Markets at new highs may lead to increased volatility


The Indian rupee gained 25 paisa or 0.34% to close at Rs 74.16 to the US dollar. The Dow Jones gained 273.04 points or 0.78% to close at 35,208.51 points. Incidentally, this was a new lifetime high and the recorded intraday high was 35,247 points.

The Dow and Indian indices are currently at new highs and it looks like the momentum is only picking up, at least in India.

The RBI, at its August 4-6 policy review meeting, decided to keep key interest rates unchanged with a 5-1 vote. The position would be to keep the policy as accommodating. RBI has reduced the GDP forecast for fiscal year 2021-2022 to 9.5% from the previous 10.5%.

Over the past week, primary markets have seen four issues open on Wednesday and close on Friday. All four issues were very well received and oversubscribed. The driving force behind successful issuance is the response from retail investors which is getting frightening. So much so that in the case of one issue, Exxaro Tiles, the retail subscription alone was over 4.3 times the total subscription received from QIBs, HNIs and employees. Retail investors bid for 21.10 crore shares and there were 14.51 lakh requests while the total bid was 25.96 crore shares. The company had tapped into the capital markets with its new issue and offer for sale totaling Rs 161 crore. The issue prompted a response of over Rs 3,100 crore.

The second issue came from Devyani International Limited which had tapped the markets with its new issue of Rs 440 crore and an offer to sell 15.53 crore of shares. The number was subscribed 116.71 times with 38.40 lakh requests. The problem has received support for around Rs 1.19 lakh crore, including the Anchor Allowance.

The third issue came from Krsnaa Diagnostics Limited which had tapped the markets with a new issue of Rs 400 crore and an offer to sell 85.25 lakh shares. The show was subscribed 64.40 times and received a subscription of over Rs 44,000 crore. There were over 21 lakh requests.

The fourth and last issue came from Windlas Biotech Limited which had exploited the markets with its new issue of Rs 165 crs and an offer to sell 51.42 lakh shares. The company has collected a subscription of over Rs 6,500 crore and has been subscribed 22 times. The issue received 21 lakh requests in all.

These four issues clearly demonstrate the ability of retail investors to apply for each issue, regardless of fundamentals or activity.

The issue of Glenmark Lifesciences Limited which had received a record 39.5 lake requests and was subscribed more than 45 times was listed and had a bad release. The shares were issued at the high end of the price range of Rs 695-720 and debuted at Rs 751 and Rs 750 on both exchanges. After a tough day on the stock markets, they managed to close at Rs 748.20, a gain of Rs 28.20 or 3.92 percent. This is certainly a very poor performance on the part of the company and belied expectations.

Rolex Rings shares would be listed on Monday, August 9.

The week has four more opening and closing numbers over the coming week. Two of them would open on Monday and close on Wednesday while the other two would open on Tuesday and close on Thursday. There are two distinct characteristics attached to these issues which are the latest in this maddening pace of the IPO rush. The first is the size of these problems where they range from 3,000 crore to 5,000 crore. The second is the fact that each of these questions has a question which must be understood separately and which is important. Compare that with the last four issues where all four put together had a size of around Rs 3,600 to 3,700 crore.

The first issue comes from Nuvoco Vistas Corporation Limited, from Nirma, which raises a new issue of Rs 1,500 crore and an offer to sell of Rs 3,500 crore. The price range is Rs 560-570. The company is a cement producer and is the 5th largest producer in India and the largest in Eastern India with 22.34 million tonnes. The company has reported losses for two of the past three years due to integration and merger issues. In the future, the problem would be solved. However, at this point there is no EPS or PE.

The second issue comes from Car Trade Tech Limited, the only profitable automotive platform. The offer to sell is for 55,599,664 shares in a price range of Rs 1,585-1,618. Although the company reported a net profit of Rs 101.1 crore, including an entry of Rs 63.9 crore Rs which would be a one-time adjustment due to deferred tax. On an adjusted basis, the profit would be Rs 37.2 crore. EPS as reported by the company on a diluted basis is Rs 19.6 against Rs 5.1 the previous year. This would be adjusted to Rs 8. This means the PE for the company is staggering 200 times. Good business, a bright future and certainly market euphoria also give the stock a premium in the gray market.

The third issue is from Aptus Value Housing Finance Limited, which operates the capital markets with a new issue of Rs 500 crore and an offer to sell 6.46 lakh shares in a price range of Rs 346-353. Good company, niche market and business but requiring an unreleased book price estimate of 8.41 to 8.58 times. This is based on the company’s net asset value as of March 31, 2021 of Rs 41.12. It is clear that investment bankers and exiting PE investors believe the markets will accept any valuation. They’re right that the issue will be subscribed to, but that’s only a small part of the story. What about the life of the company’s publication list?

The latest issue is from Chemplast Sanmar Limited which delisted the company in 2012/13 and caused huge losses to investors. This company is now coming back with a reorganized company, restructured but essentially the same company and asking investors to pay Rs 530-541. The company has negative equity and the object of the issue is to reimburse the PE investor who had invested in the holding company with many conditions. While the show is going to underwrite due to the momentum, there is a bad taste in the mouth with the way the promoters have treated minority shareholders. Apply with caution.

Markets will remain volatile as they trade in new territory. While we have reached new highs and are likely to continue to rise, there would be strong retracements as well. Watching the euphoria in the primary market gives me goosebumps, a feeling I haven’t had in many years. I don’t know what the result would be, but it certainly can’t be a pleasant feeling. Allocation in primary markets is by lottery only, but after these four shows, I wouldn’t be surprised if the euphoria and enthusiasm to apply take a hit.

Use sharp rallies to record profits and equally sharp declines to buy only large cap stocks. Trade with caution and choose what you apply in primary markets.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)

arun / dpb


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