July expiry, volatility and new lifetime highs in the week ahead

By Arun Kejriwal

It was an interesting four-day week which just went by with markets losing on the first two days and then bouncing back on the remaining two days. At the end of it all, it could be termed as more of a flattish week with BSESENSEX losing 164.26 points or 0.31 per cent to end at 52,975.80 points while NIFTY lost 99.35 points or 0.62 per cent to close at 15,824.05 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.31 per cent, 0.40 per cent and 0.37 per cent, respectively. BSEMIDCAP lost 0.47 per cent, while BSESMALLCAP lost 0.14 per cent.

The Indian Rupee gained 16 paisa or 0.21 per cent to close at Rs 74.40 to the US Dollar. Dow Jones had a roller coaster week. Readers would recall that the weakness in global markets was on account of Dow Jones which had lost 299 points and 726 points on Friday and Monday. Post these 1,025 points fall Indian markets had lost on Monday and Tuesday this week. After the holiday on Wednesday and the ensuing rally in US markets, India markets too staged a sharp rally. On Friday, Dow posted a new lifetime high of 35,095 points and closed at 35,061.55 points, a gain of 373.70 points or 1.08 per cent. This new high should give encouragement and support to Indian markets when they open for trading on Monday.

In global news, China has made app-based education free. Overnight, the market cap of listed companies has fallen from $207 billion to $126 billion. What would happen in the coming week is anybody's guess but the way forward is certainly further losses. What is even more important from an Indian perspective is the fact that In India, regulation is certainly more predictable. In the medium to longer term, we would benefit from these measures taken across the border.

Shares of Zomato Limited listed on the bourses and created history with a first of many kinds. First Indian unicorn to list and it did so in style, closing with a market cap of 1 lac crs on day one. This could be classified as 'FRENZY' in primary markets. While this would act as a very strong incentive for many more companies to tap the capital markets, it should also act as a cautionary signal for smart and street-savvy investors who look for cues and body language indicators to gauge the market mood.

Zomato which had allotted shares at Rs 76, saw its shares list at Rs 115 on BSE. They closed at Rs 125.85, registering a gain of Rs 49.85 or 65.59 per cent on day one. While this listing and this price performance is beyond comprehension or expectation, it has happened and is a reality which no one can deny. What next? Million-dollar question. My advice to investors would be to book profits and stay on the side-lines as far as this share is concerned.

The issue from Tatva Chintan Pharma Chem Limited which had tapped the capital markets with its fresh issue for Rs 225 cr and an offer for sale of Rs 275 cr was subscribed 182.04 times overall. The QIB portion was subscribed 186.96 times, HNI portion 516.99 times and Retail portion 32.49 times. This small 500 crs issue in a price band of Rs 1,073-1,083 received 32.44 lac applications which was higher than even Zomato which received 32.29 lac applications. The total funds garnered in this issue was Rs 63,860 cr. The share would list in the coming week.

One wonders what happened to the RBI white paper which was circulated in January 2021 about funding to HNI's by NBFC's. The proposal was to limit funding to Rs 1 cr per entity. Six months have passed and it appears that the proposal has been shelved or put into cold storage. The frenzy in primary markets have reached a peak and its time that RBI matches its intent with action.

The week ahead sees two primary market issuances. The first is from Glenmark Life Sciences Limited which is tapping the capital markets with its fresh issue for Rs 1,060 cr and an offer for sale of 63 lac shares in a price band of Rs 695-720. The company is an API (Active Pharma Ingredient) manufacturer

having four plants with two in Maharashtra and two in Gujarat. The company has a reactor capacity of 726 KL which is utilised around 85% per cent currently. The company is in the process of completing some debottlenecking capacity at its Gujrat plant in Ankleshwar and a new 200 KL plant in Dahej, Gujrat, anther existing site. Going forward, a new greenfield capacity would come up in Mohol, Maharashtra which would more than double the present capacity with the ongoing expansions.

The company was formed by doing a slump sale from the existing Glenmark Pharmaceuticals and made a 100 per cent subsidiary. The company has to pay about 800 cr towards the cost of being made a separate subsidiary. The company has no debt and post the IPO which has the primary object of repaying the above debt, would be debt free. The company reported revenues of Rs 1,886 crs for the year ended March 2021. The net profit after tax was Rs 351.6 cr. The EPS for the year ended March 2021 was Rs 32.61. The PE band for the IPO is 21.31-22.08 which is attractive compared to its peers such as Divis' Lab, Laurus Laboratories, Aarti Drugs and Solara Active Pharma. The last point to remember is that the company has been growing at 16 per cent and has adequate upcoming capacity coming up, to continue and better this growth. Further it enjoys EBITDA margins of 30-32 per cent and PAT margins of around 20 per cent. The valuations make this a compelling investment.

The second issue is from Rolex Rings Limited which is yet to announce its IPO price. The issue consists of a fresh issue of Rs 56 cr and an offer for sale of 75 lac shares. The company is one of the top five forging companies in India and manufactures rings used by the bearing industry. It also manufacturers automotive components and parts used in the gear box. The company reported revenues of Rs 616 cr for the year ended March 2021, and a profit after tax of Rs 87.46 cr. Revenues have been under pressure over the last year and have declined. The EPS for the company is Rs 35.96 on a diluted basis for the year ended March 2021. As the company is yet to hold its road show for the IPO, comments on the issue are being avoided. The issue price is being speculated to be around Rs 900, which would mean an EPS of around 25 times. The company has compared itself with Ramakrishna Forgings and MM Forgings which have higher multiples.

On the Covid-19 front, the world saw 19,44,25,481 patients, 41,68,714 deaths and 17,64,89,273 patients who had recovered. In India we saw 3,13,71,901 patients, 4,20,585 deaths and 3,05,43,138 patients who had recovered. In the previous week, the world saw 36,27,805 new patients, 69,544 deaths and 26,38,439 patients who had recovered. In India, we saw 2,65,835 new patients, 6,945 deaths and 2,73,342 patients who had recovered.

The week ahead sees July futures expire on July 29. This would be a five-week expiry and the current level of NIFTY is a mere 33.60 points or 0.21 per cent higher than the opening level of 15,790.45 points. While the series has been volatile with a high of 15,962 points and a low of 15,632 points, there is little or no change after four weeks, indicating that bulls and bears are evenly matched so far. With Dow Jones hitting a new lifetime high on Friday, one can expect bulls to pull the market and make a new lifetime high in the early part of the coming week in India as well. I strongly believe that the bulls would have the upper hand in the coming four days into expiry in the coming week and the euphoria in primary markets would help in the secondary markets as well.

It makes sense to play along with the expected rise and enjoy the rallies when they happen. Sell into strong rallies and buy into sharp dips which will happen. Continue shifting by booking profits in small and midcap stocks and parking the money into larger cap stocks or keeping cash or a war chest handy.

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

Source: IANS