Arun Kejriwal: Rock 'n' roll

Jul 30, 2018, 07:40 IST | Arun Kejriwal

Current upbeat climate may tempt you to throw caution to the winds, but keep your feet firmly on the ground and trade wisely

Arun Kejriwal: Rock 'n' roll
Union Minister Piyush Goyal during the inauguration of five trach machines, in New Delhi. Pic/PTI

Markets were on a roll last week and the benchmark indices saw them hitting new life-time highs. BSESENSEX gained 840.48 points or 2.25 per cent to close at 37,336.85 points. NIFTY gained 268.15 points or 2.38 per cent to close at 11,278.35 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.79 per cent, 2.93 per cent and 3.06 per cent respectively. BSEMIDCAP was up 4.50 per cent while BSESMALLCAP was up 4.43 per cent.

July eye
Over the last 12-13 years, July has been a successful month for stock markets, with the indices gaining in each successive year. July 2018 has been no different with NIFTY up 564.05 points with two trading sessions yet to go. July futures was virtually a one-way street for bulls and the series gained 578.20 points or 5.18 per cent to close at 11,167.30 points.

Cement tops
The top sectoral gainer was BSEMETAL up 6.24 per cent followed by BSEFMCG 4.64 per cent and BSEREALTY 4.49 per cent. The top loser was BSEIT down 0.38 per cent followed by BSETECH 0.04 per cent. In individual stocks, the top gainer was cement major ACC up 15.78 per cent followed by Ambuja ITC 9.51 per cent. The top loser was Bajaj Auto down 6.08 per cent followed by HeroMoto 5.60 per cent and Yes Bank 4.53 per cent.

July series expired on a positive note and the series gained 578.20 points or 5.18 per cent to close at 11,167.30 points. The Indian Rupee gained 19 paisa or 0.28 per cent to close at Rs 68.65 to the dollar. Dow Jones too chipped in and gained 392.94 points or 1.54 per cent to close at 25,451.06 points.

Offer array
In primary market news the offer for sale from HDFC AMC was a runaway success. The offer for sale of 2.54 crore shares was oversubscribed 83.06 times. QIB portion was subscribed 192 times, HNI portion 195 times and retail portion was subscribed 6.73 times. What is heartening is the fact that there were 25.30 lakh applications which is a new record by itself, overtaking the previous best of Cochin Shipyard and HUDCO. Cochin Shipyard saw 20.75 lakh applications while it was 20.13 lakh for HUDCO. The demand for this share has seen the addition of over 4.5 lakh applications for the first time. Comparing like to like, one must remember that in PSU issues there is a retail discount of around 3-4 per cent which was not there in the case of HDFC AMC.

Sharp rise
The cost of funding for the HNI which used to hover around 5 per cent went up sharply to around 10 per cent for this issue. The subscription of 195 times, translates to an interest cost of R410. Depending on the rate of interest which hovered between 9.75 per cent-10.5 per cent the cost could vary between Rs 400-430. Indicative prices suggest that the share commands a premium of R600 or thereabouts, implying huge upside for leveraged investors. The total amount raised by this issue including the anchor allotment is a massive R1.72 lakh crore. The liquidity in the markets is indeed at very high levels.

Shares of TCNS Clothing Co Ltd will list on Monday July 30. The current buoyancy in markets will help during the listing. The issue was subscribed 5.27 times overall.

Apt time
The revival of the markets could not have come at a better time than this and this writer had been advocating buying into the market over the past month or so. Having been proved correct the question to be answered is: what next? Market momentum is too strong for things to just fizzle out. However, the movement in Smallcap and midcap stocks would be more pronounced going forward. While SENSEX and NIFTY are at all-time highs, Midcap and Smallcap are lower by 15 per cent and 22 per cent respectively from their January 2018 highs.

A balance
With such a difference in performance of benchmark indices and the mid and small cap indices, they are at best trying to play catch up. While the gap could narrow substantially, it can never be made up in the medium term. Allow your smaller stocks to gain before cashing out on them, but do not get carried away by momentum. The advice here would be to not get carried away and invest more in these smaller stocks. Keep your balance and begin to take money off the table as this rally in these small cap stocks may not last very long. Trade with extreme caution.

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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