Expect sharp volatility as markets decide next trend

By Arun Kejriwal

Markets continued to gain ground on expected lines last week and were up on three of the five trading days. They however showed signs of fatigue as the week drew to a close. BSESENSEX gained 1,108.76 points or 3.00 per cent to close at 38,128.90 points while NIFTY gained 292.45 points or 2.68 per cent to close at 11,194.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.31 per cent, 2.17 per cent and 2.14 per cent respectively.

BSEMIDCAP was up 1.27 per cent while BSESMALCAP was up 1.44 per cent.

The Indian Rupee gained 19 paisa or 0.25 per cent to close at Rs 74.83 to the US Dollar. Dow Jones lost 202.06 points or 0.76 per cent to close at 26,469.89 points.

Shares of Rossari Biotech Limited which had tapped the capital markets and received overwhelming support being subscribed 79.37 times, listed and had a flying start. Shares of the company which were sold at Rs 425 touched an intraday high of Rs 804 before closing at Rs 742.35, a gain of Rs 317.35 or 74.67 per cent. The worrying factor is the delivery percentage which was a record last seen nine years ago where the non-anchor delivery was 92.68 per cent. This means that of the total shares which could theoretically have been delivered on the counter as much as 92.68 per cent have changed hands on day one. Going forward that but for the anchors who were allotted shares at the issue price, everybody else is now holding shares at a price of Rs 700 or more makes the share valuation 1.65 times more expensive than the issue price. This would put pressure on the share price in the immediate short to medium term.

Shares of Yes Bank issued through the follow-on offer would be listed on Monday, July 27. The shares worth Rs 15,000 crs have been allotted at Rs 12. Readers would recall that the issue was nearly subscribed. The shortfall has been made good by the underwriting that was done by one of the lead managers, SBI Capital Markets. The share has corrected during the last week and lost Rs 6.15 or 31.06 per cent to close at Rs 13.65. There is a 10 per cent circuit filter on the stock and even in the worst-case scenario if the share is locked down it would be at Rs 12.30. I believe the share would trade freely on Monday and there would be no circuit. The stock post capital infusion and price correction look an attractive investment with a medium-term perspective.

There is a new offering opening for subscription from Monday in the form of REIT's from Mind Space Business Park Reit. The company is selling units in a lot size of 200 units in a price band of Rs 274-275. The net asset value of the units as on March 31, 2020 was Rs 319.50, which effectively means that the selling price at the top end of the band is a discount of 13.9 per cent. The units are expected to earn a yield of 7 per cent in the current year rising hereon to be effectively 7.5 per cent in the next year. The return would be distributed in the form of dividend to the extent of 90 per cent and the balance in the form of interest. The dividend would be tax free in the hands of the investor and there would be no tax paid by the individual as part of his income as they are exempt under section 10(23 FD).

SEBI has been encouraging the participation of small investors in these instruments which come under the head of INVITS and REITS, by reducing the ticket size periodically. The ticket size began at Rs 10 lacs, was reduced to Rs 5 lacs and then to Rs 2 lacs and finally to Rs 50,000. Considering the fact that the allocation in the issue from Mind Space consists of just two buckets namely Institution and non-institution, pairing HNI with Retail is most unfair and goes against the very spirit of encouraging small investors. The allocation would be pro-rata and this would ensure that retail applicants are butchered in allotment as happened in the shareholder quota of SBI Cards Issue. Here the allocation was extremely skewed and caused huge heartburn. SEBI would be well advised to ensure equitable distribution, like is done in equity issues where one lot is first given to all applicants and the balance then distributed on a pro rata basis.

SEBI is back to introducing the upfront margin from 1st August in the cash market. If this is to prevent what happened in the case of Karvy it is most unfortunate as it would push the retail investors further into derivatives and speculative trading. The turnover split on the exchanges between derivatives and cash market has already got very skewed with the former being over dominating at over 90 per cent . Further even this if looked at on net delivery basis in the cash market is even lower as almost 80-85 per cent of the trades are of intra-day nature and get squared off. With these new norms where effectively, an investor will have to ensure that he has a credit balance even when he wants to sell shares or first arrange delivery before selling would push people in derivatives without having the risk-taking ability. What the regulator hopes to achieve with this is baffling and unclear. One could only hope that clarity emerges sooner than later.

Covid-19 saw the world have 162.07 lac patients, 6.48 lac deaths and 99.16 lac patients recovering. In India the number of affected patients has risen to 13.89 lacs, while there have been 32,127 deaths and 8.87 lac patients recovering. Compared to the previous week the number of patients globally has increased by 17.77 lacs, deaths by 43,550 and patients recovering by 12.95 lacs. In India, new patients in the week have increased by 3,11,233 while deaths have increased by 5,299 and 2,09,665 patients have recovered. The world is hoping and praying for a quick fix in the form of a vaccine and there are more than half a dozen players in the race for coming out with one. Even after successful trials the next race and challenge would be to make the drug available in a cost-effective manner to the most vulnerable sections of society globally.

July futures would expire on Thursday, July 30 and currently bulls are on a roll with the series gains being a massive 905.25 points or 8.80 per cent. One should expect that some of these gains would get pared in the four days of trade remaining. Further there have been comments from RBI Governor which indicate stress in the system and the fact that stock markets rally seems a bit misplaced. The BFSI sector has the highest weightage in the benchmark indices and that could be a cause for worry. Finally, the rally in Reliance share price which rose a further Rs 235 or 12.3 per cent this week to Rs 2,146 makes it seem a one-horse rally which is too good to sustain.

The week ahead would be choppy and volatile and one should expect markets to be under pressure but with sharp movement on both sides. Trade cautiously.

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

Source: IANS