It was an extremely volatile week in which one saw intraday gains being wiped out as well as opening losses being more than recovered. At the end of it all, markets gained on two of the five trading sessions and lost on three. BSESENSEX was down 490.14 points or 0.68% to close at 71,595.49 points while NIFTY lost 71.30 points or 0.33% to close at 21,782.50 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.22%, 0.34% and 0.22% respectively. BSEMIDCAP was up 1.65% but BSESMALLCAP was down 0.44%. It needs to be mentioned here that intraday volatility and intraweek volatility has increased substantially in the midcap and Smallcap space and the net index changes at the end of the week do not give a fair picture of the volatility. 

The Indian Rupee lost 12 paisa or 0.14% to close at Rs 83.04 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two sessions. At the end of the week, Dow was up a mere 17.27 points or 0.04% to close at 38,671.69 points. 

At the end of the three-day bi-monthly meeting of the monetary policy committee meeting, RBI kept repo rates unchanged at 6.5%. These rates have not been changed since February 2023. 

Markets have become very volatile and are giving some signs of a reasonably large correction happening in the coming period. For the records, the high on the BSESENSEX was made on 16th January at 73,427.59 points and on NIFTY at 22,124.15 points on the same day. In a flash of a pan movement, NIFTY crossed this high by a whisker at 22,126.80 points on 2nd of February. What to make of this is debatable as BSESENSEX made a substantially lower high as compared to 16th January of 73,089.40 points. Looking at the fact that with just the last week left for results of the October-December 23 quarter to be declared, the general summary indicates that the growth in revenue being talked about seems missing. While there have been some outstanding results, the pace of growth in revenues and profits is clearly missing. For the new trend to emerge we will now have to wait for yet another quarter at the bare minimum. This would also coincide with the general elections which would be held in April-May 2024. 

In primary market news we had four issues which closed for subscription during the week. The first was Apeejay Surrendra Park Hotels Limited which had tapped the markets with its fresh issue of Rs 600 crs and an offer for sale of Rs 320 crs. The price band was Rs 147-155. The issue was subscribed 62.90 times overall with QIB portion subscribed 79.23 times, HNI portion subscribed 55.25 times and Retail portion subscribed 31.96 times there were 18.95 lac applications. 

The second issue was from Rashi Peripherals Limited which had tapped the markets with its fresh issue of Rs 600 crs in a price band of Rs 295-311.The issue was subscribed 62.95 times overall with QIB portion subscribed 151.45 times, HNI portion subscribed 66.15 times and Retail portion subscribed 11 times. There were 15.07 lac applications. 

The third issue was from Jana Small Finance Bank Limited which had tapped the capital markets with its fresh issue of Rs 462 crs and an offer for sale of 26,08,629 equity shares. The price band of the issue was Rs 393-414. The issue was subscribed 18.43 times overall with QIB portion subscribed 38.75 times, HNI portion subscribed 25.05 times and Retail portion subscribed 5.46 times. There were 7.04 lac application forms in all. 

The fourth issue was from Capital Small Finance Bank Limited. The company intended raising Rs 450 crs in a fresh issue and an offer for sale of 15,61,329 shares in a price band of Rs 445-468. The issue was subscribed 4.17 times overall with QIB portion subscribed 6.86 times, HNI portion subscribed 4.23 times and Retail subscribed 2.60 times. There were 4.17 lac applications in all. 

The subscription comparison between Jana Small Finance Bank and Capital Small Finance Bank Limited was stark. Both the issues were of similar size, a fairly similar price band and coincidentally in the same business, small finance bank. The valuation and direct comparison resulted in one being well received and doing well and the other just getting subscribed at a time when markets are overflowing with funds. Big learnings for merchant bankers and prospective promoters looking to tap the markets going forward. 

There is one issue in the coming week which has already opened on Friday the 9th of February and will closes on Tuesday the 13th of February. The issue from Entero Healthcare Solutions Limited is tapping the capital markets with its fresh issue of Rs 1,000 crs and an offer for sale of 47,69,475 shares in a price band of Rs 1,195 to 1,248. The company is into the business of distributing healthcare products in India. The company is the third largest in terms of revenues in this space. It distributes pharmaceuticals and also has a range of white label products in healthcare devices and related products which currently form a small part of its overall revenues. The company has been growing its presence in the country by acquiring small well-established distributors across geographies and then converting them into subsidiaries. The idea is to have a well-knit all India presence which uses technology to achieve last mile distribution of these products.

