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Rough weather

Updated on: 19 March,2018 11:04 AM IST  |  Mumbai
Arun Kejriwal |

Multiple issues and liquidity concerns rock the boat sailing towards the end of the financial year

Rough weather

Representation pic


It was a volatile week and though the losses at the end of the week were small, the same did not reflect the extent of damage that happened during the week. The BSESENSEX lost 131.14 points or 0.40 per cent to close at 33,176.00 points. NIFTY lost 31.70 points or 0.31 per cent to close at 10,195.15 points. All of this in a week when the BSESENSEX gained over 600 points on Monday and lost 500 on Friday. The broader markets saw the BSE100, BSE200 and BSE500 gain 0.02 per cent, 0.16 per cent and 0.30 per cent respectively. BSEMIDCAP gained 1.43 per cent and BSESMALLCAP gained 1.54 per cent.


Representation pic


Pressure points
Dow Jones was under pressure and lost 388.23 points or 1.56 per cent to close at 34,946.51 points. The India Rupee gained 24 paisa or 0.37 per cent to close at R 64.93. The week ahead sees March futures expire on Thursday, March 22. The current value of NIFTY of 10,1915.15 points is lower by 187.55 points or 1.84 per cent than the February expiry. With cross winds and negative news flow and the fact that the current year expires in another eight trading days, is adding pressure.

Issue view
The week ahead is full of primary market issues. The previous week saw the issue from Bharat Dynamics Limited being subscribed 1.30 times with QIB portion subscribed 1.50 times. HNI undersubscribed at 0.50 times and retail subscribed 1.41 times. The week ahead sees a bunch of issues opening. The issue from Bandhan is currently on and would close on Monday. The issue has been subscribed 0.88 times and would see the HNI demand coming in on Monday in a big way. The issue valuations are expensive but looking at the massive response from the anchor investors the same may see HNIs lapping up the issue.

Price earnings
The second issue which has opened and is due for closing on Tuesday, March 20 is from Hindustan Aeronautics Limited, the PSU which makes fighter aircraft and helicopters. The issue has a price band of R 1,215 to 1,240 with a discount of R 25 for retail and employees. The issue size is 3.41 crore shares. The price earnings multiple based on March 2017 numbers is 16.64 to 16.99 times, its EPS of R 73. The one big issue in the case of HAL is that though they have just won an order of 320 aircraft for Tejas, at the proposed ramp-up of capacity from eight aircraft to 16 that the company is planning, it would still take 20 years to execute the order. This could be a drag for the company which is a star Defence PSU of the government.

Break even
The next issue is from auto component maker Sandhar Technologies Limited which opens on Monday March 19 and closes on Wednesday, March 21. The issue consists of a fresh issue of R 300 crore and an offer for sale of 64 lakh shares in a price band of R 327-332. Based on annual results for March 2017, the PE multiple is a steep 42.69-43.34. If one were to look at half year September 2017 results and annualise the EPS of R 6.69, the price earning multiple reduces significantly to 24.43 -24.81 times. These higher earnings are plants which recently came into production have reached critical mass and reached cash break even or better.

Niche player
The next issue is from defence PSU, Mishra Dhatu Nigam Limited or ‘MIDHANI’. The company is a niche player and makes titanium and super alloys for the aerospace and space programs and supplies to defence and power plants. The company is issuing 4.87 crore shares in a price band of R 87-90 with a discount of R 3 for retail and employees. The company had earned an EPS of R 6.74 for the year ended March 2017. The company proposes to begin manufacturing at Rohtak, ‘kavach’ or bulletproof jackets and armament steel for vehicles and tanks to make them that much safer from attacks. The company has a large number of niche players in HAL, Bharat Dynamics and ISRO amongst others.

Builder buy
There is a small issue from Karda Construction which is a builder from Nashik in Maharashtra. The company is tapping the markets with its fresh issue for 43 lakh shares in a price band of R 175-180. The price earnings multiple based on March 2017 numbers is a stiff 21.79-22.42 based on earnings of R 8.03. Considering that Nashik is a tier-2 city, valuations look expensive.

Secure scene
The final issue for the week is from ICICI Securities Limited which is offering for sale 7.72 crore shares in a price band of R 519-520. The earnings for the year ended March 2017 were at R 10.48 which puts the price band at 49.4-49.5 times. The earnings for the first nine months ended December 2017 were at Rs 12.39 which if annualised come to Rs 16.52. the PE multiple at these earnings is 31.41 to 31.47. The company is promoted by a bank and therefore unlike its peers in the broking fraternity does not have a NBFC arm. The NBFC arm of brokers like Edelweiss, Motilal Oswal and IIFL have large incomes from lending against shares, margin funding and also IPO financing. ICICI Securities has begun margin trading and may push this product going forward. Their digital platform ‘ICICI Direct.COM is a market leader and enjoys premium status with their three in one account which includes trading account, savings account and demat account.

Large number
The large number of offerings from private equity investors is to cash in on the long-term gains which would expire on March 31. Whether ICICI Bank would be able to cash in on the same or not is highly doubtful as they need to get confirmations from all collecting banks within one day. While a spate of issues in the last fortnight of the year would see markets hard pressed for liquidity, March futures expiry would be yet another cause for concern. Markets are likely to be under pressure till expiry and there could be some respite Friday onwards. Trade cautiously and use sharp dips to buy.

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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