Markets gained on four of the five trading days last week but was able to manage small gains only. The BSESENSEX was up 178.47 points or 0.50% to close at 35,622.14 points. Markets are slowly realigning to the SEBI mandate on midcap and small cap holdings of mutual funds. While quite a bit has been done more is yet to follow.
The US FED has raised interest rates by 25 basis points and indicated that more would follow. The rates are now 1.75% to 2% and indication of 3 to 4 more hikes have been suggested or indicated by the Fed Chairman in the current year as the economy is on a sound footing. He further added that unemployment has reduced significantly, and jobs are available.
The US has put import duties of 25% on 50 billion of imports from China effective 6th of July 2018. China has retaliated and put similar duties on 34 billion of imports from the US. Where this would end and who would blink first is a multimillion dollar question which has no answers. The only certainty is uncertainty and turmoil in global markets. Whether this is the beginning or the end no one knows but things would be choppy.
Primary markets are becoming active again with two issues opening and closing during the week ahead. The first is the government company from the ministry of Railways, RITES. RITES is tapping the markets with its issue of 2.52 cr shares in a price band of Rs 180 to Rs 185. The issue opens on Wednesday the 20th of January and closes on Friday the 22nd of January. There is a discount of Rs 6 per share for retail investors and eligible employees. The issue is attractively priced with an EPS of Rs 17.63 for the year ended March 2017 and Rs 12.14 for the nine-month period ended December 2017. The price earnings multiple based on March 2017 would be 10.21-10.49 which is very attractive. The poor performance of some of the recently listed PSU offerings would have prompted ‘DIPAM’ to price this issue attractively.
The second issue is also an offer for sale of 76.65 lakh shares of Rs 5 each in a price band of Rs 780-780 from speciality chemical company Fine Organics Limited. The EPS for the year ended March 2017 is Rs 26.24 while for the nine-month period ended December 2017 is Rs 19.87. There was a recent issue from Galaxy Surfactants which is in a similar line of business and can be classified as a competing business, which received excellent response from QIB’s and is now trading at a discount to its issue price. Galaxy had issued shares at Rs 1,480, made a high of Rs 1,742.80 at listing time and have been slowly but surely declining to now trade at Rs 1.273.30, a discount of Rs 13.97% to its issue price. Fine Organics is offering shares at a PE multiple of 30.52-30.63 times based on its March 2017 numbers. While the issue would get subscribed as there would be a grey market premium and so on and so forth, it does not leave scope to make money on a sustainable basis. Further the company in its RHP on page 69 has stated the EPS for the nine-month period ended December 2017 as Rs 26.38 which is incorrect as the same is on an annualized basis. There is no note, asterix or qualification for the same. It sure makes the EPS misleading.
What is surprising it also mentions the fact that the results for the year ended March 2017 are as per IND AS and has given comparable proforma IND AS numbers for year ended March 2016. This company chose not to update its numbers for the year ended March 2018 even though the RHP has been dated the 11th of June. As a listed entity the deadline for filing audited accounts for the March quarter and year end results is 60 days which means 31st May.
The irony of the issue is that the two merchant bankers for were common with Galaxy Surfactants and there was one additional merchant banker in that issue. The issue is expensive and leaves no scope for appreciation in the medium term. One wonders whether the present price performance of Galaxy has no bearing or learning for these merchant bankers.
Volatile and tough times ahead for the market. Use sharp dips to buy into the market.
