Markets to gain after initial setback

The week gone by had all the action one could think of. Markets lost sharply, gained sharply and were also undecided. To add to the drama, we had a mid-week holiday which kept us guessing about the overseas action.

At the end of the week, BSESENSEX gained 764.34 points or 1.33 per cent to close at 58,191.29 points while NIFTY gained 220.30 points or 1.29 per cent to close at 17,314.65 points. The broader indices saw BSE100, BSE200 and BSE500 gain 1.22 per cent, 1.28 per cent and 1.37 per cent respectively. BSEMIDCAP gained 2.14 per cent while BSESMALLCAP gained 2.57 per cent. Markets gained on two of the four trading sessions and lost on the remaining two.

The Indian Rupee was under pressure and lost 98 paisa or 1.20 per cent to close at Rs 82.32 to the US dollar. Dow Jones gained on the first two days and lost on the remaining three days and was up 571.35 points or 1.99 per cent. It closed at 29,296.76 points. What is however disturbing is the fact that on a year-to date basis the Dow is down a staggering 19.43 per cent. What is worrying is that with less than 2.5 months for the calendar year to end, Dow is barely higher around 2 per cent from its 52-week lows.

In primary market news, the fresh issue from Electronics Mart Limited received overwhelming support and was subscribed 75.78 times. The QIB portion was subscribed 178.63 times, HNI portion was subscribed 67 times and Retail portion was subscribed 20.77 times. There were 20.46 lakh applications. The issue which was for Rs 500 crore garnered response for roughly Rs 26,700 crore, including anchor.

There is another issue from Tracxn Technologies Limited which is tapping the capital markets with its offer for sale of 3,86,72,208 equity shares in a price band of Rs 75 to 80. At the top end of the band the issue would be for Rs 309.38 crore. The issue opens on Monday the 10th of October and closes on Wednesday the 12th of October. The issue has a reservation of 75 per cent for QIB's, 15 per cent for HNI's and 10 per cent for Retail investors.

Tracxn Technologies is a leading global Private Market Intelligence SaaS Platform. It offers use of its vast database as a service on payment of requisite fees. Its average revenue is about Rs 6.5 lakh and this is for three users, per year. 70 per cent of the companies' revenues comes from overseas while the remaining is from domestic. The business of this company purely for purposes of understanding can be compared with Bloomberg which has a database of entities in the listed or public space. Tracxn has data in the unlisted space and hence getting data is that much more difficult. Currently Tracxn is ranked amongst the top five global players in terms of entities profiled.

In terms of revenues, the company clocked Rs 63.45 crore of revenues for the year ended March 22 which have increased to Rs 18.40 crore at the end of the first quarter FY23. The company reported a loss of Rs 4.85 crore for the year ended March 22. For the first quarter there is a marginal loss of Rs 72 lakh on restated basis. While the logical conclusion would be that the company would turn profitable going forward, the same may be some way away.

The company is currently a loss-making company and is unlikely to become profitable in the immediate near future. The accounting entry on ESOP conversion would be a drag for some time. There would therefore be no EPS and hence no PE. The way to then value would be a multiple of sales which would be a steep 13.90 times based on fully diluted post ESOP equity. ESOPs outstanding are 1 cr shares which have been issued at Rs 1. In terms of expenditure almost the entire expenses are related to manpower and this is something which cannot be reduced. Readers are advised to skip the issue at application and look for better opportunities post listing.

In what could be termed as most unexpected, Nykaa declared a bonus issue of five shares for every share held even before completing its first year of listing on the bourses. Considering the fact that it is yet to demonstrate sustained profitability and growth, this seems out of place. Normally one sees bonus issues being done from profits which are capitalised. Here the company is doing this from the reserves on account of issue price premium. While it may not be fair or correct to compare this company with what Reliance Power did, the idea is to keep investors in the company as the lock-in is about to expire, as shares were listed on November 30, 2021. Further, when the price of the share ex-bonus would trade in the region of 200-250, more retail investors would get sucked into the web that the company is weaving.

Coming to the markets in the week ahead, results season will kick in with the top three IT companies declaring their results. TCS does so on Monday the 10th October, Wipro on Wednesday and Infosys on Thursday. This would give a sense about this industry, the rupee parity and impact of inflation on jobs and IT spend in the US.

The previous week's highs were made at 58,578 points and 17,428 points on the BSESENSEX and NIFTY respectively. These would be strong resistances in the week ahead which is likely to be a week of volatility and markets testing one's patience. The next targets would be 59,250-59,550 and 17,650-17,750. On the support side, levels of 57,250 and 17,000-17,050 should act as strong supports. In case of violations, the previous week's lows of 56,150 and 16,750 would act as supports.

I believe the lower levels will not be approached and markets would make an attempt to trade higher after initial setbacks. Look for supports and buy on dips. Results for the July-September quarter will be key for the markets going forward. Buy on dips and sell on strong rallies would be the strategy for the week ahead.