones and this could be a worrisome factor for the IT sector in India which has seen a huge rally over the past few months.
In primary market news, shares of Adani Wilmar Limited, listed on the bourses on Tuesday in dramatic style. The company had tapped the capital markets with its fresh issue to raise Rs 3,600 crs in a price band of Rs 218-230. Shares were allotted at Rs 230 and the discovered price was Rs 221 on BSE and Rs 227 on NSE. They rose from these levels and closed at the upper circuit on BSE at Rs 265.20. The week saw the share hitting upping circuits on Wednesday and Thursday and remaining wild on Friday where it moved in both directions to touch Rs 419.90 and Rs 351.10. The share closed the day at Rs 381 which was a loss of Rs 0.80 compared to the previous day’s close. For the week the share gained Rs 151 or 65.65%. The company would be declaring its quarterly results on Monday and would be keenly watched as the PE of the stock has moved significantly from around 35 times at the time of the IPO to over 60 times considering the price rise and the dilution. Expect a volatile day for the stock on Monday.
It’s been six weeks since the calendar year 2022 has begun and we have seen just three primary issues hit the market so far. While two have listed, the third from Vedant Fashions Limited would list in the coming week. The filing of LIC DRHP was marginally delayed and done on Sunday evening.
The size of the proposed offer for sale is 5% of the equity and would be for 61.62 cr shares. The issue would have a reservation of up to 5% for employees and up to 10% for policy holders. There would be a discount offered to employees and policy holders. The retail portion would be 35% of the issue after making provision for the above reservations for employees and policy holders. The Retail portion would be 9.40 cr shares. The embedded value is Rs 5.40 lac crs and if one takes 2.5 to 3 times the proposed valuation of the company it would be in the region of Rs 13.5 lac crs to Rs 16.2 lac crs. Taking a midway price of this value, the share would be priced around Rs 2,350. This is for a Rs 10 paid up share and would compare with HDFC Life, SBI Life and ICICI Prudential who are all Rs 10 paid up shares.
Some data points about the size of the company will help to understand and gauge the behemoth LIC. The company has 28.53 billion policies in force. It issued 21 million policies in the last fiscal. It has a total AUM of 39.74 trillion which is more than three times the total of all other Life Insurance players put together. This AUM of LIC is 1.1 times the AUM of the entire mutual fund industry. Trying to gauge the issue size in Rs it would be around Rs 70,000-75,000 crs for 5% of the company.
RBI in its monetary policy kept key rates unchanged but it appears that the next meeting in April would see an increase in the lending rates signalling the end of stable unchanged rates. By the time RBI holds it meet even the US FED would have hiked interest rates while Bank of England has already done so.
The markets have been moving in a broad band with the range tending to move downwards and indicating an advance signal that things could turn really bearish in the coming months. The range on BSESENSEX which was 59,600 on the higher side or resistance has moved down to 59,000 now while on the support side the same has moved from 57,050 to 56,400. Similarly, on NIFTY these levels are at 17,800 down to 17,650 and on the support side from 17,000 to 16,800. These levels are indeed important and violation in either direction would indicate the trend being changed. If the upside is violated, we could see a sharp and swift rally, while if the downside is violated, we could see new lows. and a swift downside move. Gut feel says that we are more bearishly inclined than bullish.
Factors affecting the markets include global markets particularly the way Dow Jones is behaving, the fact that FII’s continue to remain sellers and also the technical indicators or charts and the way they are shaping up. Finally, the result season for the quarter ended October-December 2021 is almost over. Results have been good in parts and not enough to change the entire sentiment about earnings. An interesting point is the way markets behaved on Friday, where they opened with a downside gap and then traded in a narrow band. However, FII’s were neutral on the day and their gross turnover was Rs 19,000 crs which is a substantial number compared to normal. It’s a different matter that they bought shares worth Rs 108 crs.
Coming to the markets in the week ahead, expect them to remain volatile and under pressure. Every rally should be used as a selling opportunity and investors must create a war chest and keep money on hand for buying when opportunity presents itself. Though there would be dips, only really large dips and falls should be chosen to buy into. Trade cautiously and be greedy when using your cash to buy stock.
