Arun Kejriwal: They have their own mind

Inertia rules the day, as tired markets show little to no movement

Union Minister of Finance, Corporate Affairs and Defence Arun Jaitley and Russian Defence Minister General Sergey Shoigu during the IRIGC-MTC meeting in Moscow on Friday Pic/PTI
Union Minister of Finance, Corporate Affairs and Defence Arun Jaitley and Russian Defence Minister General Sergey Shoigu during the IRIGC-MTC meeting in Moscow on Friday Pic/PTI

The markets too have a mind of their own, and last week, they chose to do nothing. The BSESENSEX gained a bit up 81.81 points, or 0.26 per cent at 31,138.21 points. NIFTY lost 13.10 points or 0.14 per cent to close at 9,574.95 points. The broader indices saw the BSE100, BSE200 and BSE500 lose ground down 0.30 per cent, 0.44 per cent and 0.60 per cent respectively. BSEMIDCAP lost 1.51 per cent while BSESMALLCAP lost 1.82 per cent.

In sectoral gainers, the top performer was BSEFMCG up 0.72 per cent followed by BSEBANKEX 0.11 per cent. The top sectoral loser was BSEPSU down 3.10 per cent followed by BSEOIL&GAS 2.78 per cent and BSEAUTO 2.06 per cent. In individual stocks, the top gainer was Reliance Industries up 3.40 per cent, followed by Sun Pharma 2.80 per cent and ITC 1.49 per cent. The top loser in stocks was ICICI Bank down 7.90 per cent followed by BPCL 6.36 per cent and Lupin 6.20 per cent.

Bears have edge
The week ahead sees June futures expire on Thursday, June 29. The current value of NIFTY at 9,574.95 points is a mere 65.20 points or 0.69 per cent higher than the May futures expiry. Monday (today) is a holiday for the markets and with three days for expiry the bulls do not have a convincing lead. The series could go anywhere. The lack of market movement and the momentum breaking, the bears are likely to take it this series.

A real hurry
The action last week was all in the primary markets, with three issues closing during the week. The way issues are getting clubbed together gives one a feeling that promoters are in a tearing hurry to raise money. They are worried that if markets have a technical correction which is imminent, then the high priced issues may not do well.

A Donald Trump poster at Marora village, unofficially renamed ‘Trump Village,’ about 100km from New Delhi. This was an unusual gesture to the American president ahead of Indian PM Narendra Modi's trip to Washington. Pic/AFP
A Donald Trump poster at Marora village, unofficially renamed 'Trump Village,’ about 100km from New Delhi. This was an unusual gesture to the American president ahead of Indian PM Narendra Modi's trip to Washington. Pic/AFP

Eye on issues
The first issue was Eris Life Sciences Ltd, which was subscribed 3.29 times. QIB portion was subscribed 4.68 times, HNI undersubscribed at 0.48 times and retail subscribed at 3.51 times. There were 3.26 lakh applications and on the basis of forms retail portion was subscribed 2.73 times. The second issue was from CDSL which was subscribed 170.61 times. QIB portion was subscribed 148.71 times, HNI subscribed 563.03 times and retail subscribed at 23.83 times. There were 18.54 lakh applications and on the basis of forms retail portion was subscribed 15.37 times.

The third issue was from GTPL which was subscribed 1.53 times. QIB portion was subscribed 1.48 times, HNI subscribed 2.85 times and retail undersubscribed at 0.99 times. There were 68,674 applications and on the basis of forms retail portion was undersubscribed 0.61 times. Very clearly, the main among the issues was CDSL.

A few questions
From the above three issues which opened and closed within six days, some things become very clear. First, the so called HNI category will apply only if the issue is funded by financers which are NBFC’s and majority are broking community and merchant bankers driven. The margin for funding should be no more than 2 per cent, which implies that the HNI portion should be subscribed by a minimum of 50 times or more. If the subscription is not on merit, and only on this presumption, why have a category separate for them and also allow them to bid for the whole of the issue? It’s high time that the regulator looked at this issue of HNI all over again. Second, where the issue is weak and subscription from retail may be found wanting, it becomes imperative to get some HNIs on board so that the issue goes through and big panic on listing does not happen. Thirdly, where the issue is good and the funding is available at a margin of under 2 per cent, HNIs tend to go overboard as they did in the case of CDSL subscribing it 563 times.

The cost of funding would imply that the issue has to list at a premium of Rs 88-90 for the leveraged investor to break even. Assuming this does not happen, there would be panic and a good issue where there was enough left on the table would be crucified because of the leveraged investor.

It is time that the regulator relooks at the categories and does away with this category known as HNI, who enjoys so much of clout. He is only a leveraged investor and brings nothing on the table for a fairly priced issue.

There is yet another issue this week which opens on Wednesday, June 28 and closes on Friday, June 30 from AU Small Finance Bank Limited. The company is tapping the capital markets with its offer for sale of 5.34 crore shares in a price and of Rs 355-358. On a price earning multiple based on diluted earnings, minus the exceptional income for the year ended March 2017, the ratio is a steep 30.23-30.49 times. On a price to book value it is over five times. One wonders whether this is the last share left on earth. Even stocks with which the company has chosen to compare itself are cheaper. Secondly, small is beautiful but not if it too expensive.

Enjoy the three trading days to expiry and the fourth day for the end of the month. Markets look tired and are likely to be under pressure providing good opportunity not enter at the first fall, as this time the crack could be deeper.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only.

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