The company achieved revenues of Rs 3,300 crs for the year ended March 2023 and reported a net loss of Rs 11.10 crs for the same period. Revenues for the half year ended September 23 have improved to Rs 1,895 crs and the company has turned profitable for the first time and earned a profit of Rs 11.64 crs. In terms of EPS, as the company has reported losses for the year ended March 23 and therefor the EPS is negative Rs 3.10. The same is positive for the first six months at Rs 2.95.     

The only comparable player in the listed space which has a similar business model in part is Medplus. The other comparable price matrix for companies is price to book. The NAV of the company post conversion of CCCP as at September 23 is Rs 185.84. This effectively means that the company is asking for a price to book of 6.71 times. The business is complex, needs time to stabilise and achieve a decent profitability. Readers could look at the share post listing. 

Coming to the markets in the week ahead, volatility would be the order of the day. On the upside levels of 73,427 on BSESENSEX and 22,126 on NIFTY would be Mount Everest. I believe these need a superhuman effort with massive index management and accompanied by very strong news flow to be taken out. Suffice to say that without consolidation, this is something which cannot happen.  On the support side, levels of 21,500 and 70,750 would act as decent levels where markets would look to bounce. If these are broken, then levels of 21,200 and 69,850 would act as solid supports for the time being. Depending on how markets behave, future movement in key indices would be decided. 

A note of caution would be that there could be a reason for a sharp fall in the markets over a couple of days. This could happen in this week or the next. The trading strategy would continue to book profits on rallies and reduce exposure in the midcap and Smallcap space. Safety lies in the large cap space where buying should be done only on sharp dips. 

Trade cautiously.

The week gone by was super eventful, volatile and action packed. We had the last of the union budgets by the present government being presented. Even though it was just a vote-on-account, there was expectation which got built up into the same. This was partly on account of media hype and the opposition wishing and wanting to counter the government if they made announcements which went against the spirit of this being just an appropriation bill. Thankfully none of this happened and the budget saw markets move up even sharply on the following day. For the week, markets were up on three of the five sessions and lost on two. BSESENSEX gained 1,384.96 points or 1.96% to close at 72,085.63 points while NIFTY gained 501.20 points or 2.35% to close at 21,853.80 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.36%, 2.50% and 2.62% respectively. BSEMIDCAP gained 3.13% while BSESMALLCAP was up 3.35%.

The Indian Rupee gained 20 paisa or 0.24% to close at Rs 82.92 to the US Dollar.  Dow Jones had a great week and gained on four of the five trading sessions. This was even though the FED kept rates unchanged at its meeting during the week. It now appears any rate cut may happen in either two months’ time or maybe four months. This did not affect the markets and they continued to rally strongly.

RBI would be meeting for its bi-monthly policy review meeting between the 6th and 8th of February.  . It is widely expected that repo rates would remain unchanged. The current repo rates are at 6.5% and they have remained at this level since February 2023.

RBI took strict action against Paytm payments bank and debarred the company Paytm from allowing fresh transactions and credits into the wallets which are operated by Paytm payments bank because of serious compliance issues. The stock markets reacted in the manner that they know best and the share lost 20% each for the last two days. Share price of Paytm stands at Rs 487.05, a loss of Rs 273.95 or 35.99% from Rs 761 on Wednesday. While the business of Paytm and its use as a payment facilitator is not impacted, it needs to shift balances and appoint new payments bank at the earliest within the current month of February. In what could at best be described as a major coincidence, Jio Payments bank which had been granted a licence in April 2018, is all over social media. I believe as investors realise the ground reality, the share Paytm should begin to consolidate in the coming week.

The budget was announced on Thursday and markets were fairly quiet on a net basis on that day. They lost marginally and were down about 0.15%. The event saw a couple of important events from the market perspective. There was a very strong message and body language that was visible from the FM’s speech when she said that the government would present the full budget in July24. The temptation to splurge some money on populist measures on the eve of the general elections was done away with. On the other hand, the budget has remained within the confines of the fiscal path and actually cut some of the capital expenditure. Indian bonds would list later on during the calendar year in international markets and to ensure that they get fair valuation, the budget targets and fiscal prudence are being exercised for a fourth year in a row. Increased expenditure on infrastructure projects, railway development and announcement of new freight corridors were highlights of the budget.

