Great expectations

Aug 25, 2014, 08:48 IST | Arun Kejriwal

Investors are expecting new highs to be touched in this week; so wait, watch and invest is the clarion call

The markets continue to be on a roll and posted new highs on the first two days of the last week and ended with a new high on the last day of the previous week to close above the 7,900 mark. The BSESENSEX gained 316.32 points or 1.21 per cent to close at 26,419.55 points. The Nifty gained 121.50 points or 1.56 per cent to close at 7,913.50 points.

Investors can expect to see some highs at the Bombay Stock Exchange (BSE). Pic/Bipin Kokate
Investors can expect to see some highs at the Bombay Stock Exchange (BSE). Pic/Bipin Kokate

Gain time
The broader indices like the BSE100, BSE200 and BSE500 gained 1.93 per cent, 2.09 per cent and 2.28 per cent respectively. The BSEMIDCAP gained 3.70 per cent and BSESMALLCAP gained 4.83 per cent. The top sectoral gainers were BSECONDUR up 5.39 per cent followed by BSEBANKEX up 4.92 per cent and BSEAUTO up 4.20 per cent. There was just one loser, BSEFMCG which was down 1.32 per cent.

In individual stocks, the gainers were led by Union Bank up 15.04 per cent, followed by Cipla up 11.18 per cent. The oil marketing companies put up a stellar performance with HPCL gaining 10.65 per cent, BPCL gaining 9.76 per cent and IOC gaining 7.20 per cent. The losers were led by HDFC down 7.11 per cent and ITC down 3.66 per cent. Beleaguered steel company Bhushan Steel lost 22.52 per cent to close at Rs 124.35.

FIIs have continued their purchases and bought equity worth Rs 1,665 crores while domestic institutions were buyers of Rs 895 crores. The Indian rupee gained Rs 0.30 or 0.49 per cent to close at Rs 60.46. FII’s have in recent times upped their investments in the debt market and this is helping the rupee stage a rally.

The week ahead sees the August futures expire on Thursday, August 28. The current level of Nifty at 7,913 is higher than the July series expiry by 191 points or 2.47 per cent giving bulls the upper hand. The target for expiry is to see Nifty at a level of 8,000 which is more of a psychological level.

Time to be strong
The correction is long overdue and all market participants are talking about it. Markets are moving from strength to strength. The inevitable correction would happen when people least expect it. The most probable time would be post expiry and the beginning of the new series.

This week sees the first IPO opening on Tuesday, August 26 from Snowman Logistics Ltd. The company is issuing 4.2 crore shares in a price band of R 44-47 and would raise R 185-197 crores. It reported revenues of Rs 155 crores and a net profit of Rs 23.22 crores for March 2014. The company would raise its pellet capacity from the present 61,543 to 85,000 in March 2015 and further to 1,00,000 in March 2016.

The issue looks expensive when one talks about PE and earnings per share but this is a capital extensive business with a very short payback period. The company should be able to increase its top line to Rs 260 crores in the current year comfortably.

Even though the EBITDA margins would remain high one needs to remember that this company is able to deprecate its assets by 150 per cent in the first year. It makes sense to apply for the minimum 300 shares as the allotment for the same would be by way of lottery.

Banking stress
The banking system is under a lot of stress and the recent revelations of bribery are exposing the system. In a further tightening of measures RBI last week laid down a stipulation that loan against shares by NBFC's could only be in Group 1 with a loan of 50 per cent. This means that you get half the amount as loan.

The big safety factor and positive for NBFC’s is that any loan given by NBFC will have to be now reported to the stock exchanges which will have a ready reckoner list of an individual’s exposure and an exposure against a particular stock. This has been done with markets reaching new highs and becoming vulnerable to sharp selling in individual stocks when mark to market calls are made and stocks sold.

The week ahead would be driven by global cues and August futures expiry. Expect turbulence and a choppy Thursday. Watch out for the Nifty scaling 8,000 and shortly thereafter the Sensex at 27,000. Trade cautiously. Use sharp dips to invest.

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

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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