Markets opened strong on expected lines but corrected thereafter. They lost ground on three of the four days. BSESENSEX lost 361.07 points or 0.99% to close at 36,025.54 points. NIFTY lost 126.45 points or 1.16% to close at 10,780.50 points. After a choppy week, Dow managed to close with marginal gains of 30.85 points or 0.12% at 24,737.20 points.
The Indian Rupee remained unchanged at Rs 71.18 to the US Dollar. Dow Jones had a volatile week but managed to eke out gains of 30.85 points or 0.12% to close at 24,737.20 points.
The week was full of company driven news. It began with Sun Pharma clearing the air about the concerns on the whistle blowers’ allegations. Sun Pharma shares were up post the same and gained Rs 31.45 or 8.05% to close at Rs 422.20.
Yes Bank announced its third quarter results and the new MD and CEO in Mr Ravneet Gill, ex CEO Deutsche Bank India operations. The share was up Rs 21.40 or 10.79% at Rs 219.65. During trading on Friday it had touched a high of Rs 236.30 on short covering. Volume on Friday was huge, and one saw people covering their positions. The share saw profit taking at higher levels.
Maruti Suzuki posted a poor set of numbers on account of lower sales and the share was hammered. It lost Rs 837 or 11.38% to close at Rs 6,516, its lowest value in about 20 months. The impact of this performance would also be felt on other auto companies and auto ancillaries. One is seeing a slowdown in almost all segments of autos in the country.
Subash Chandra sent an open letter to stake holders at the end of the day (Friday) after the parent company and group company share prices were hammered and flagship company Zee Enterprises lost Rs 120.80 or 27.45% to close at Rs 319.35. Intra-day they had touched Rs 288.95. The letter asks stakeholders to be patient till the stake sale happens and Subash Chandra admits to having made wrong decisions in the course of the business particularly in respect of the D2H acquisition and some other businesses.
CBI has filed FIR’s against ICICI Bank Chanda Kochhar, her husband Deepak Kochhar and V N Dhoot of Videocon.
All of this plus the fact that it is result season for the third quarter October to March on kept markets busy and on its toes.
The week ahead has January futures expiring on Thursday the 31st of January. The current level of the cash value of Nifty at 10,780.50 points is as flat as a doormat as the same is up 0.70 points or 0.01% for the series.
Budget would be presented by the acting Finance Minister Piyush Goyal in the absence of Arun Jaitley who is unwell. This budget would be followed by a no holds barred general election in April and May. Expect the unexpected in the budget as the ruling party opens the purse strings to woo back the voters they have lost in the last year or so. A farm scheme on the lines prevailing in Telangana and announced recently in Orissa, where based on the land holding, there is a direct transfer before the sowing season into the farmers account. An increase in tax-free limit from 2.5 lacs to 3.5 lacs if not 5 lacs. Also benefits for the MSME and SME segments in ease of doing business. There would be other announcements and of course the customary proposal of expenses for the first quarter.
These measures are for the common man and no political party would be able to oppose the same. The proposals would be ratified by the government of the day in May 2019, but they would be proposed now. It would be the same case as the reservations bill which was proposed and passed in under 48 hours. Anyone opposing the move, inside or outside parliament would face the wrath of the voter. There are enough precedents of this being done by previous governments as well.
After a hiatus of almost five months we have a primary issue on the main board. (There was a small issue of Rs 23 crs in the current week just ended from Xelpmoc which was subscribed.) Chalet Hotels Limited is tapping the markets with its fresh issue to raise Rs 950 crs and an offer for sale of 2,46,85,000 shares in a price band of Rs 275-280. The issue opens on Tuesday the 29th of January and closes on Thursday the 31st of January. While the bankers to the issue believe that this issue would revive the capital markets, the pricing of the same does not make one believe so. The EPS of the company for the year ended March 2018 is Rs 1.35, which makes the price earning multiple between 151.10-155.85 times. While PE may not be the best method, if one were to look at NAV, the same is Rs 27.32 as of 30th September which means the issue is being offered at just over 10 times price to book. Yet another method is EV/EBITDA where the same is just about 20 times. The market capitalisation at the top end of the issue price pre-money would be Rs 4790.66 crs. Post issue the same would increase to Rs 5740.66 crs. The hospitality industry has not made money for investors in a decade. If a company from the same space must revive the primary market, the valuation should be attractive and not more expensive than the listed players. I believe one should look at the issue after price has been discovered post listing.
The two comparable companies namely Indian Hotels Company and E I Hotels have had a poor performance. In the last 12 years share prices of Indian Hotels adjusted for rights and stock split have moved from Rs 126 to Rs 137. Shares of E I Hotels have in the same period moved from Rs 92 to Rs 179. While returns in Indian Hotels are hardly there, in the case of E I Hotels it is less than the cost of bank interest. Looking at the above, while the business model is different and the company has its best time yet to come, there is nothing on the table for the investor. Secondly with the intention of revival of primary markets, one expects that there would be something on the table for risk takers, but that is completely missing.
With expiry, budget and result season on, expect heightened volatility in the coming five days of the week. The best part is that expiry would have happened before the budget.
