Markets to have wilder swings intra-day

Markets gained on four of the five trading sessions, yet closed with losses in the week gone by. The BSESENSEX lost 526.51 points or 1.30 per cent to close at 39,982.98 points. NIFTY lost 151.75 points or 1.27 per cent to close at 11,762.45 points. The broader market saw BSE100, BSE200 and BSE500 lose 1.43 per cent, 1.37 per cent and 1.35 per cent, respectively. BSEMIDCAP was down 0.98 per cent while BSESMALLCAP lost 1.40 per cent.

The movement in BSESENSEX during the week needs to be looked at a little more closely. It traded in positive and negative territory intra-day during the first three days and managed to gain on a net basis, 93 points, 32 points and 170 points. On Thursday it lost a massive 1,050 points and recovered 250 points on Friday. What is significant to note is that on the first three trading days though it made small gains, the difference between the high and the low of the day was significant and it averaged over 400 points a day. This is what I had highlighted in the previous week about the jeweller and the blacksmith.

The Indian Rupee lost 21 paisa or 0.29% to close at Rs 73.34 to the US Dollar. Dow Jones closed with gains of 19.41 points or 0.07% at 28,606.31 points. The US elections are getting closer in terms of time with just about a fortnight to go. Postal ballots have already begun and voting this time is far ahead than ever before. The lead notched up by Democrat candidate Joe Biden is moving up as far as the pollsters go. The election could be close as the American election is a winner takes the entire state and this has always caused swings in the election. The date of voting is Tuesday the 3rd of November.

In primary market news, there were three listings during the week with two of them listing on Monday and one on Thursday. Monday saw Mazagon Dock and Shipbuilders list at Rs 216.65 and then close at the lower circuit at Rs 173, against an issue price of Rs 145. The share gained Rs 28 or 19.31%. The share closed the week at Rs 168.05, up 15.90%. Incidentally, this issue saw the HNI portion subscribed 678.88 times which implied that funding cost was in the region of Rs 135-145 or almost 90% of the issue price. All leveraged HNI's who have sold shares have done so at a loss.
The second listing was from UTI AMC which had issued shares at Rs 554. The share closed trading at Rs 476.60, a loss of Rs 77.40 or 13.83% on listing day. It recovered during the week and closed with weekly losses of Rs 9.23%.

The third listing which happened on Thursday the 15th of October was of Likhitha Infrastructure limited which had issued shares at Rs 120. Shares of this company were traded in the 'trade to trade' category as the issue size was below Rs 250 crs. Shares gained Rs 16.60 or 13.83% on day one. They closed the week at the same level as the listing day.

The week ahead sees an issue from Equitas Small Finance Bank Limited tapping the capital markets. The company is issuing shares in a price band of Rs 32-33 and would open on Tuesday the 20th of October and close on Thursday the 22nd of October. The issue consists of a fresh issue of Rs 280 crs and an offer for sale of 7.20 cr shares. The EPS of the company for the year ended March 2020, was Rs 2.39 which implies a PE ratio of 13.39-13.81 times.

The holding company is listed since April 2016 when it had issued shares at Rs 110. While the share did touch a lifetime high of Rs 206 in July 2016, it made a lifetime low of Rs 32.75 in March 2020.

It currently trades at Rs 49.95 on BSE as of Friday the 16th October having lost more than 55% of its issue price in roughly 4 1/2 years. A comparable peer would be the holding company Ujjivan Financial Services Limited which had tapped the markets a week later than Equitas and issued shares at Rs 210. The high and low of this share was Rs 547 in July 2016 and the low of Rs 124.55 in March 2020. The share trades currently at Rs 209.50, which is almost the exact issue price.

Post this issue the holding company, Equitas Holdings would continue to hold 82% of the small finance bank and it would have to reduce this holding to 40% in the next three years. While the company is exploring various options, which include mergers and acquisitions, this would be a drag on the company in the near term. I believe looking at the recent lacklustre performance of primary issues, it makes sense to give this issue the miss.

Coming to the covid-19 front, the world saw 3,99,59,651 patients, 11,14,641 deaths and 2,98,90,384 patients recovering. In India, we saw 74,94,551 patients, 1,14,064 deaths and 65,97,209 patients recovering. Compared to the previous week, the world saw 24,83,812 new patients, 37,047 deaths and 17,73,324 patients recovering. In India we saw 4,40,745 new patients, 5,693 deaths and 5,19,233 patients recovering. The number of patients recovering is higher than new patients for the fourth consecutive week. While this is positive on the Covid-19 front, the spurt in new cases in isolated places is a cause of concern. The fact that unlocking is happening across the country, this is a risk we have to live with.

Markets in the week ahead would be volatile and as witnessed last week, the swings could become wilder as we go forward. The strategy should be to sell into rallies and buy on sharp dips. The difference this time is to add insurance for a possible downside on the present portfolio, implying a negative bias. American elections would have a bearing on the US markets and therefore global liquidity which has been the moot cause for the buoyancy in global markets.

Trade cautiously.