Markets look tired, weakness to continue; best to stick to large cap route

Mumbai: It was an extremely volatile week in which one saw intraday gains being wiped out as well as opening losses being more than recovered.

At the end of it all, markets gained on two of the five trading sessions and lost on three. BSESENSEX was down 490.14 points or 0.68 per cent to close at 71,595.49 points; NIFTY lost 71.30 points or 0.33 per cent to close at 21,782.50 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.22 per cent, 0.34 per cent and 0.22 per cent respectively. BSEMIDCAP was up 1.65 per cent but BSESMALLCAP was down 0.44 per cent.

Intraday volatility and intraweek volatility has increased substantially in the midcap and Smallcap space and the net index changes at the end of the week do not give a fair picture of the volatility.

The Indian Rupee lost 12 paise or 0.14 per cent to close at Rs 83.04 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two sessions. At the end of the week, Dow was up a mere 17.27 points or 0.04 per cent to close at 38,671.69 points.

At the end of the three-day bi-monthly meeting of the monetary policy committee meeting, RBI kept repo rates unchanged at 6.5 per cent. These rates have not been changed since February 2023.

Markets have become very volatile and are giving some signs of a reasonably large correction happening in the coming period. For the records, the high on the BSESENSEX was made on 16th January at 73,427.59 points and on NIFTY at 22,124.15 points on the same day. In a flash of a pan movement, NIFTY crossed this high by a whisker at 22,126.80 points on February 2.

What to make of this is debatable as BSESENSEX made a substantially lower high as compared to January 16 of 73,089.40 points. Looking at the fact that with just the last week left for results of the October-December 2023 quarter to be declared, the general summary indicates that the growth in revenue being talked about seems missing.

There have been some outstanding results, but the pace of growth in revenues and profits is clearly missing. For the new trend to emerge we will now have to wait for yet another quarter at the bare minimum. This would also coincide with the general elections which would be held in April-May 2024.

In primary market news we had four issues which closed for subscription during the week. The first was Apeejay Surrendra Park Hotels Limited which had tapped the markets with its fresh issue of Rs 600 crore and an offer for sale of Rs 320 crore. The price band was Rs 147-155.

The issue was subscribed 62.90 times overall with the QIB portion subscribed 79.23 times, HNI portion subscribed 55.25 times and Retail portion subscribed 31.96 times there were 18.95 lac applications.

The second issue was from Rashi Peripherals Limited which had tapped the markets with its fresh issue of Rs 600 crore in a price band of Rs 295-311.The issue was subscribed 62.95 times overall with QIB portion subscribed 151.45 times, HNI portion subscribed 66.15 times and Retail portion subscribed 11 times. There were 15.07 lac applications.

The third issue was from Jana Small Finance Bank Limited which had tapped the capital markets with its fresh issue of Rs 462 crs and an offer for sale of 26,08,629 equity shares. The price band of the issue was Rs 393-414. The issue was subscribed 18.43 times overall with QIB portion subscribed 38.75 times, HNI portion subscribed 25.05 times and Retail portion subscribed 5.46 times. There were 7.04 lac application forms in all.

The fourth issue was from Capital Small Finance Bank Limited. The company intended raising Rs 450 crore in a fresh issue and an offer for sale of 15,61,329 shares in a price band of Rs 445-468. The issue was subscribed 4.17 times overall with QIB portion subscribed 6.86 times, HNI portion subscribed 4.23 times and Retail subscribed 2.60 times. There were 4.17 lac applications in all.

The subscription comparison between Jana Small Finance Bank and Capital Small Finance Bank Limited was stark. Both the issues were of similar size, a fairly similar price band and coincidentally in the same business, small finance bank.

The valuation and direct comparison resulted in one being well-received and doing well and the other just getting subscribed at a time when markets are overflowing with funds, big learning for merchant bankers and prospective promoters looking to tap the markets going forward.

There is one issue in the coming week which has already opened on Friday, February 9, and closes on Tuesday, February 13. The issue from Entero Healthcare Solutions Limited is tapping the capital markets with its fresh issue of Rs 1,000 crore and an offer for sale of 47,69,475 shares in a price band of Rs 1,195 to 1,248. The company is into the business of distributing healthcare products in India.

Entero Healthcare Solutions is the third largest in terms of revenues in this space. It distributes pharmaceuticals and also has a range of white label products in healthcare devices and related products which currently form a small part of its overall revenues.

The company has been growing its presence in the country by acquiring small well-established distributors across geographies and then converting them into subsidiaries. The idea is to have a well-knit all India presence which uses technology to achieve last mile distribution of these products.

The company achieved revenues of Rs 3,300 crore for the year ended March 2023 and reported a net loss of Rs 11.10 crore for the same period. Revenues for the half year ended September 23 have improved to Rs 1,895 crore and the company has turned profitable for the first time and earned a profit of Rs 11.64 crore.

In terms of EPS, as the company has reported losses for the year ended March 31, 2023 and therefore the EPS is negative Rs 3.10. The same is positive for the first six months at Rs 2.95.

The only comparable player in the listed space which has a similar business model in part is Medplus. The other comparable price matrix for companies is price to book. The NAV of the company post conversion of CCCP as at September 23 is Rs 185.84.

This effectively means that the company is asking for a price to book of 6.71 times. The business is complex, needs time to stabilise and achieve a decent profitability. Readers could look at the share post listing.

Coming to the markets in the week ahead, volatility would be the order of the day. On the upside levels of 73,427 on BSESENSEX and 22,126 on NIFTY would be Mount Everest. I believe these need a superhuman effort with massive index management and accompanied by very strong news flow to be taken out. Suffice to say that without consolidation, this is something which cannot happen.

On the support side, levels of 21,500 and 70,750 would act as decent levels where markets would look to bounce. If these are broken, then levels of 21,200 and 69,850 would act as solid supports for the time being. Depending on how markets behave, future movement in key indices would be decided.

A note of caution would be that there could be a reason for a sharp fall in the markets over a couple of days. This could happen in this week or the next. The trading strategy would continue to book profits on rallies and reduce exposure in the midcap and Smallcap space. Safety lies in the large cap space where buying should be done only on sharp dips.

Trade cautiously.