Brace for Swing, Trade with Care

It is time to be cautious, as the wild gyrations last week are not giving comfort. The strategy would be to sell on any rallies and buy on sharp dips…writes Arul Kejriwal

The week went by and had four trading days with a mid-week holiday on May 1, thereby making it two periods of two days each. The volatility witnessed was several notches higher than usual. Surprises one to note that just about 10 days ago, India VIX, which is the volatility index, crashed to a new low. Maybe it was the lull before the storm.

On Tuesday and Friday, NIFTY made new highs and then fell sharply, closing in the red. Not sure how one should read it, but the scene is not comfortable. At the end of the week, BSESENSEX gained 147.99 points or 0.20 per cent to close at 73,878.15 points, while NIFTY gained 55.90 points or 0.25 per cent to close at 22,475.85 points.

The broader indices saw BSE100, BSE200 and BSE500 gain 0.55 per cent, 0.70 per cent and 0.61 per cent respectively. BSEMIDCAP was up 1.99 per cent, while BSESMALLCAP was down 0.10 per cent. Plenty of mixed signals in the marketplace. Markets gained on two sessions and lost on two. Incidentally, gains and losses alternated with Monday and Thursday gaining while Tuesday and Friday were losing days.

The Indian Rupee lost eight paise or 0.10 per cent to close at Rs 83.42 to the US Dollar. Dow Jones was on a roller coaster ride with gains on four days and losses on one day. Wednesday saw the FED meet for its policy review meeting, where they decided on expected lines to keep interest rates unchanged.

After the meeting, the commentary spelt out very clearly that inflation higher than 2 per cent will not see any rate cuts. This saw markets rallying sharply on Thursday and Friday. One wonders why markets in the US are hell-bent on just a rate cut. One needs to see that economic data is red hot and points to a booming economy. Things could not be better. Why bother about a rate cut at all?

Coming to our markets and the crazy movement we witnessed last week. Tuesday, April 30, saw NIFTY make a new lifetime high at 22,783 points. The previous day’s close was 22,643 points.

After the high, markets fell sharply and closed at 22,604 points and closed in the red, losing 39 points. BSESENSEX made a high at 75,111 points but did not make a new high. The previous day’s close was 74,671 points. From there, the market fell to 74,488 points, losing 183 points.

Friday, May 3, was even more volatile.

NIFTY made a new lifetime high yet again at 22,794 points against the previous day’s close of 22,648 points. It fell very sharply to close at 22,475 points, a loss of 319 points from the high and 173 points from the previous day’s close.

BSESENSEX made a high at 75,095 points against the previous day’s close of 74,611 points. From there, it fell very sharply to lose 1,217 points from the high and 610 points from the previous day’s close. Indeed, very volatile and a bit scary.

The week ahead has three primary issues tapping the capital markets. Indegene Limited is tapping the markets with Indegene Limited tapping the capital markets with its fresh issue for Rs 760 crore and an offer for sale of 2,39,32,732 shares in a price band of Rs 430-452.

The issue would open on Monday, May 6, and close on Wednesday, May 8. The fresh issue and offer for sale would raise Rs 1,841 crore at the top end of the price band.

The company provides digital-led commercialisation services for the life sciences industry, including bio-pharmaceutical, emerging biotech and medical devices companies, that assist them with drug development and clinical trials, regulatory submissions, pharmacovigilance and complaints management, and the sales and marketing of their products.

Indigene is an integrated solutions provider, and almost 85 per cent of its revenues come from its US subsidiary.

The company reported revenues of Rs 2,306 crore for the year ended March 23, an EBITDA of 19.69 per cent, and a Profit after-tax margin of 11.54 per cent. In absolute terms, the profit after tax was Rs 266.09 crore. The EPS on a fully diluted basis was Rs 11.97. At this EPS, the PE band for the issue is 35.92-37.78.

There is no comparable company or peer set in the Indian space, while there are some comparable foreign companies globally. The share offers an opportunity for investors with a medium to long-term outlook. There could be listing pop, as well as available considering that markets are at lifetime highs or thereabouts.

The second issue is from Aadhar Housing Finance Limited. The issue is entirely an offer for the sale of Rs 2,800 crore. The price band is Rs 300-315. The selling shareholder is the promoter. This company was acquired from the DHFL group when they fell on bad times around 2016-17.

The company acquired was clean and had no issues while the group was struggling with various issues. The issue will open on Wednesday, May 8, and close on Friday, May 10. The company is a housing Finance company focused on the low-income housing segment with a cap on ticket size at Rs 15 lakh.

In terms of performance, the company reported a gross AUM of just under Rs 20,000 crore at the end of the nine-month period ended December 2023. A mix of the clients they serve is 60 per cent salaried and 40 per cent self-employed. The average ticket size is between Rs 9 lakh to 10 ten lakh.

The company reported an EPS of Rs 13.8 for the year ended March 2023, which on a fully diluted basis was Rs 13.4. The PE band for the issue of diluted earnings is 22.4-23.5. NAV for the company at the end of December 23 is Rs 107.6. The price to book at this NAV is 2.92 at the top end of the band.

Based on the post-issue, the NAV would improve to Rs 123.07 at the top end of the band, and the same ratio would be at 2.56 times the price to book. This compared more than favourably with the peer set. There is money to be made in the issue in the medium to long term. There would be some listing pop as well.

The third issue is from TBO TEK Limited. It consists of a fresh issue of Rs 400 crore and an offer for sale of 1,25,06,797 equity shares. The price band is Rs 875-920. The issue would open on Wednesday, May 8, and close on Friday, May 10.

The company operates an online B2B travel portal distribution platform that connects buyers and sellers. It is present in the airline and hotel business currently. It earns a commission from the airlines whose tickets are sold on the platform while it charges a markup on the rooms sold on the platform.

The company is in a negative working capital cycle as it pays after receiving the money. It is adding new offerings on the platform and has recently added the Eurail on its platform recently.

The company reported an EPS of Rs 14.07 on a fully diluted basis for the year ended March 2023, and the PE band would be 62.19-65.39 on this EPS. There is no comparable peer in India in this space, and the listed players are basically online travel players like Make My Trip, Easy Trip and Yatra Online, who would be using the platform provided by TBO TEL Limited.

The issue offers scope on listing and in the medium to long term as well.

Coming to the markets, we are at a crossroads once again. On the upside, I would go long only if 22,800 on the NIFTY and 75,200 on the BSESENSEX are crossed and sustained. On the downside, immediate support exists at 22,100 points on NIFTY and 72,800 points on BSESENSEX. It is time to be cautious, as the wild gyrations last week are not giving comfort. The strategy would be to sell on any rallies and buy on sharp dips.

Trade cautiously.