Trade wars between China and USA leave global investors nervous
Workers transfer soybeans at a port in Nantong in China's eastern Jiangsu province. China retaliated by imposing 'equal' tariffs on US products, following a decision by US President Donald Trump to slap duties on $50 billion of Chinese products. Pic/AFP
Markets were choppy, and gains registered on Tuesday, June 12, helped markets close with small weekly gains. BSESENSEX gained 178.47 points or 0.50 per cent to close at 35,622.14 points. NIFTY gained 50.05 points or 0.46 per cent to close at 10,817.70 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.35 per cent, 0.29 per cent and 0.30 per cent respectively. BSEMIDCAP lost 0.13 per cent but BSESMALLCAP gained 0.44 per cent.
Top gainer
The top sectoral gainer was BSEHEALTHCARE up 6.13 per cent followed by BSEIT 2.83 per cent and BSETECK 2.15 per cent. The top sectoral loser was BSEMETAL down 3.34 per cent followed by BSEPOWER 1.79 per cent and BSEOIL&GAS 1.74 per cent. In individual stocks, the pharma names were right on top. Dr Reddy gained 12.25 per cent followed by Lupin 10.88 per cent, Cipla 8.78 per cent and Sun Pharma 7.50 per cent. The top loser was Tata Steel down 5.93 per cent followed by Indian Oil 5.00 per cent, ONGC 4.87 per cent and NTPC 3.52 per cent.
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The rupee
The Indian rupee depreciated 51 paisa or 0.75 per cent to close at Rs 68.01. Dow Jones was down 226.05 points or 0.90 per cent to close at 25,090.48 points. The US FED raised interest rates by 25 basis points and indicated that more would follow. The rates are now 1.75 per cent to 2 per cent and indication of at least four more hikes have been suggested or indicated by the Fed Chairman in the current year as the economy is on a sound footing.
Trade wars
The trade wars have suddenly escalated with US putting a 25 per cent duty on imports of 50 billion dollars of import from China with effect from July 6. Not to be undone or considered weak, China retaliated with similar duties on 34 billion dollars of import from US. This happened post market on Friday and is bound to have ramification when trading resumes on Monday globally. While the issue with North Korea was more of posturing, this could be more damaging to the world as neither wants to blink. Who will win is difficult to judge but suffice to say the world will suffer. This new bout of trade wars will keep global markets nervous.
Active again
Primary markets are becoming active again with two issues opening and closing during the week ahead. The first is the government company from the ministry of Railways, RITES. RITES is tapping the markets with its issue of 2.52 crore shares in a price band of Rs 180 to Rs 185. The issue opens on Wednesday, January 20 and closes on Friday, January 22. There is a discount of Rs 6 per share for retail investors and eligible employees. The issue is attractively priced with an EPS of Rs 17.63 for the year ended March 2017 and Rs 12.14 for the nine-month period ended December 2017. The price earnings multiple based on March 2017 would be 10.21-10.49 which is very attractive. The poor performance of some of the recently listed PSU offerings would have prompted 'DIPAM' to price this issue attractively.
Tender offer
TCS board has recommended a buyback of shares by tender offer at a price of R 2,100 which is a premium of Rs 258.55 or 14 per cent to the closing price of Rs 1,841.45 on June 15. The company would spend Rs 16,000 crore on the same. Not comparable as the companies are of a class apart, Vakrangee which had proposed a buyback a few months ago to prop the falling share, announced a new capital allocation policy under which it would invest in setting up new ATMs. One wonders how much one could rely on this announcement. The second issue is also an offer for sale of 76.65 lakh shares of Rs 5 each in a price band of Rs 780-780 from speciality chemical company Fine Organics Limited. The EPS for the year ended March 2017 is Rs 26.24 while for the nine-month period ended December 2017 is Rs 19.87.
Issue eye
There was a recent issue from Galaxy Surfactants which is in a similar line of business and can be classified as a competing business, which received excellent response from QIB's and is now trading at a discount to its issue price. Galaxy had issued shares at R 1,480, made a high of Rs 1,742.80 at listing time and have been slowly but surely declining to now trade at R1.273.30, a discount of Rs 13.97 per cent to its issue price. Fine Organics is offering shares at a PE multiple of 30.52-30.63 times based on its March 2017 numbers. While the issue would get subscribed as there would be a grey market premium and so on and so forth, it does not leave scope to make money on a sustainable basis. Further, the company in its RHP on page 69 has stated the EPS for the nine-month period ended December 2017 as Rs 26.38 which is incorrect as the same is on an annualized basis. There is no note, asterisk or qualification for the same. It sure makes the EPS misleading. The issue is expensive and leaves no scope for appreciation in the medium term.
With realignment of mutual funds as per SEBI guidelines due for completion by June 30 approaching, volatility in mid and small-cap is likely to increase. Use any sharp dips in individual stocks to enter the market.
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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