Markets continued to remain volatile but managed to record gains for the week. The BSESENSEX was up 234.38 points or 0.66% to close at 35,657.86 points. NIFTY gained 58.35 points or 0.54% to close at 10,772.65 points. BSEMIDCAP was negative 0.39% while BSESMALLCAP gained 0.17%. Dow Jones gained 185.07 points or 0.76% to close at 24,456.48 points.

The SEBI classification of various categories of stocks according to market cap has been updated. The last or 100th stock in large cap has a market cap of Rs 30,608. The 250th stock which would classify as mid-cap has a market cap of Rs 9,964 crs. Similarly, the 500th market cap company is at Rs 2,927 and the 1000th at Rs 639 crs. The full list is available on the Association of Mutual Funds in India website. The same can be accessed as amfiindia.com. This list would help in tracking how stocks fare and the change in their market cap. The importance of the list is that all schemes of mutual funds investing in equity markets and having classification of various caps (large, mid and small) would have to follow this list closely and adjust their holding accordingly.

There were three issues which listed last week. First was PSU RITES Limited which had an offer for sale and allotted shares at Rs 185. The share on debut day on Monday 2nd July closed with gains of 14.97% at Rs 212.70. It lost ground during the week and closed at Rs 197.15, a weekly gain of Rs 12.15 or 6.57%. The second issue which was also an offer for sale and listed on Monday the 2nd of July was from Fine Organics Limited. The company had issued shares at Rs 783 which closed with gains of Rs 5.08% at Rs 822.80. Like RITES, this also lost ground during the week and closed with weekly gains of 2.92% at Rs 805.90. The third and final listing was from auto component maker Varroc Engineering Limited. This was an offer for sale and the allotted price was Rs 967. Shares listed on Friday the 6th of July and closed with gains of Rs 73.35 or 7.59% at Rs 1,040.35. What is significant to note is that the first two listings which were RITES and Fine Organics lost ground on the remaining four days. Would the same happen to Varroc and the others correct further? Only time will tell.

There are two interesting issues which have cropped up. The first is the pre-IPO allotment made by HDFC AMC to its distributors. The AMC is to tap the capital markets and had allotted lock-in shares to some major distributors ahead of the IPO at a substantial discount. Market grapevine suggests between 25-35% discount to the proposed price band. The regulator SEBI has asked the IPO bound company to cancel the allotment and refund the money with interest before the issue. This raises questions of propriety and discrimination. It also alleges favouritism and effectively remunerating key stakeholders in a backdoor manner. Going forward can these people who were allotted and subsequently cancelled ask for being rewarded in some other manner? Can an investor tell his distributor that as you were not one who was allotted shares, implies you are small and therefore I will not do business with you? Interesting times and the roadshow would be interesting and a little stormy as well.

The second issue is the case involving the IPO from the broking arm of ICICI Bank. ICICI Securities had tapped the capital markets with its offer for sale and the share issue received a muted response. Various schemes of ICICI Prudential subscribed to the issue on the opening day and the third day. SEBI has asked the company to return the application amount with interest of the 3rd day. The question that arises is whether with the cancellation of the application on the third day, does this amount to the issue being under-subscribed? Secondly if there is impropriety alleged for the third day’s application, why similar is not the case of the first day’s application? The issue is that AMC’s schemes are applying for the shares of the sponsor’s company using public money. Further if the issue is undersubscribed, would all investors in the IPO be refunded their money?

Using this same logic, would it be fair to assume that in the case of HDFC AMC issue, various schemes could apply on the first day but not on the subsequent days? Does this mean that on day one each of the schemes could subscribe the entire issue? Is this not unfair? Very clearly interesting times ahead.

With duties and counter duties levied on China and by China on the USA having become applicable, trade wars are on. Steel and aluminium prices have risen sharply in the US. India and China would have a crucial role to play as they are both immediately affected parties in the ongoing dispute. Further they would get sharply impacted with the sanction imposed on Iranian crude oil becoming effective in a couple of months. How China and India react to the situation could have a significant bearing going forward on markets. Crude at current levels is hurting and if it were to rise even 20% from here it would hurt even more.

Markets are volatile and are trying to find a base currently. They are likely to remain volatile and sharp dips would provide buying opportunities.