By Arun Kejriwal
The week that ended April 29 was full of sudden moves on both sides. The week started with an expected decline, rose the next day, fell the next day and continued to alternate between gains and losses throughout the week. By the end of the week, he had lost three of the five days. What was eventful was that Friday was the reversal day where the markets initially gained and in the last hour just cracked.
In the process, the chart formation was that of an engulfing candle where the highs and lows of the previous days were broken through and the market closed lower. The week closed with a small net change that does not reflect the market movement. BSESENSEX lost 136.26 points or 0.24% to close at 57,060.89 points while NIFTY lost 69.40 points or 0.40% to close at 17,102.55 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.44%, 0.56% and 0.69% respectively. BSEMIDCAP lost 1.14% and BSESMALLCAP even more at 2.17%.
The Indian rupee gained 6 paisa or 0.08% to close at Rs 76.42 per US dollar. Dow Jones experienced another selloff on Friday when it lost 939 points. This is the second consecutive Friday where he lost more than 900 points. The week ended with losses of 834.19 points or 2.47% to close at 32,977.21 points. The Dow Jones has lost 9.25% since the beginning of the year and is very close to the level of 10% when the United States worries about its markets. The Nasdaq lost 4.17% for the week and is now down 21.16% year to date. It closed at 12,334.64 points and hit a new low on Friday.
The US Fed meets on May 3-4 and would raise interest rates. While 50 basis points is a certainty, there is a growing sense that the way inflation is shaping up, the upside could be even more.
The week ahead has a holiday on Tuesday and looking at the Dow on Friday, our markets open would be lower on Monday. With Tuesday’s holiday and Fed meeting coming up, even lower prices would not appeal to investors or traders as they would be cautious. Expect markets to trend only after what the Fed did on Wednesday night.
April futures expired with the bears. The only saving grace was the fact that the markets rallied on Thursday and allowed the bulls to recover some ground. The series ended with losses of 219.70 points or 1.26% to close at 17,245.05 points.
In primary market news, we had two issues that opened and closed for subscription during the week. These problems were the first under the new guidelines which limited funding to just one crore per individual. There was also the bifurcation of the HNI bucket into two segments of 5% and 10%, the former being 2-10 lakhs and the latter 10 lakhs and above.
The first thought that comes to mind after the subscription is the fact that the HNI subscription has cooled down considerably. The subscription is only 22.25 times and only 3.73 times in the HNI category respectively. The days of subscription starting at triple digits and going up to 400 and 500 times are definitely a thing of the past. It has also reduced premiums significantly as there are no financing costs. While all seems to be going well at the moment, the stock exchanges have chosen not to give the break of the two HNI subscription tranches for reasons they know best. Through this article, I would ask SEBI to lead the exchanges to disseminate information as it is in the interests of investors.
The issue of Campus Activewear Limited, which had tapped the markets with its sell offer of 479.50 lakh shares in a price range of Rs 278-292, was oversubscribed 51.75 times in total. The QIB unit was subscribed 152.04 times, the HNI unit 22.25 times, Retail 7.68 times and Employee 2.11 times. In the 10 lakh plus category, about one in three applicants would get shares worth Rs 2 lakhs.
The second issue came from Rainbow Children’s Medicare Limited, which tapped the markets with its new issue of Rs 280 crore and a sell offer of 2.4 crore shares in a price range of Rs 516-542. The issue was subscribed 12.42 times with the QIB share subscribed 38.90 times, the HNI share subscribed 3.73 times, the Retail share subscribed 1.38 times and the Employee share subscribed 0.31 times. HNI applicants in the 2 lakh plus category would get a full award. I think it would take some trouble for investors to figure out where they should apply in the future.
In the coming week, Life Insurance Corporation of India Limited will tap the markets with its sell offer of 22.13 crore shares in a price range of Rs 902-949. The show would anchor on Mondays and the show would open on Wednesdays and close on May 9. The issue is open for subscription for four days. This issue, which would be the largest to ever hit the capital markets, would raise around Rs 21,000 crore.
The issue has a 10% reserve for policyholders, which is the first time such a reserve has been made. They are also entitled to a discount of Rs 60 per share. The quota for employees is also 10% and together with retail investors, they would get a discount of Rs 45 per share.
The issuance which is said to have a market capitalization of around Rs 5.92 lakh crore is priced at 1.1 times its EV or Intrinsic Value. This matches China’s large, mature international insurance companies that have the size and scale of LIC.
The government is selling 3.5% of the company and has pledged to investors that there will be no stock dilution for at least 12 months after listing. This one-year holding period is sufficient to allow the stock to establish its price and its place on the capital markets.
As for the likely answer, the opportunity that LIC has in the Indian markets, its growth over the last 22 years when privatization took place and the fact that insurance is highly under-penetrated in India, offers a excellent opportunity to investors considering LIC. This is an unmissable investment opportunity.
Coming into the markets in the coming four-day week, they would be volatile and choppy. As mentioned earlier, they would be under pressure on Monday when the markets open. Going forward, the key event would be the Fed’s interest rate hike meeting which would be known to all on Wednesday night. Global markets would react to the same on Thursday morning. Looking at the trend and direction, the markets are in a range bound move where they tend to hit the lower and upper band every week. The group is 56,000-58,000 on the BSESENSEX and 16,800-17,400 on NIFTY. For the markets to move in either direction, they must break out of these levels and then maintain the same. Currently, we seem to find this difficult.
However, this range bound movement provides trading opportunities. How long that would last is debatable. I believe this is the week the markets will decide their trend one way or the other. Trade cautiously.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)