Book profits in volatile week ahead

By Arun Kejriwal

Markets had a volatile week and made their highs mid-week on Wednesday itself before some profit taking set in and markets gave up some of their gains.

 

The BSESENSEX gained 572.91 points or 1.59 per cent to close at 36,594.33 points while NIFTY gained 160.70 points or 1.51 per cent to close at 10,768.05 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.27 per cent, 1.14 per cent and 1.23 per cent, respectively.

The BSEMIDCAP gained 0.81 per cent while BSESMALLCAP was up 1.59 per cent. The intra week high made on Wednesday was 36,828 points on the BSESENSEX and 10,847 on NIFTY.

The Indian Rupee lost Rs 0.57 or 0.76 per cent to close at Rs 75.20 to the US dollar. Dow Jones gained 436.40 points or 1.7 per cent to close at 26,075.30 points.

There are two primary market issues in the week ahead.

The first issue is from Rossari Biotech Limited which is in the business of speciality chemicals.

It comprises a fresh issue for Rs 50 crs and an offer for sale of 105 lakh shares in a price band of Rs 423-425. The PE multiple of the issue is steep at 31.52 at the lower end of the band and 31.67 at the top end of the band. The company had earned an EPS of Rs 13.23 on a diluted basis for the year ended March 2020. The issue opens on July 12 and closes July 15. The company on Friday allotted 35.02 lakh shares to 15 anchor investors comprising of 29 entities. While it has a good future and the capex being undertaken would bear fruit in the financial year 2021-2022, it looks expensive currently but could be invested in only if one is willing to wait for two years. Alternatively, one could invest when the markets cool off.

The second issue is a follow-on offer from Yes Bank Limited. The company would be raising Rs 15,000 crore in a price band of Rs 12-13. The share price of Yes Bank closed at Rs 25.50, down Rs 0.65 or 2.49 per cent for the week. There is a strange arbitrage available on the exchange in the shares of Yes Bank. Those who are bullish are buying the share at Rs 25.50 and lending them on the 'ALBM' (automated lending and borrowing mechanism) platform of the exchange for Rs 10. This effectively means their cost of purchase becomes Rs 25.50-10 Rs equals Rs 15.50. For somebody who is bearish, he sells the share at Rs 25.50, pays the borrowing charge of Rs 10 and is therefore short on the exchange at Rs 15.50. The buyer and the seller have their reasons for doing so at Rs 15.50 when the huge issue of Rs 15,000 crore would happen at Rs 13. There is a third angle where the grey market premium is active at Rs 1.25-1.75 per share. Taking a mid-price of Rs 1.50, this fresh issuance would come at Rs 14.50 (13+1.50). It therefore becomes a very interesting take for all view holders whether they be bullish or bearish between Rs 14.50-15.50.

There is a new twist to the Yes Bank saga with media reports indicating that SEBI is to investigate the large amount of stock borrowing at such a high premium over the last several days at a fancy premium and this would suggest insider trading by people connected with the issue of Yes Bank.

COVID-19 patients have jumped in the week gone by even as the number of people recovering is keeping pace. The number of patients affected by COVID-19 globally is now at 128.48 lakhs with 5.67 lakh deaths and 74.83 lakh patients having recovered. In India the number of patients is at 8.50 lakh with 22,696 deaths and 5.36 lakh patients having recovered. Compared to the previous week the number of new patients globally has jumped by 17.94 lakhs with 42,334 deaths and 14.92 lakh patients having recovered. In India the number of new patients is at 4.39 lakhs, with 9,400 deaths and 3.08 lakh patients recovering.

The week ahead sees two new issues opening and closing during the week. Markets would continue to remain choppy and volatile and with midcap and Smallcap stocks showing extreme volatility there would be further churn with a large number of stocks moving circuit to circuit both upward and downward. It makes sense to play the contrarian role and book profits at every available opportunity without looking to short the market. The result season has begun for the April to June quarter and it would not be anything to write home about. Even the IT giant TCS had a tough quarter and if this is a test case one can be sure that we have tough times ahead. Be nimble footed in the market and use every rise to take money of the table. Better opportunities to buy at lower levels will be available in the weeks to follow.

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

Source: IANS