With new highs done, expect midcap and smallcap to dominate now

By Arun Kejriwal

New Delhi, Nov 28: Markets in the week gone by began with a thud, losing sharp ground on Monday. Thereafter, they began their recovery and on Thursday they achieved the object of BSE Sensex touching a new lifetime intra-day high.

Nifty still has to do it. On a closing basis, almost every day is a new lifetime high including Friday’s closing. Thursday saw markets gain very sharply over the last hour and this coincided with monthly futures expiry for the November series.

BSE Sensex gained 630.16 points or 1.02 per cent to close at 62,293.64 points, while Nifty gained 205.10 points or 1.12 per cent to close at 18,512.75 points. The broader markets saw BSE 100, BSE 200 and BSE 500 gain 1.0 per cent%, 1.02 per cent and 1.07 per cent, respectively. BSE midcap was up 1.83 per cent while BSE smallcap was up 1.57 per cent.

The top sectoral gainer was BSE PSU which gained 2.82 per cent led by stocks from the OMCs (oil marketing companies), railway stocks and also banking. The other important point worth mentioning is that the breath has increased significantly and on expected lines. The midcap and smallcap stocks have participated.

The Indian rupee remained unchanged at Rs 81.68 to the US dollar. Dow Jones gained on three of the four trading sessions last week. Markets were closed for Thanksgiving on Thursday. For the week, Dow gained 601.34 points or 1.78 per cent to close at 34,347.03 points.

November futures expired with sharp gains on expiry day. The series ended with gains of 747.15 points or 4.21 per cent to close at 18,484.10 points.

SEBI is seized of the matter concerning credit of bonus shares to the account of investors and the time taken for the same. One year old Nykaa had mentioned along with the bonus announcement of five shares for every share that they would take up to 60 days to credit the shares. Considering that the electronic era and demat regime takes literally a split second to do so, these 60 days reeks of ulterior motives.

It is this that SEBI is investigating and is certainly not helping the company. Further, with the share price tumbling with over 83 per cent of the shares on account of bonus not good for delivery, one wonders what would happen once they are available. One wonders who would help the company and people who chose such ways to delay the inevitable.

In primary market news, there were five listings which happened. The first to list was Five Star Business Finance Limited which had issued shares at Rs 474. The share was listed on Monday. The issue during subscription had a tepid response, falling short of subscription.

The issue size was reduced as the issue was entirely an offer for sale. The discovered price on BSE was Rs 449.75 while it was Rs 468.80 on NSE. At the end of day, the share closed at Rs 489.50, a gain of Rs 15.50 or 3.27 per cent on BSE. On NSE, it closed at Rs 490, a gain of Rs 16 or 3.37 per cent. By the end of the week, the share moved to close at Rs 512.25, a gain of Rs 38.25 or 8.07 per cent.

The second to list, also on Monday, was the issue from Archean Chemical Industries Limited which had issued shares at Rs 407. The discovered price on BSE was Rs 449. At the end of day, the share closed at Rs 457.95, a gain of Rs 50.95 or 12.51 per cent. On Friday, the share closed at Rs 532.75, a gain of Rs 125.75 or 30.90 per cent.

The third share to be listed was Kaynes Technology India Limited which had issued shares at Rs 587. The share debuted on Tuesday at Rs 775 on BSE. After a volatile session, it closed at Rs 690.10, a gain of Rs 103.10 or 17.56 per cent. At close of trading for the week on Friday, it closed at Rs 745.05, a gain of Rs 158.05 or 26.93 per cent.

The fourth share to list on Wednesday was Inox Green Energy Services Limited, which had tapped the markets with its issue at Rs 65. The issue consisted of a fresh issue of Rs 370 cr and an offer for sale of Rs 370 cr. The issue received a tepid response in the HNI category and decent response in the retail category. The share had a discovered price of Rs 60.50, a loss of Rs 4.50 or 6.92 per cent. By end of day, the loss widened to Rs 59.10. At the weekend, the loss had reduced with the share closing at Rs 62.30, a loss of Rs 2.70 or 4.15 per cent.

The fifth and final share to be listed was real estate developer Rustomjee and corporate entity Keystone Realtors Limited. The company had issued shares at Rs 541 and the share debuted at Rs 555, a gain of Rs 14 or 2.58 per cent. At the end of the day, the price had moved up to Rs 557.80. On Friday, the share closed at Rs 567.45, a gain of Rs 26.45 or 4.89 per cent.

There are two new IPOs in the week ahead. The first is from Dharmaj Crop Guard Limited which is tapping the markets with its fresh issue of Rs 216 cr and an offer for sale of 14.83 lakh shares. The price band of the issue which opens on Monday and closes on Wednesday is Rs 216-237. The bulk of the fresh issue is for the purpose of setting up a technical manufacturing facility which would be some sort of a backward integration for the company.

Dharmaj has reported a phenomenal growth in revenue from Rs 24 cr to almost Rs 400 cr in a period of five years. Formulation is a much easier activity than manufacturing technical which need many more skill sets. The promoter group has the experience but there can be many slips between the cup and the lip.

The company reported an EPS of Rs 11.62 for the year ended March 22 and the PE band for the issue is 18.59-20.40. The NAV of the company for the similar period is Rs 33.55 which makes the price to book at the top end, an expensive 7.06 times. While activity in the grey market is disproportionate to the size of the issue, investors must take a measured call before investing in the IPO.

The second issue is from Uniparts India Limited which is tapping the capital markets with its offer for sale of 1,44,81,942 shares in a price band of Rs 548-577. The issue would open on Wednesday the 30th of November and close on Friday the 2nd of December.

The company is a manufacturer of parts for off-highway vehicles used in the agriculture and construction sector. Over 80 per cent of the company’s revenues come from exports. The company is a market leader in its segment in India and is a reasonably sized player in the global markets with strong presence among leading marquee players in both segments.

The company reported revenues of Rs 1,227.42 cr for the year ended March 2022 and had net profit of Rs 166.88 cr. The net margin was a very healthy 13.60 per cent which has improved significantly compared to the previous year’s 10.21 per cent.

The EPS for the company on a fully diluted basis was Rs 36.98. The PE band is 14.82-15.60. Considering the sector segments the company operates in (agriculture and construction), gives the company a heady start to its future as a listed entity. There is capacity expansion which is being done which would ensure that the company is able to grow and also meet increased demand from existing customers and new customers. The NAV of the company is Rs 151.82 which makes the price to book 3.80 times. The share looks good for medium term investment.

Coming to the markets in the week ahead, expect them to build on the technical breakout that has happened with levels of over 13 months being broken upwards. It would be natural to expect the action to shift to the broader markets with midcap and smallcap space becoming active and moving up. What stocks and by how much is something difficult to predict, but the movement will be large in terms of the number of companies participating. Initially expect the benchmark indices to take the backseat and allow the broader market to play catch up.

The strategy would be to enjoy the rally by playing with momentum. Caution on large overnight positions should be done with extra caution. Further those not too comfortable with the broader market may continue to hold positions in the benchmark stocks and wait for the next leg.