The budget led to euphoria in the markets the next day and intraday the BSESENSEX was up about 1,450 points while NIFTY was up 425 points. Markets ended with gains of 440 points on BSESENSEX and 150 points on NIFTY. In the process, NIFTY made a new lifetime high at 22,126.80 points beating the previous high made on 16th January by a whisker. The difference was a mere 2.65 points. However, BSESENSEX was unable to make the new high and fell quite short of it, almost 340 points.

The week ahead is yet another bumper IPO week with as many as four mainboard IPOs opening and closing during the week.  These IPOs are from those companies for whom listing before the 15th of February is important as they have bonds listed on the exchanges and need to declare quarterly results and also those who were waiting for the budget and hoping that it would not dampen sentiments.

The first IPO is from Apeejay Surrendra Park Hotels Limited, which is tapping the capital markets with its fresh issue of Rs 600 crs and an offer for sale of Rs 320 crs. The price band is Rs 147-155. The issue opens on Monday the 5th of February and closes on Wednesday the 7th of February. The retail portion is 10% of the issue as the company had not reported profits in the financial years 2021 and 2022.

The company has 2,123 keys in 27 hotels through a combination of ownership, leased and managed properties. It reported revenues of Rs 524.43 crs for the year ended March 2023 and a profit after tax of Rs 48.06 crs. The average occupancy for the hotel is a very healthy 91.77%. The company reported an EPS of Rs 2.75 for the year ended March 23. The PE multiple for the company is 53.45-56.36 which is comparable with its peer set such as Chalet Hotels, Lemon Tree and Samhi Hotels. The issue merits subscription.

The second issue is from Rashi Peripherals Limited which is into the national distribution of global technology brands for information and communication technology products. The company is tapping the markets with its fresh issue of Rs 600 crs in a price band of Rs 295-311. The issue would open on Wednesday the 7th of February and close on Friday the 9th of February.

The company reported revenues of Rs 9,454.27 crs and a net profit of Rs 123.34 crs for the year ended March 2023. The EPS for the company on a fully diluted basis was Rs 29.50. The PE for the company is 10-10.54 times which compares favourably with its listed peer, Redington India Limited. Subscription to the issue is warranted.

The third issue to open during the week is from Jana Small Finance Bank Limited which is tapping the capital markets with its fresh issue of Rs 462 crs and an offer for sale of 26,08,629 equity shares. The price band of the issue is Rs 393-414 and the issue would open on Wednesday the 7th of February and close on Friday the 9th of February.

The company reported a fully diluted EPS of Rs 42.64 for the year ended March 23. Based on this EPS, the PE multiple for the small finance bank is 9.22-9.71. Post issue the NAV of the bank would be Rs 298.52. At this NAV, the price to book, a key ratio for evaluating banks would be at 0.72 which makes the offering very lucrative and would receive overwhelming support. The issue becomes one where investors should try their luck and hope that their application is successful in the lottery.

The fourth and final issue to open this week on Wednesday the 7th of February and close on Friday the 9th of February is from Capital Small Finance Bank Limited. The company is raising Rs 450 crs in a fresh issue and consists of an offer for sale of 15,61,329 shares in a price band of Rs 445-468. The company is into Agriculture, MSME and mortgage loans and is present in 5 states and 1 union territory. Its presence is strongest in Punjab followed by Haryana, Delhi and it has entered Rajasthan and Himachal Pradesh as well. Chandigarh is the union territory it is present in.

The company reported an EPS of Rs 27.21 on a fully diluted basis for the year ended March 23. The PE for the company is 16.35-17.20. It is expensive compared to another issue which is open at the same time from Jana Small Finance Bank Limited. The NAV for the bank, post the issue, is at 232.79. The price to book for the bank at the above NAV assuming the issue is priced at the top end would be 2.01. The issue is reasonably priced looking at the opportunity. However, if we were to look at subscribing to just one of the two banks on offer, the issue from Jana is better priced and offers a higher return than Capital.

Coming to the markets in the week ahead, one can clearly say that the risk reward ratio is against the investor. The sharp volatility witnessed particularly on Friday is a dangerous sign and does not augur well for the markets. The sharp gains in the PSU stocks particularly the way railway stocks are behaving is another reason to feel discomfort. It makes sense to take some money of the table and allow markets to cool off. FPIs were big sellers in January 2024 and sold stock worth Rs 25,744 crs. In short, it’s time to be cautious and with no news flow in the immediate future, cooling off is a must for markets.

While the RBI meeting in the coming week is expected to keep rates steady and the election results are a no-brainer, the pace at which markets are rising need to taper. We cannot peak so soon with result day still four months away.

Trade cautiously.