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.

Markets began the week with losses on Monday and had a very strong showing on Tuesday. Thereafter on each day they opened with an upward gap, slipped into negative territory and managed to close flat with minor gains. BSESENSEX gained 376.77 points or 1.05% to close at 36,386.61 points. NIFTY was up 112 points or 1.04% to close at 10,906.95 points.

The Indian Rupee lost 69 paisa or 0.98% to close at Rs 71.18 to the US dollar. Dow Jones gained 710.40 points or 2.96% to close at 24,706.35 points. The US government shut down continues and with Trump behaving in a manner as most describe as unbecoming of a President, it looks like a longer shutdown than what one would expect.

In the newsletter last week there was an error made in the ratio of Bandhan Bank and Gruh Finance which is deeply regretted. The swap ratio is 1000 shares of Gruh Finance would fetch 568 shares of Bandhan Bank. Prices of both shares fell during the week. Gruh Finance is down to Rs 233.20 while Bandhan Bank is at Rs 440.50. The new price for conversion of Gruh to Bandhan therefore becomes Rs 410. This will ensure price pressure on Bandhan Bank.

There was plenty of action in the market in individual stocks based on news flow. Result season continues and the larger companies seem to be declaring better results than what were reported in the year ago quarter and the previous quarter.

After TCS and Infosys, it was the turn of Wipro to declare a good set of numbers. The share gained post results. Other big companies to declare results were Reliance Industries and Hindustan Unilever. Shares of Reliance gained quite sharply and were up Rs 85 or 7.74% at Rs 1,183.

SEBI has advised Larsen and Toubro that its buyback offer is not in compliance with section 68(2)(d) in terms of the net debt and has therefore advised the company not to proceed with the buyback offer. This would put pressure on the share when trading begins on Monday. Shares of the company lost Rs 52 or 3.80% during the week and closed at Rs 1,318. The share price was Rs 1,240 in August 2018 when the company first announced the buyback. In normal circumstances, while the share would be under pressure when trading begins on Monday, it should not fall below the price from where it all started at Rs 1,240.

There is no clarity on whether this is based on stand-alone balance sheet or consolidated balance sheet. SEBI has certainly looked at consolidated balance sheet and this is considering a large institution like IL&FS running into financial difficulties. At rough cut the equity and reserves are at roughly 56,300 crs and consolidated debt around 1.30 lakh crs. The bulk of this debt is for L&T Finance which is an NBFC. Further to compound matters the sale which was done to Schneider of the Electrical and Automation Division has yet to be consummated. The sale was for about Rs 14,000 crs.

Sun Pharma has been in the news for all the wrong reasons in the last few quarters. This time around the media whether print or electronic is talking about a second letter from the whistle-blower. The company has written to SEBI and asked them to investigate the matter. Meanwhile the shares of Sun Pharma were on the receiving end and lost significant ground. Shares were down Rs 52.45 or 11.83% at Rs 390.75. One wonders whether there is more than meets the eye. A website having the full letter of the complaint while the company denies having received nothing either from the whistle-blower or the regulator seems odd. Further market reacted to news after a couple of days which is indeed surprising. For the better of the market and shareholders, one hopes the regulator gets to the bottom of this issue and at the earliest possible.

Markets have slowly but steadily gained in the last week and will continue to do so in the coming week as well. With investors believing that there is no positivity and they are willing to short at every opportunity; this movement will continue. Buy dips and sell on rallies.