The Correction Effect

Sep 15, 2014, 07:59 IST | Arun Kejriwal

Caution is the buzzword for investors as Dalal Street is set to see some flip-flops in coming days

The markets began with a big bang last Monday and then went into correction mode with a small rally last Friday to keep the 27K and 8K marks intact on the Sensex and Nifty. The real story of the last week was the sharp gains recorded by the midcap and smallcap stocks which would put radars on alert for the coming days.

A tourist clicks a picture of the Bombay Stock Exchange (BSE) on his mobile phone. Pic/Bipin Kokate
A tourist clicks a picture of the Bombay Stock Exchange (BSE) on his mobile phone. Pic/Bipin Kokate

Gains and losses
The last week ended with the BSESENSEX gaining a tad at 34.54 points or 0.13 per cent to close at 27,061.04 points, while the Nifty gained 18.65 points or 0.23 per cent to close at 8,105.50 points. The broader markets saw the BSE100 gain 0.42 per cent; BSE200 gain 0.80 per cent and BSE500 gain 1.06 per cent. The BSEMIDCAP gained 3.25 per cent while the BSESMALLCAP gained 5.08 per cent.

In sectors, the top performers were BSEAUTO up 2.02 per cent followed by BSEFMCG at 1.82 per cent and BSEBANKEX 1.69 per cent. The losers were led by BSEOIL&GAS down 0.83 per cent and followed by BSEIT down 0.64 per cent and BSECAPGOOD down 0.30 per cent.

In individual stocks, the gainers were led by Cipla up 9.91 per cent and followed by GE Shipping 6.88 per cent and Canara Bank 6.80 per cent. On the losing side were Ranbaxy down 6.46, Sun Pharma down 6.06 per cent and SAIL 5.69 per cent.

The Supreme Court reserved the order in the coal block allocation case and may announce it in the coming weeks. The IIP for July saw a contraction slipping to 0.5 per cent against 3.9 per cent in the previous month. On the other hand, the consumer or retail inflation for August fell further to 7.80 per cent against 7.96 per cent.

This augurs well. The cabinet has cleared divestment of three PSU companies through OFS (Offer For Sale). These are Coal India, ONGC and SAIL and as is expected all these lost ground during the week post clearance.

Going up
In IPO news, Snowman Logistics Limited listed a really superb start and was locked at upper circuit with gains of 69.7 per cent on its issue price of Rs 47 to close at Rs 79.75. The upside is likely to continue in the coming week.

Of these shares, Reliance Mutual fund and an HNI have taken delivery of close to 60 lakhs shares at around the circuit price of the day. If these investors like the share at a price of around Rs 80 they sure must be expecting some up movement.

Yet another issue opens this week in the primary market this time from Shemaroo Entertainment Limited. The company plans to raise Rs 120 crores in a price band of Rs 155-170 and is offering a discount of 10 per cent to retail investors.

The issue is certainly not in the same class of the earlier two issues and is trying to time its entry to take advantage of the goodwill generated. The issue on a fully diluted post issue is valued between 15.68 times and 16.76 times March earnings, not cheap by any standards.

This is a working capital intensive company with receivables a huge concern. I would recommend that investors stay away from this issue and not get carried away by the discount.

Essar Oil has announced its intention to delist from the bourses and this is a sure shot sign of the fact that good times are here for this sector. This investor unfriendly company has never in its history benefited minority shareholders and probably would have the distinction of being the most hated industrial house by investors.

If one sees the share price of the entire PSU pack of oil marketing companies has gained significantly since the beginning of the current financial year with BPCL up 70 per cent, HPCL up 59 per cent and IOC up 43 per cent.

Some surprises
What is indeed a pleasant surprise is that Essar Oil in the same period gained a whopping 146 per cent moving from Rs 51 to Rs 125.75. It makes sense to sell shares in the market as the delisting offer would be opening shortly and selling in the market and paying STT (Securities Transaction Tax) is a more efficient tax planning than paying capital gains when tendering shares.

While I firmly believe that this oil gas sector is likely to see good times it make sense to remain with the PSU pack or Reliance or a combination rather than with this unfriendly group who would never benefit its shareholders.

FIIs were buyers of Rs 2,548 crores during the week and domestic institutions were sellers of Rs 592 crores. The rupee depreciated marginally to R 60.65 and lost 26 paise or 0.43 per cent. The week ahead is likely to see consolidation and it would make sense to take money off the table. Markets are feeling tired and fatigue factor has certainly set in. 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

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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