The markets went up for the first three days and then fell on the remaining two days. The gains intra-week were 453 points on the BSESENSEX and 136 points on the NIFTY. The weekly closing on the BSESENSEX was a loss of 85.68 points or 0.33% at 26,230.66 points. NIFTY lost 27.5 points or 0.34% to close at 8,086.80 points.

Markets have become vulnerable and are under pressure. The expected pullback rally has happened and there is enough news flow in the coming ten days. The referendum in Italy has been defeated and the premier Matteo Renzi would resign today afternoon. Immediate impact has been felt on the Euro which has weakened and lost 1% to the dollar. The referendum took place on Sunday.

RBI meets on Wednesday the 7th of December for its policy review and a 25 basis points is given. Post demonetisation and the excess liquidity in the marketplace there are expectations that the same could be hiked to 50 basis points as the fear of inflation is simply not there. The market has discounted the possibility of the cut and there may not be any upside on account of the anticipated cut. Markets would in all probability fall post digesting the rate cut announcement.

The following week the US Fed meets for its policy review where rate hike is almost a certainty looking at unemployment rates which have fallen. The rate hike would bring to an end the uncertainty which has been dogging world markets over the last six months or so. Interest rates in the US are at 25 basis points currently and have been there for a very long time.

Chitra Ramkrishna the MD and CEO of National Stock Exchange Limited put in her papers abruptly and created a stir. Happening just before NSE filed its papers for the IPO has set tongues wagging and nobody would be clear about the reasons until the draft red herring prospectus is filed. Probably there would be some clarity post the filing as this event would figure and some of the litigations and issues with the regulator would be enumerated.

The issue from Sheela Foam Limited sailed through with excellent support from QIB’s. There is another issue opening this week from Laurus Labs Limited which is looking to raise Rs 1,330 crs from a combined offer for sale and fresh issue in a price range of Rs 426.428. This is the narrowest of price ranges ever. The issue comprises of a fresh issue for Rs 300 crs and an offer for sale of 241.07 lakh shares. The EPS for the year ended March 2016 is Rs 20.86 while for the half year ended September 2016 is Rs 9.60. The PE ratio based on half tear annualised is 22.18-22.29 times while on annual March 2016 results is 20.42-20.51. The issue price is not cheap but not extremely expensive either. Looking at prospects of the pharmaceutical industry the share would be a good company to be invested in going forward. Looking however at the present market conditions it may offer better opportunity to buy post listing. The issue would be subscribed by QIB’s as they like the sector.

Market momentum and technicals indicate weakness. It makes sense to use every rally to exit the market and wait for events upto mid-December passing away. Markets have not made a low yet and have a long way to go in distance and time. The results for the quarter ending December will be disappointing and one could expect downgrades from leading brokerages post their declaration.

Sheela Foam Limited which had tapped the capital markets with its offer for sale to raise Rs 510 crs was subscribed. The price band was Rs 680-730. The issue had received very poor response on the first two days but excellent QIB support saw the overall issue getting oversubscribed on QIB response itself. The last day also saw HNI’s oversubscribe their portion 3.35 times. Retail portion remained undersubscribed and total bids were for 0.44 times the bucket size. The number of applications were 28,552 which on number of applications meant that the issue was subscribed 0.21 times. This effectively meant that the average application size was substantially higher at 40.79 shares per application against the lot size of 20 shares. This meant that the value of each application was Rs 29,779.

The issue is through but promoters and merchant bankers would have to come out with new ideas to get the retail interest back post the demonetisation move effective 8th November. The active grey market which saw applications and shares being traded has ceased to happen. The immediate fallout was the non-settlement of accounts of PNB Housing issue. This has caused a complete stoppage of any new transactions and brought the grey market to a standstill position.

Going forward until things normalise, issues tapping the capital markets would have to keep in mind that the issue would have to be subscribed on the strength of QIB’s alone. HNI’s would not be able to borrow as NBFC’s would not lend without a grey market. The cycle would be vicious and therefore the only alternative would be to get the issue subscribed 3-4 times from QIB’s and romp home safely.

Let us see how things pan out in the future, but for now Sheela Foam Limited is through.