Indices likely to hold ground in last week of earnings season

Weekly Snapshot :

•  BSE-SENSEX rose 404.52pts (+0.52%) to 78,999.17pts
•  NSE-NIFTY gained 187.05pts (+0.77%) to 24,570.65pts
•  INR gained 28ps (+0.29%) to close at Rs 95.21 to the US Dollar

As it failed to close above 24,600 on the NIFTY, therefore 24,600-24,800 band will act as a strong resistance. On the downside or support side, there is very strong support in the band of 24,100-24,300 points and substantially lower at 23,800 points

The week gone by was quiet by and large with no major eruptions or disruptions taking place between USA and Iran. Markets too went through the motions but for ‘CAS’ which disrupted markets. CAS stands for closing auction system where there is a price discovery for the closing price, and the F&O stocks close for trading 15 minutes before market closing. Then there is a price discovery all over again as happens at the start of the day. There was major disruption in the pricing on the two exchanges with none the wiser, how and why it happened. The only answer one got was market depth is missing.

Markets gained on three of the five trading sessions and lost on two. BSE-SENSEX gained 404.52 points or 0.52 per cent to close at 78,999.17 points while NSE-NIFTY gained 187.05 points or 0.77 per cent to close at 24,570.65 points. BANKNIFTY gained 481.60 points or 0.84 per cent to close at 57,746.45 points.

The broader markets saw BSE100, BSE200 and BSE500 gain 0.87 per cent, 0.87 per cent and 1.13 per cent respectively. BSEMIDCAP was up 1.99 per cent while BSESMALLCAP gained 3.45 per cent. The intraweek highs and lows on BSESENSEX and NIFTY were at 79,143.15 and 78,211.87 on BSESENSEX and at 24,703.90 and 24,427.95 points on NIFTY. A fairly narrow range. What was most surprising was the fact that both the highs and lows were made on Tuesday and markets recovered from thereon for the remaining part of the week.

The Indian Rupee gained 28 paisa or 0.29 per cent to close at Rs 95.21 to the US Dollar. Dow Jones gained on four of the five trading sessions and lost on one. It was up 1,551.90 points or 2.96 per cent at 54,036.93 points.

RBI kept interest rates unchanged for the fourth time in a row in its meeting last week. Repo rate has been kept at 5.25 per cent. The last change was in its December 25 meeting when rates were cut by 25 basis points.

There is a deluge of mainboard IPO’s on Dalal Street. Last week we had three listings and currently seven issues are open or would open in the week ahead. The first to list was Manipal Health Enterprises Limited which had issued shares at Rs 590. Shares listed on Wednesday the 5th of July and closed day one at Rs 666.70. By weekend they gained further to close at Rs 677.40, a gain of Rs 87.40 or 14.81 per cent.

The second share to list was Juniper Green Energy Limited which listed on Thursday the 6th of August. The company had issued shares at Rs 225. Shares closed day one at Rs 259.60 but lost some ground to close the week at Rs 249.40, a gain of Rs 24.40 or 10.84 per cent.

The third share to list was MV Electrosystems Limited which listed on Thursday the 6th of

August. The company had issued shares at Rs 425. Shares closed day one at Rs 622.75 but lost some ground to close the week at Rs 611.45, a gain of Rs 186.45 or 43.87 per cent.

In terms of new issues, the IPO’s of Leap India and Technocraft Industries are currently open. Leap India is a combined issue of Rs 2,480 crores and would close on Tuesday the 11th of August. The price band is Rs 151-159. The company is one of a kind and is into the business of pooled wooden pallets used for logistics. It enjoys a market share of close to 90 per cent in the organized sector but the same is highly under-penetrated in India when compared globally. The issue is interesting and would be closely tracked considering it has a triple digit PE multiple.

Technocraft Industries issue would close on Tuesday the 11th of August and has a price band of Rs 200-212. It is an EPC contractor with focus on last mile connectivity of water sewage projects. The PE multiple is in line with the industry and with the IPO proceeds would be able to scale its business. The space is crowded with multiple players and the key to doing well is fresh orders which are timely executed.

The new issues in the coming week would see Dhoot Transmissions opening its issue on Monday the 10th of August and close on Wednesday the 12th of August. The issue size is Rs 3,067 crores and the price band is Rs 829-871. The core business of the company is making wire harnesses for the 2 wheeler and 3 wheeler industry where it is the dominant player and has a market leading share. It has plants near all its OEM’s and is also an exporter. Besides making the products it has also backward integrated into making wires and cables and electronic components used for the same. It has been expanding continuously and has also entered into making battery packs for EV’s 2 wheelers and 3 wheelers. Interesting company with valuations slightly on the higher side.

The second issue is from Molbio Diagnostics Limited which is entering the markets with its issue opening on Monday the 10th of August and closing on Wednesday the 12th of August. The price band of the issue is Rs 768-807 and the issue size is 939.70 crores. The company makes machines to diagnose various viruses and also testing kits for the same. Currently its focus area is Tuberculosis and the same is being fought on the global front. It has more than 12,500 machines currently in use and it supplies kits to Central health agencies in India and also abroad. Many of its customers abroad include multilateral funds and agencies involved in health. They have also developed a portable X-ray machine and the same is now being marketed globally with clearances and acceptances in place. It is one of its kind as of now in terms of machine and has an edge in its business but healthcare is a rapidly evolving and disruptive industry. One should look to invest with a medium and long term view only.

The third issue is from Milky Mist Dairy Food Limited which is tapping the markets with its IPO which opens on Tuesday the 11th of August and closes on Thursday the 13th of August. The price band is Rs 133-140 and the size of the issue is Rs 1,553 crores. The company does not sell low value liquid milk and processes on an average 15 lakh liters of milk on a daily basis. 97.5 per cent of its revenue comes from dairy products but it has chosen to call itself a packaged food company. The rebranding helps as the PE that the company is looking for is in excess of 60 while dairy companies are available at 24 and 25 multiples.

The fourth issue is from Shiprocket Limited which is tapping the markets with its issue which opens on Wednesday the 12th of August and closes on Friday the 14th of August. The price band is Rs 92-97 and the issue size is Rs 1,617.48 crores. The company is an integrated player providing a platform to sellers and further providing value added services to MSME to reach their products to customers across the country and abroad. The company is yet to make profits and therefore there is no PE multiple available. Tough choice whether to invest or not.

The fifth and final issue is from Beharilal Engineering Limited which is tapping the markets with its issue which opens on Wednesday the 12th of August and closes on Friday the 14th of August. The price band is Rs 271-285 and the issue size is Rs 301.62 crores. The company is into manufacturing of various types of rolls used in the rolling mills and crusher industries. It also does precision castings. Attractive industry and reasonable valuations offering upside for the medium to long term.

Coming to the markets, we have failed to penetrate and close above 24,600 on the NIFTY. The band of 24,600-24,800 will therefore act as a strong resistance in the coming week. On the downside or support side, there is very strong support in the band of 24,100-24,300 points and substantially lower at 23,800 points. Results season is almost over and only the last week remains. No nasty surprises are now likely to happen. The quarterly numbers have been decent with very few unpleasant surprises and a steady state of numbers. For markets to remain on a steady path, the only joker in the pack could be Donald and his impulsive nature to push the narrative.

The strategy would be to continue trading long until levels mentioned hold or dramatic events do not unfold. Weekend large positions should be avoided as anything untoward happens only during weekends.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)