Markets were on a roll and the BSESENSEX made a new lifetime high during trading last week. BSESENSEX gained 883.77 points or 2.42% to close at 36,541.63 points. NIFTY gained 246.25 points or 2.23% to close at 11,018.90 points. NIFTY is within a stone’s throw of the lifetime high made on 29th January 2018 of 11,130.40 points.
The midcap and Smallcap indices are far away from those levels and are 19% and 25% lower from the January highs. This shows the underperformance of these sectors this time around. Dow Jones too had a spectacular week and gained 562.93 points or 2.25% to close at 25,019.41 points.
With this strong show the BSESENSEX has gained over 1,100 points in July while NIFTY is up almost 400 points. The July phenomenon when markets have gained over the last eleven years looks like repeating itself for a twelfth consecutive year. The rally was quite narrow with a handful of stocks leading the charge. Reliance industries which is a heavyweight in the benchmark indices led from the front and was up Rs 120 or 10.97% at Rs 1,097. Such a big move in this scrip has happened after a long time and was instrumental in giving the momentum to the market. Other stocks to contribute to the rally included the HDFC twins, Hindustan Unilever, TCS and Infosys. The same set of heavyweights led the rally.
In the week to come one can expect the rally to become broader based and more stocks to participate. Further it would be appropriate that for the rally to sustain for a fortnight there has to better breadth and not just a few select stocks participating.
US President Donald Trump has launched another broadside on China with yet another set of import duty on Chinese goods. The US consumer gets many of his daily use products from China and when their purchase starts hurting the common American there would be a problem for Trump. So far as the duties are on industrial products which do not affect commonly things would be manageable.
There is an IPO in the week ahead which opens on Wednesday the 18th of July and closes on Friday the 20th of July from TCNS Clothing Company Limited. The issue opens on Wednesday the 18th of July and closes on Friday the 20th of July. The price band of the issue is Rs 714 to 716. The company through an offer for sale where the PE investor and the promoters, are selling 1,57,14,038 shares. The company owns three brands namely W, Aurelia and Wishful and caters to women. It has different segments and price points. The bulk of the sale comes from its ethnic brand. The company reported a top line of Rs 849.16 crs and a net profit of Rs 97.76 crs for the year ended March 2018. The EPS for the year on a diluted basis is Rs 15.36. The price earnings multiple at which the share is being issued is at 46.48 to 46.61 times. This valuation is certainly not cheap by any standard if compared with the listed player like Kewal Kiran. It is cheaper when compared with Page Industries, Aditya Birla Fashion and Future Life Style. The difference between these companies is their size in terms of revenues which is many times more than that of TCNS. The fact that this is an offer for sale and no money would go to the company also adds to the expensive tag.
Post the offer of sale, the promoters would hold about a third of the company. Take your call on subscribing to the issue or not.
Markets are currently in an aggressive mood and are likely to rise in the immediate short term. Fundamentals do not exactly support the rise but would take a backseat and allow the momentum to take them forward. The key to the rise is the wider breadth that should happen. If that does happen we could see markets making newer highs before they top out. Suffice to say when one enters new territory or unchartered waters, the risk rises as much, and this is exactly what is now happening. Trade cautiously and whenever one feels that the rally has done enough, exit your position. Do not try to short the market as that could be riskier and all gains on going long could be lost on shorting.
