Sit on the sidelines as weakness creeps in and the mother of all bombs has to yet make an impact
A group gathers around a GBU-43B, or massive ordnance air blast (MOAB) weapon, on display at the Air Force Armament Museum on Eglin Air Force Base near Valparaiso, Fla. US forces in Afghanistan struck an Islamic State tunnel complex in eastern Afghanistan with a GBU-43B, the largest non-nuclear weapon ever used in combat by the US military. Pic/AP/PTI
The markets had a negative bias last week and lost on three of the four trading days. The BSESENSEX was down 245.16 points or 0.83 per cent to close at 29,461.45 points while NIFTY lost 47.50 points or 0.52 per cent to close at 9,150.80 points. The broader indices saw the BSE100, BSE200 and BSE500 lose 0.69 per cent, 0.17 per cent and 0.01 per cent respectively. BSEMIDCAP gained 0.83 per cent while BSESMALLCAP was up 1.36 per cent respectively. The top performing index was BSEREALTY up 2.33 per cent followed by BSEPSU 2.14 per cent and BSEOIL&GAS 1.85 per cent. The losers were led by BSEIT down 4.11 per cent followed by BSEMETAL 4.10 per cent and BSETECH 3.49 per cent.
Brace for impact
In individual stocks, the top gainer was Bharat Petroleum up 8.24 per cent followed by its fellow colleagues Indian Oil 6.54 per cent and Hind Petroleum 4.54 per cent. Other gainers included Bank of Baroda up 4.03 per cent. The losers were led by metal and IT stocks with Vedanta down 9.16 per cent. Sail was down 6.63 per cent followed by Hindalco 5.19 per cent and Infosys 5.08 per cent.
The Indian Rupee lost 13 paisa or 0.20 per cent to close at Rs 64.41 to the US Dollar. Dow Jones lost 202.91 points or 0.98 per cent to close at 20,453.25 points. The US dropped its 'MOAB' (mother of all bombs) on Afghanistan where the ISIS is holed up in tunnels on Thursday night, when US markets were open. Friday was a global holiday and the impact of the same has not yet been felt.
Union Minister for Finance, Corporate Affairs and Defence Arun Jaitley addresses the audience during the 33rd Annual Session of FICCI Ladies Organization (FLO) in New Delhi. Pic/PTI
The fatigue factor
Our markets were weak and seem to be now suffering from the fatigue factor. Even before the bomb happened, the metal and IT sectors had turned weak and bearish. It appears the markets need to reason to consolidate and the bomb could be a very good excuse for the same.
Thursday saw Infosys kickstarting the result season, with results being declared and not enthusing the market at all. The numbers were just not enough and saw the stock lose ground. Infosys lost 3.86 per cent for the day and 5.08 per cent for the week. The company has guided for the year 2017-18 with constant currency growth of 6.5 per cent-8.5 per cent which has not been liked by the market. This guidance is rather muted and for a growth stock like Infosys is just not enough. It has also committed to returning Rs 13,000 crore to shareholders by way of dividend and buyback of shares. All this gives an impression that things are just not going right for the company, and to keep stakeholders happy it has announced this. It could also mean that the former promoters might be happy that the company is returning excess cash.
Price is king
Shares of CL Educate are currently trading in the trade to trade category as the issue size was less than Rs 250 crore. The company had through a simultaneous fresh issue and offer for sale of shares raised Rs 238.95 crore in a price band of Rs 500-502. The total size was 47.60 lakh shares. The volume in the last nine days has been quite low and a cumulative volume traded is 9.81 lakh shares which is 20.61 per cent of the IPO size and 29.45 per cent, if one considers the non-anchor portion. Considering the fact that the share would trade under normal market, the share is likely to see huge volatility from Tuesday and it would be interesting to see where the share goes from here. Clearly, the education sector is under pressure and this company did not help matters by making it an overvalued offering. Our markets have a famous saying "Bhav Bhagwan Hai". The phrase translates to Price is King. This is yet another example that the market has rejected the price discovered by the promoters and merchant bankers.
In the present state of affairs where there is a huge pipeline of issues and a strong investor demand for new paper, greedy promoters do not spoil or vitiate the atmosphere by overpricing. The true test for CL Educate would be Tuesday onwards. The share closed on Thursday at Rs 425.70, a loss of 15.20 per cent from issue price. Markets are looking jaded at the moment. Allow them to find their own level, post what the US did on Thursday night in Afghanistan. Any meaningful correction is an opportunity to buy. If they drift though, staying on the sidelines would be beneficial.
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.