Trade cautiously

Aug 06, 2018, 07:05 IST | Arun Kejriwal

It's time to book profits and resist the temptation of buying stocks which do not have fundamentals

Trade cautiously
A man walks out of an Apple store in lower Manhattan. On Thursday, the company became the first American public company to cross $1 trillion in value. Apple stock is up more than 20% this year. Pic/AFP

The week gone by was volatile and had plenty of drama as well. It gained on three of the five trading days, with the last two days witnessing movement of over 350 points each on the BSESENSEX. While Thursday saw markets losing, Friday was a day of gains. The BSESENSEX gained 219.31 points or 0.58% to close the week at 37,556.16 points. NIFTY was up 82.45 points or 0.73% at 11,360.80 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.85%, 0.95% and 1.04% respectively. BSEMIDCAP gained 1.82% while BSESMALLCAP was up 2.28%.

The top sectoral gainer was BSEHEALTHCARE up 4.41% followed by BSECONDUR 3.47% and BSEOIL&GAS 2.41%. The only sectoral loser was BSEAUTO down 0.61%. In individual stocks the top gainer was Dr Reddy up 8.76% followed by Lupin 8.01% and Bank of Baroda 7.69%. The top loser was Eicher Motors down 7.39% followed by HDFC Bank 3.87%, HDFC 3.55% and Tata Motors 3.46%. The Indian Rupee gained 4 paisa or 0.06% to close at R68.61. Dow Jones gained 11.52 points or 0.05% to close at 24,462.58 points. RBI raised interest rates on expected lines and repo rates now stand at 6.50%, up by 25 basis points. Similarly, reverse repo rates have been raised as well and stand at 6.25%. This was the second consecutive interest hike by 25 basis points.

Apple hits a high note
Apple, the I-phone maker's market capitalisation has hit the one trillion-dollar mark and becomes the first share to command such a market cap. In India the highest market capitalisation is that of Reliance Industries which was 108.71 billion dollars as of Friday's closing. In primary market news, shares of TCNS Clothing Company Limited listed on Monday and did not have a very good showing. Shares were down R58.20 or 8.13% at R657.80 against the issue price of R716. They recovered during the week to close at R668.40, down R47.60 or 6.65%.

Shares of HDFC AMC would list on Monday, August 6. They had received overwhelming support and saw a new record level of retail participation as well. Shares were issued at R1,100 and grey market premiums have been fluctuating between R500-600 on a broad level. Continuing with the primary market the issue from Credit Access Grameen Limited opens for subscription on Wednesday, August 8 and closes on Friday, August 10. The issue consists of a fresh issue of R630 crore and an offer for sale of 1.18 crore shares in a price band of R418 to 422. At the top end of the band the company would raise R1,131.18 crore. The EPS on a fully diluted basis would be R12.11 for the year ended March 2018. The PE multiple based on March 18 numbers would be 34.84 times.

The company is into the microfinance business and is present in 132 districts in 8 states and 1 union Territory (Puducherry). The company believes in a contiguous district model and this helps in better efficiencies. The total AUM (assets under management) is R4,974 crore and it has been growing at a CAGR of over 57%. The company has infused capital through its multinational promoter Credit Access in 2018 and this would show results in the current financial year. The parent runs micro finance business in three other countries in Asia namely, Philippines, Indonesia and Vietnam. Incidentally the same company also had a stake in Equitas which it sold when the company went public.

There are two different kinds of micro finance companies these days with some going down the route of SFB or small finance bank and others which follow the simple micro finance route. Credit Access Grameen believes in the latter and has a rural focus. The company has 73% of its AUM in rural areas and has a current active customer base of 1.85 million customers. With fresh capital raised last year, and more through the listing, it is well poised to grow its AUM and the same would suffice for the next three years at the bare minimum.

It also has a low gearing and that could be done to maximise its returns to shareholders. Considering the demand for money in rural India, one could well imagine the potential for this company. Looking at the differential model of the company, it stands out amongst the recent issues from its peers like Equitas, Ujjivan and AU Small Finance Bank. The only one with which it is somewhat comparable is Bharat Financial Inclusion earlier known as SKS Micro Finance, and now taken over by Indus-Ind Bank. I believe this share would offer returns in the immediate short term and fare even better in the medium and long term.

Markets should continue their momentum and gain during the week. This present rally would end in euphoria and till those signs are available, one could remain long in the market. One needs to be booking profit and resist the temptation of buying stocks which do not have fundamentals. The temptation to buy in conditions which would be euphoric is tough to resist. Trade cautiously.

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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