The week gone by saw markets being super volatile and also a sharp churning being witnessed. They gained initially and then lost sharply. With the backbone of markets being broken on account of a below expectation result from HDFC Bank, markets found recovering tough and virtually impossible.  Even an extra trading day on Saturday did not help. At the end of six days of trading in which markets lost on four days and gained on two, BSESENSEX was down 1,144.80 points or 1.58% to close at 71,423.65 points while NIFTY lost 322.75 points or 1.47% to close at 21,571.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.22%, 0.85% and 0.71%. BSEMIDCAP gained 1.33% while BSESMALLCAP was up 0.27%. 

The Indian Rupee lost 14 paisa or 0.17% to close at Rs 83.06 to the US Dollar. Dow Jones lost on two sessions and gained on two sessions. The gains came on the last two trading sessions consecutively and were steep. Dow gained 270.82 points or 0.72% to close at 37,863.80 points. 

In primary market news we saw the shares of Jyoti CNC Limited list on the bourses on Tuesday the 16th of January. The company which had issued shares at Rs 331 saw its shares close on day one at Rs 433.15, a gain of Rs 102.15 or 30.86%. In the remaining part of the week, the share lost marginally and closed at Rs 431.05, a gain of Rs 100.05 or 30.23%. 

The public issue from Medi-Assist Healthcare Services Limited which was open for subscription from Monday the 15th of January to Wednesday the 17th of January, received excellent subscription and response. The issue was subscribed 16.24 times overall with QIB portion subscribed 40.14 times, HNI portion subscribed 14.85 times and Retail portion subscribed 3.19 times. There were over 7.44 lac applications in all. The share would list for trading on Tuesday the 23rd of January on the bourses.

The big trigger for the sharp loss on Wednesday was the declaration of HDFC Bank results for the third quarter. While the results were largely in line, what the street did not like was the slowdown witnessed in deposit growth. The share was mercilessly hammered and lost Rs 142.05 or 8.46% to close at Rs 1,536.90. The contribution to the BSESENSEX fall was 944 points out of a total fall of 1,628 points or almost 58%. With HDFC Bank leading the fall, it became a reason for many stocks which have been continuously rising to take a breather and actually correct on Wednesday. By the end of the week, the Bank extended its losses to lose Rs 161 or 9.82%. The share closed at Rs 1,479. 

IREDA (Indian Renewable Energy Development Agency Limited) shares have been on a roll in the markets ever since they listed. Shares of IREDA were issued at Rs 32 and closed Saturday at Rs 148.90 which was upper circuit. The company is a specialised lending agency and has a business akin to a bank, except that it does not accept deposits from customers. Post excellent results for Q3 which were just declared, the share has a 9-month EPS of Rs 3.91 and the PE multiple annualising these earnings of Rs 5.22 would be at a level of 28.53. The price to book would be 6.31 times. 

In the case of IRFC, the PE multiple is 37.99 and price to book 5.07 times. The business of IRFC is to arrange loans for the Indian Railways and it gets a handling fee of 35 basis points for the amount raised. Its income in terms of commission is capped at this level of 35 basis points. In the case of IREDA, the company is a specialised lender for the renewable energy sector and is able to raise money at lower rates. However, unlike a bank it cannot raise deposits. The euphoria about these two stocks is around the government of India doubling its allocation towards railway spend in the budget to be announced on 1st February. Not sure how this doubling would affect the fortunes of these two companies which have become more expensive than almost all, but a handful of banks. 

There is an issue from EPack Durable Limited which opened on Friday the 19th of January and would now remain open till Wednesday the 24th of January. The issue has been extended by a day because of the stock exchange holiday declared on Monday the 22nd of January. Even though markets were open on Saturday the 20th of January, bidding for the issue was not available, hence the extension. The price band for the issue is 218-230. The company is into the contract manufacturing of air-conditioners, small domestic appliances and supplies moulding components. The company has factories at three locations and has backward integrated substantially so that the share of the pie can be increased. Its strength lies in the fact that it has invested around Rs 300 crs under the PLI scheme which would give the company an advantage when it makes more components for the small appliance industry. 

The company reported revenues of Rs 1,538.83 crs for the year ended March 23, and an EBITDA of Rs 102.52 crs and a profit after tax of Rs 31.97 crs. The EPS on a fully diluted basis was Rs 4.64 and the PE price band at 46.28-48.83. On the face of it the PE multiple looks expensive but when one considers the investment of Rs 150 crs each over the last two years and being eligible for benefits under the PLI scheme, the issue looks attractive. Further, the revenue mix currently is skewed in favour of making air conditioners which is roughly 85% of the revenue mix. Air conditioner making is a cyclical industry with production for roughly 6-7 months. In the remaining period, component making machinery is idle and if it can be ramped up, it could provide substantial benefits for a manufacturer. It is this that Epack would look to maximise on.   

The highs on the benchmark indices made on Tuesday were at 73,427 points on BSESENSEX and at 22,124 points on NIFTY. We have come quite far from these levels and these would act as strong resistances in the immediate near term. Markets seem to have come into a different mood altogether and investors are throwing caution to the wind. This present situation can best be described by one word as ‘euphoria’. To catch the market mood, we currently have one SME issue open with its name “Euphoria Infotech (India) Limited”. No aspersions on the company but just a comment on the market mood and the name.

