Short term support, but stability still some time away

New Delhi:  Markets have a mind of their own and they do give advance indication and warning if they plan to do the unexpected. Last week we saw markets take a severe beating and but for the recovery on Friday, the first day of November futures series registering a sharp rise, things could have been really different. Probably it would now be clear to many of the readers why I took a U-turn from being bullish to becoming bearish at the beginning of last week.

BSE SENSEX lost on three of the four trading sessions and gained on just Friday. BSE SENSEX lost 1,614.82 points or 2.47 per cent to close at 63,782.80 points while NIFTY lost 495.40 points or 2.53 per cent to close at 19,047.25 points. The broader markets saw BSE100, BSE200 and BSE500 lose 2.46 per cent, 2.51 per cent and 2.62 per cent respectively. BSEMIDCAP lost 2.41 per cent while BSESMALLCAP lost significantly more at 3.43 per cent.

The Indian Rupee lost 12 paisa or 0.14 per cent to close at Rs 83.24 to the US Dollar. Doe Jones had a bad week once again and lost 709.69 points or 2.14 per cent to close at 32,417.59 points. Dow was down on four of the five trading sessions. Significantly, Dow has entered negative territory on a year-to-date basis and is down 2.20 per cent so far.

In primary market news, there was one listing and one issue which opened and closed during the week. In the week ahead we have two issues which would open and close for subscription.

Shares of IRM Energy Limited which were issued at Rs 505 listed on Thursday (October 26). The discovered price was Rs 479 on the BSE and the share closed at Rs 472.95 on debut day, a loss of Rs 32.05 or 6.34 per cent. Friday saw the share recovering and closed at Rs 482.25, a loss of Rs 22.75 or 4.50 per cent. The share performance has been impacted after the announcement of the Electric Vehicle policy in Delhi and NCR regions. This saw IGL AND MGL share prices getting impacted. For the records, it may be stated that IRM is not in close proximity to Delhi NCR and there would be no impact of this policy.

The issue from Blue Jet Healthcare Limited saw the issue open between Wednesday (October 25) and Friday (October 27). The issue price band was Rs 329-346. The issue was overall subscribed 7.94 times with QIB portion subscribed 13.72 times, HNI portion subscribed 13.59 times and Retail portion subscribed 9.46 times. There were 3.91 lakh applications.

The first issue in the week ahead is from Cello World Limited which is tapping the markets with its offer for sale of 2.93 crore shares in a price band of Rs 617-648. The issue would open on Monday (August 30) and close on Wednesday (November 1).

The company Cello World Limited is into three broad verticals of manufacturing. The first is Consumer ware, the second is writing instruments and the third is moulded furniture. The company reported revenues of Rs 1,796.69 crore for the year ended March 23. It reported a net profit of Rs 285 crore. The fully diluted EPS for the period was Rs 13.17, and the PE Price band for the issue is 46.85-49.20 times its March 23 earnings. The company enjoys robust growth and healthy margins which make the company a respected brand and choice for investment. As the issue is an offer for sale there are no objects of the issue. The company has detailed an expansion plan in its various verticals and would be setting up a third hub in Falana, Rajasthan after hubs in Daman and Uttarakhand. Investment is warranted looking at the growth prospects of the business.

The second issue is from the consumer company, Honasa Consumer Limited. The company is tapping the markets with its fresh issue of Rs 365 crore and an offer for sale of 4.12 crore shares in a price band of Rs 308-324. The company is a retailer of baby care, face care, body care, hair care, colour, cosmetics and fragrances segment. The issue opens on Tuesday the 31st of October and closes on Thursday the 2nd of November. The company reported revenues of Rs 1,492 crore for the year ended March 23 and a restated net loss of Rs 11.52 crore. As the EPS is negative, the issue has no PE band as the same is infinite.

The issue is one from the new age companies and is primarily an exit for existing investors. 78.55 per cent of the proceeds at the top end of the price band would go to selling investors while a mere 21.45 per cent would go to the company. This company has a long way to go to establish its credentials as three of its six brands are acquisitions and need to establish the growth trajectory. The company has a long way ahead and needs to perform. The issue is 75 per cent reserved for QIBs and would get subscribed, it would need a few quarters of consistency and performance before the share is actively traded and established. Investors with a high risk reward ratio alone should look at the above issue.

October futures expired on an extremely weak note. There was sharp selling on expiry day itself and NIFTY lost 265 points on Thursday alone. The series lost 666.30 points or 3.41 per cent to close at 18,857.25 points.

Coming to the markets in the week ahead, expect volatility with sharp intraday moves to dominate markets. Intraday lows made on Thursday would act as strong support in the short term. These were at 63,092.98 points on BSESENSEX and at 18,837.85 points on NIFTY. The upside is currently capped at levels of 19,200-250 points on NIFTY and at 63,175-63,350 points. For markets to move up meaningfully, these levels have to be crossed and sustained over the next couple of days. Results season is on and while we have a few points of outperformance in them, there is no broad trend to confirm that India Inc has had a stellar performance.

If one is to look at the news on the Israel-Hamas conflict, it's not too good with the kind of preparations that Hamas had made at Gaza under the ground. It looks like this event is going to turn bloody and life taking before any meaningful settlement or solution is found. This indicates that market rallies in the short to medium term are going to be short lived and markets will spend time consolidating and adjusting to new levels on the lower side.

The continued selling by FPIs remains a matter of concern and also the supply of fresh paper through primary market offerings ensures that liquidity in the market place gets absorbed before one can say ‘Hey Presto’. Suffice to say that we have tough times ahead with markets being volatile and choppy. It could be a good time for intraday traders who square up at the end of the day and avoid overnight exposure.

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