It is dial O for optimism, thanks to a number of factors, like global cues and the fact that the world’s eyes are on India post China, that are driving the feel good vibe this week
The markets were on a roll and posted their best gains in recent times. Incidentally, there was a full five day week after three consecutive weeks of four days working. Sensex clocked a gain of 858.56 points or 3.27 per cent to close at 27,079.51 points. Nifty gained 238.80 points or 3.00 per cent to close at 8,189.70 points.
German Chancellor Angela Merkel was in India recently. She has committed one billion Euro for solar energy. Pic/AFP
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Broader markets saw BSE100, BSE200 and BSE500 gaining 2.71 per cent, 2.65 per cent and 2.62 per cent. BSEMIDCAP gained 1.10 per cent whilst BSESMALLCAP gained 2.77 per cent. In sectoral gainers, the outstanding performer was beaten down sector and the laggard of last week BSEMETAL, which gained 8.99 per cent.
The entire sector led by Vedanta, Hindalco, Tata Steel and SAIL recorded more than double digit gains. The other gainers included BSECONDUR up 6.53 per cent and BSEOIL&GAS 4.12 per cent.
Losers list
There was just one loser in BSEIT down 0.26 per cent and BSETECK marginally up at 0.05 per cent. Results season kicks in from this week. It would be interesting to see how the IT and pharma sectors perform, considering they are net forex earners. Also, one must remember the rupee has been under severe pressure during the quarter.
The panel appointed by the government to go into the minimum alternate tax for FIIs has ruled in favour of FIIs and this issue has finally been settled. Investments in the equity market by these entities will be exempt from MAT and unnecessary litigation will now die down.
The German Chancellor was here in India and she has committed a billion Euro for solar energy. The country needs renewable energy and if the same is pushed and encouraged when currently crude prices are soft, will go a long way in India making itself self-reliant in its fuel needs.
Mumbai saw a unique initiative called ‘MM’ meet where the states of Maharashtra and Michigan met for mutual development under the aegis of CII. The Lt. Governor of Michigan was present with a high powered delegation in Mumbai to present investment in his state and cooperation to the people of this country in furthering their mutual trade.
Incidentally, roughly a fifth of both states revenue comes from auto and auto related activities. Michigan provides incentives to entrepreneurs setting up investments in the state linked to providing new jobs.
Focus on India
After events in China, the world is taking a closer look at India. The country has currently the highest FDI (Foreign Direct Investment) and is ahead of China and USA. The IPO season is back and the first issue to open is mega Coffee Day Enterprises Limited which is the holding company of the popular CCD or Cafe Coffee Day.
The company plans to issue shares in the price range of Rs 316 to Rs 328 and raise Rs 1,150 crores. The consolidated entity is currently loss making and of the pre-issue market cap of about Rs 5,500 crores, roughly 45 per cent is from investments in two listed entities of Sical Logistics and Mindtree.
The company has a huge burden of debt on its books and as much as Rs 632 crores or 55 per cent of the issue amount would go towards debt repayment. Secondly, though the IT park is a profit making company it certainly cannot command the same valuations as a FMCG business as CCD would.
Investment structure
Holding companies where there is a structure of investments in group companies, typically trade at a substantial discount to the book value. A case in point is Tata Investment Corporation which trades at a 40-50 per cent discount to the NAV (Net Asset Value). Similar is Pilani Investments and why Coffee Day Enterprises should be any different?
Here the value of investments in Sical and Mindtree if discounted in a similar manner would make the issue of Coffee Day Enterprises that much more expensive. The age old saying of ‘When in doubt, stay away’ maybe the best course of action in a company which reported consolidated net losses of Rs 87 crores for the year that ended March 2015.
A world view
Global markets have had a good week and done quite well for themselves. Dow Jones rose 612.12 points or 3.71 per cent to close at 17,084.49 points. A close above 17K has happened after August 19.
Coincidentally, in India too on August 21, the Sensex had broken the 27K level which it regained on Friday, October 9. The rupee gained 77 paisa or 1.18 per cent to close at R64.74 to the US dollar.
FII’s turned buyers with purchases of Rs 1,514 crores during the week while Domestic Institutions were sellers of Rs 239 crores. For September, FII’s sold shares worth Rs 5,700 crores while domestic bought worth Rs 9,300 crores.
The week ahead sees renewed optimism in the market place. The markets would be driven by results for the July-September quarter and global cues. The Bihar elections will see the first round of polls held this week.
The week should see some more gains being added and many of the big gaining stocks could witness some profit taking while new stocks rise. Trade cautiously.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in
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 and under no circumstances should be used for actual trading or making investment decisions.
Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.
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