NIFTY falls short of intraday lifetime high by a whisker, correction to follow

Markets were on a roll last week making new records but somehow towards the end of the week, they lost momentum. They gained on two of the five sessions, losing on the remaining three. BSE SENSEX made a new intraday lifetime high and also bettered the closing high made in the previous week on Friday.

The new level was 63,523.15 points on BSESENSEX and 18,856.85 points on NIFTY. BSE SENSEX at the end of the week lost 405.21 points or 0.64 per cent to close at 62,979.37 points while NIFTY lost 160.50 points or 0.85 per cent to close at 18,665.50 points. The broader indices saw BSE100, BSE200 and BSE500 lose 1.10 per cent, 1.10 per cent and 1.09 per cent respectively. BSEMIDCP lost 1.25 per cent and BSESMALLCAP was down 0.93 per cent.

The Indian Rupee lost 11 paisa or 0.13 per cent to close at Rs 82.04 to the US dollar. Dow Jones lost on all four trading sessions during the week. It was down 571.69 points or 1.67 per cent to close at 33,727.43 points.

There is a very famous saying, ‘there are many slips between the cup and the lip. This is exactly what happened with NIFTY. It came that close to making the new lifetime intraday high but failed. Not once but thrice. In the previous week, it had come to 18,864.70 points. This week it made 18,881.45 on Monday, 18,875 on Wednesday and 18,886.60 points on Friday. One can say it missed by just a whisker. Should one read too much into it? Not sure, but the level has proved too much for NIFTY.

In primary market news, the IPO from HMA Agro Resources Limited which had tapped the markets with its fresh issue of Rs 150 crore and an offer for sale of Rs 330 crore was oversubscribed. The issue was subscribed 1.62 times with QIB portion subscribed 1.74 times, HNI portion subscribed 2.97 times and Retail portion 0.96 times. There were 64,252 applications.

The week ahead sees the IPO from IdeaForge Limited tapping the capital markets with its fresh issue of Rs 240 crore and an offer for sale of 48,69,712 equity shares in a price band of Rs 638-672. The issue opens on Monday (June 26) and closes on Thursday (June 29). The company is into the design, development, engineering and manufacturing of Unmanned Aerial Vehicles or ‘UAV’, popularly known as drones. In a development which seems timed to perfection, the export of drones for civilian end-use has been simplified and liberalised just yesterday. This would be a shot in the arm for the company which is IPO bound.

The company would be the first stand-alone drone manufacturing company to list in the country. It has a dominant market share and the same is currently at 50 per cent or thereabouts. The company reported revenues of Rs 196.4 crore for the year ended March 23. It has a net profit of Rs 32 crore and a PAT margin of 17 per cent. It had EBITDA margins of 31 per cent. Its PAT margins were lower because of an adjustment of ESOP shares which was made at the end of the financial year. The EPS for the year ended March 23 is Rs 8.55. On a fully diluted basis, the EPS stands reduced to Rs 8.12. At this EPS the PE band is 78.57-82.56. This is based on fully diluted earnings and as per restated accounts. There is no peer for the company and hence the same cannot be compared.

Investment in the company is warranted looking at the growth in the sector. However, the expected response to the issue would ensure that allotment is only by way of lottery.

Cyient DLM Limited is tapping the capital markets with its fresh issue of Rs 592 crore in a price band of Rs 250-265. The issue opens on Tuesday (June 27) and closes on Friday (June 30). The company is a leading Integrated electronics manufacturing service provider, serving the entire value chain and product life cycle. It is present in highly regulated industries which makes it one of the few players in this segment in the country. It has facilities at Mysore, Bengaluru and its latest plant at Hyderabad.

The company has a built to specifications and a build to print model. It delivers its services through PCBs, cable harnesses and Box build products. It serves Aerospace, Defence, Medical and Industrial customers. It has an impressive order book of Rs 2,432 crore which is about three times its last reported revenues of Rs 832 crore. Capacity utilisation is poor at the new plant in Hyderabad which was commissioned just before Covid-19 set in. This plant caters to the defence and aerospace segments which were the worst affected during the pandemic. With the order book and new programs that are coming into production, one would see the revenues rise as well as margins at EBITDA improve with better utilisation.

The company reported an EPS of Rs 7.75 for the year ended March 2023. At this EPS the PE multiple for the company is 32.26-34.19. This compares favourably with its peers like Syrma SGS, Kaynes Technology and DCX Systems from the listed space. Looking at the growth in the sector, investments in capacity already made and a decent order visibility, investment in the company may be made in the IPO for the medium term.

The week ahead has a trading holiday on Wednesday. This would make the expiry day for June futures on Thursday that much more volatile. The current level of NIFTY in the series which is of five weeks duration is higher by 344.35 points or 1.88 per cent. The bulls have a tough time ahead with a market which seems to have peaked out and is likely to correct, maybe sharply. With three days to go it would be an interesting battle between the bulls and the bears.

Coming to the markets, while market frenzy and overheating has taken a beating over the last two days, the advancement of the monsoon to the financial capital of the country is a positive thing. There would be volatility in the week ahead with markets facing downward pressure and trading with a negative bias. Key support would be at 62,400-62,500 on BSESENSEX followed by 61,650-61,800. On the NIFTY, It would be at 18,450-18,480 followed by 18,200-18,250 points. The strategy would be to allow markets to seek support at lower levels and wait for a pullback to sell into the market rally.

Trade cautiously.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)