The week ahead is an extremely short one and has a mere three trading sessions. The opening day of the week Monday and the closing day Friday, are both trading holidays. Further the last day of the shortened week would see January futures expire. The current value of NIFTY at 21,571.80 points, implies a negative 206.90 points for the series and three sessions to go. While this expiry month has been choppy and the present deficit is a little more than one day’s move, things would remain quiet and the bulls will have a tough time trying to win the series from hereon. 

The strategy would be to play on the short side and use any rallies to sell. Buying should only be done in case of sharp falls or otherwise be avoided. With expiry on the last day and a long weekend to follow, markets would be under severe pressure to sustain. 

Trade cautiously.

The week went by was on predictable lines and we saw markets react to the set of IT results declared on Thursday the 11th of January in a manner which only markets can. While the net reaction was way above expectations, it was the cause of the explosive move at the markets and what happened thereafter, has given a new lease of life to markets which were consolidating so far. Markets gained on four of the five sessions and were up for the week. The losses on the opening day of the week were significant, hence the net gains were substantially lower than what we saw on Friday. The gains made on Friday were roughly 850 points on BSESENSEX and 250 points on NIFTY. The week ended with BSESENSEX gaining 542.30 points or 0.75% to close at 72,568.45 points while NIFTY gained 183.75 points or 0.85% to close at 21,894.55 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.81%, 0.76% and 0.79% respectively. BSEMIDCAP was up 0.45% while BSESMALLCAP was up 1.56%. The top sectoral gainers for the week were BSEIT which gained 4.58% and followed by BSETECK in third spot gaining 3.93%. 

The Indian Rupee had a strong showing and gained 23 paisa during the week. It closed at Rs 82.92 against the US Dollar. Dow Jones gained on three of the five trading sessions. It closed with gains of 126.87 points or 0.24% to close at 37,592.98 points. 

The IPO from Medi Assist Healthcare Services Limited is tapping the capital markets with its offer for sale of 2,80,28,168 equity shares in a price band of Rs 397-418. The issue would open on Monday the 15th of January and close on Wednesday the 17th of January. The issue would garner between Rs 1,127 crs and Rs 1,171 crs. On Friday it completed its allocation to anchor investors where it allotted 84,08,449 equity shares at the top end of the band of Rs 418. 48.41% of the anchor book was allotted to 11 domestic funds through 18 schemes. This shows that the issue is widely distributed amongst mutual funds, insurance companies and FPIs.

The company is a third party TPA in the health insurance space. It is the market leader and has between 53-55% of the market in this space. It reported revenues of Rs 504.93 crs for the year ended March 23 with a PAT margin of 14.54%. The reported Pat was Rs 75.30 crs and the fully diluted EPS Rs 10.65. The PE band is 36.66 to 38.60 times. Being a market leader and the first of its kind in the category, the issue would set a benchmark going forward. With fragmented ownership thereafter, not sure whether other players would list from this field. The issue is a tough one to understand and would do well based on perception and growth on better penetration of health insurance schemes going forward. 

Coming to the markets and what happened last week, one finds that the IT pack has been under owned and was technically short sold or oversold. This, post the results which were broadly on expected lines and the commentary post the results gave an indication that there has been no deterioration during the quarter, giving the momentum that markets were lacking. The sharp rally in IT stocks led by HCL Tech which gained 7.68%, Infosys up 5.15%, Tech Mahindra 4.68% and TCS up 3.85%, helped the benchmark indices gain and turn the sentiment. Heavyweight Reliance too chipped in with gains of 5.10% which provided substantial weightage to an otherwise rangebound index in a consolidation phase. 

Readers would recall that post declaration of 5 state election results on Sunday the 3rd of December 2023, markets had rallied sharply on Monday by 416 points on NIFTY and 1,384 points on BSESENSEX. At that time, I was talking of a further rally of 10% plus minus 2% from those levels. It appears we are well on course to do so by the time the country votes in April and mid-May for the general elections 2024. For the record post the Monday 4th December gains, we are now up a further 1,210 points on NIFTY and 3,223 points on BSESENSEX. We have some distance to go but is even more time remaining. This implies that it would not be smooth sailing, or a one-way move but would have corrections and consolidation on the way. 

Coming to the week ahead, we would see markets try to build on the break out sort of move that we have witnessed. Results season is on and stocks would react to results being reported as we saw in the case of the IT pack. It therefore makes sense to move to the large cap stocks and move away from the small cap and midcap space. Over the last few days. FPIs have turned relatively quiet and have sold small quantities in the cash market. Their total sales have been about Rs 3,500 crs over the last week while domestic institutions have bought shares worth Rs 6,900 crs. One now needs to look at the larger picture rather than week to week. The budget would be presented on Thursday the 1st of February and while it would be a vote on account type of budget it could have some items for the middle class and also become an election budget. 

The strategy for the week would be to look at large cap stocks and play in general on the long side using dips to buy and strong rallies to sell. While the three-to-four-month view is bullish it would be a measured move rather than runaway. 

Trade cautiously.