Expect some correction post Mount 20K

New Delhi: Markets were on a roll last week and behaved on expected lines. On the very first day of the week, they took a giant leap and crossed Mount 20K on NIFTY. Thereafter the best performing midcap and Smallcap stocks took a sharp correction on Tuesday. The momentum and euphoria in the market continues unabated. The upbeat mood will take some time before it diminishes and then disappears. As of date, India remains that one exception globally where markets are rallying virtually unabated.

The benchmark indices gained on all five days of the week while midcap and Smallcap indices gained on four days and lost on one session. However, the fall on Tuesday was severe to see the BSE MIDCAP and BSESMALLCAP end in the negative for the week. The loss on Tuesday in BSEMIDCAP was 1,000 points while it was 1,600 points on BSESMALLCAP.

BSESENSEX gained 1,239.72 points or 1.86 per cent to close at 67,838.63 points while NIFTY gained 372.40 points or 1.88 per cent to close at 20,192.35 points. The broader indices saw BSE100, BSE200 and BSE500 gain 1.53 per cent, 1.32 per cent and 1.04 per cent respectively.

BSEMIDCAP lost 0.51 per cent while BSESMALLCAP was down 1.14 per cent. From the above one can visualise that Tuesday’s fall in the Smallcap and midcap broke the back of the segment. What next is yet to unfold. One should not be surprised if in the coming days and fortnight we see another sharp correction in this space.

The Indian Rupee lost 24 paisa or 0.29 per cent to close at Rs 83.18 to the US dollar. Dow Jones had a mixed week and gained on two of the five trading sessions and lost on three. The fall on Friday is a cause of concern as Dow lost 288 points. For the week Dow was marginally up and gained 41.65 points or 0.12 per cent to close at 34,618.24 points.

Its not raining but pouring IPOs. We have a burst of companies hitting the markets and it gives a feeling that promoters and merchant bankers are sensing something in the market which is forcing them to bunch their issues in such a concentrated manner.

There were two listings during the week gone by. The first issue to list under T+3 has happened on Monday the 11th of September on both the main board and the SME exchange. The first to list on the main board was Ratnaveer Precision Engineering Limited which had issued shares at Rs 98.

The share closed the day at Rs 134.40, a gain of Rs 36.40 or 37.14 per cent on Monday. It lost ground during the week and closed at Rs 116.21, a gain of Rs 18.21 or 18.58 per cent. The share to list on the SME exchange was Basilic Fly Studio Limited.

The second share to list was Rishabh Instruments Limited which had issued shares at Rs 441. The share closed day one at Rs 442.75, a gain of Rs 1.75 or 0.39 per cent. The share is trading around the issue price and closed at Rs 448.15, a small gain of Rs 7.15 or 1.62 per cent.

The issue from EMS Limited was very well received. The issue was subscribed 75.28 times overall. The QIB portion was subscribed 153.02 times, HNI portion was subscribed 82.32 times and Retail portion was subscribed 29.78 times. There were 23.93 lakh applications. The issue was open between Friday (September 8) and Tuesday (September 12). The issue would be listed on Thursday (September 21).

During the week we saw a number of issues open and we also saw one of the issues close for subscription as well. This issue was from R R Kabel Limited. The issue had opened on Wednesday (September 13) and closed on Friday (September 15). The issue consists of a fresh issue of Rs 180 crore and an offer for sale of 172.36 lakh shares in a price band of Rs 983-1035. The company is a manufacturer of wires and cables and has also entered the ‘FMEG’ business of electrical goods. The issue was subscribed 18.69 times overall with the QIB portion subscribed 52.26 times, HNI subscribed 13.23 times and Retail 2.12 times. There were 8.62 lakh applications.

The second issue was from Zaggle Prepaid Ocean Services Limited which is tapping the markets with its fresh issue of Rs 392 crore and an offer for sale of 104.49 lakh shares in a price band of Rs 156-164. The company is into the business of providing a platform for corporates to take care of their employee expense hassles and also offers a credit card which has prespecified limits as per the customer. The issue opens on Thursday (September 14) and closes on Monday (September 18). The price band is Rs 156-164. At the end of day two of the issue the same was subscribed 0.44 times with QIB Zero currently, HNI 0.30 times and Retail 1.97 times. There are 60,000 forms so far received.

The third issue is from Samhi Hotels Limited which is tapping the markets with its fresh issue for Rs 1,200 crore and an offer for sale of 1.35 crore shares in a price band of Rs 119-126. The issue opens on Thursday (September 14) and closes on Monday (September 18). The company is a branded hotel ownership and asset management platform in India owning 4,800 keys. Currently the company is reporting losses and is expected to turn profitable in the next few quarters. At the end of day two of bidding, the issue was subscribed 0.13 times overall with QIB receiving no bids so far, HNI 0.07 times and Retail 0.61 times. There are a total of 44,000 applications received.

The fourth issue is from Yatra Online Limited which is a travel company having a large corporate presence as well. The issue consists of a fresh issue of Rs 602 crore and an offer for sale of 121.31 lakh shares in a price band of Rs 135-142. The issue opened on Friday (September 15) and closes on Wednesday (September 20). Incidentally the shares of Yatra are listed on Nasdaq. At the end of day one, the bidding is lacklustre with the issue subscribed 0.11 times so far. The QIB portion is yet to receive bids, HNI portion is subscribed 0.03 times and Retail portion is subscribed 0.56 times.

The bidding pattern clearly indicates that Retail investors apply in every issue irrespective of the demand from other categories. Probably they have become smarter or are willing to take a chance with the small size of their application.

There are two other issues which are opening and closing for subscription in the week ahead. The first is from Signature Global (India) Limited. The issue consists of a fresh issue of Rs 603 crore and an offer for sale of Rs 127 crore in a price band of Rs 366-385. The issue opens on Wednesday (September 20) and closes on Friday (September 22). The company is a real estate player in the NCR region and is present in the affordable and lower mid segment housing segments. They are the largest in these segments in the region in terms of number of units supplied and had a market share of 19 per cent.

The second issue is from Sai Silks (Kalamandir) Limited which is tapping the capital markets with its fresh issue for Rs 600 crore and an offer for sale of 272.72 lakh shares in a price band of Rs 210-222. The issue opens on Wednesday (September 20) and closes on Friday (September 22). The company is in the business of ethnic retail and is one of the top ten retailers in the segment having its presence in Southern India with 54 stores spread across Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. They are a leading brand selling sarees amongst other products.

The bombardment of primary issues in a bunch is a tell-tale sign and so is the drop in subscription levels. The SME primary market remains in a different orbit and is likely to continue for another fortnight before we see a lull in the month of October.

Coming to the markets, expect volatility to continue to dominate market movements. Having crossed Mount 20K on NIFTY, a 3 per cent spill over becomes a first target and one should expect a level of 20,600 sooner than later. This of course could come with corrections as we have already risen on the benchmark indices for eleven straight sessions. How much more is anybody’s guess but a correction however small or large is round the corner.

The strategy for the week would be to shift gears to the large cap stocks simply because one has safety there and easier exit. The midcap and Smallcap space still look overheated and could witness yet another sharp correction. It makes sense to remain light in the markets as we have a trading holiday on Tuesday. This is the day when Lord Ganesh is welcomed home across the entire country with great fanfare. Take positions from Wednesday and trade cautiously.

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