Markets need consolidation before next up move

New Delhi : Markets in the week gone by opened on a quiet note and then took a cue from the US markets and just shot through the roof. They were up sharply for the third week in a row and have now moved from just short of 66K on BSE Sensex on November 24 to 71.5 K on December 15.

The gain 5.5 K or a massive 8.33 per cent. In the same period Nifty has moved from 19.8 K to 21.5 K, a gain of 1.7 K or 8.58 per cent. This is indeed a remarkable rise. Each week's rise had different reasons.

The first week which was from November 27 to December 1 was on account of the exit polls for the five state elections. The second week from December 4 to 8 was on account of the state election results and the realisation that the ruling party in the centre would be in pole position for the general elections due in April-May 2024.

The third week from December 11 to 15 was primarily on news from the US that the FED would pause on the rate hikes and there could be as many as three rate cuts in the coming year. Dow had a stupendous rally post this indication.

In India, we saw markets gain in four of the five sessions. BSE Sensex gained 1,65815 points or 2.37 per cent to close at 71,483.75 points while NIFTY gained 487.25 points or 2.32 per cent to close at 21,456.65 points. The broader markets saw BSE 100, BSE 200 and BSE 500 gain 2.36 per cent, 2.33 per cent and 2.32 per cent respectively. BSE Midcap gained 2.57 per cent while BSE Smallcap was up 2.38 per cent.

The Indian Rupee gained 38 paisa or 0.46 per cent to close at Rs 83 to the US Dollar. This was a sharp gain and probably the best during the calendar year 2023. Dow Jones had a spectacular week and is now trading at the best levels achieved during calendar year 2023. Dow gained on all five trading days of the week and was up 1,057.29 points or 2.92 per cent to close at 37,305.16 points. On a year-to-date basis, Dow is up 12.54 per cent for the year. This is a far better performance than what was witnessed last year when Dow had negative returns of 8.78 per cent.

One important factor which needs to be considered is timing. Markets made a short term bottom the day FPIs sold aggressively. On October 26 their net sale in the cash market was Rs 7,700 crore and during the entire month it was negative Rs 29,000 crore. On Friday (December 15), FPIs bought equity worth Rs 9,239 crore and so far in December they have bought equity worth Rs 29,733 crore.

Similarity is uncanny and does give some cause for taking notice and exercising caution. Probably its time to expect some profit taking, some pull back action and correction at higher levels after a fantastic run over the last three weeks.

The present run in IPOs is unabated. You now have more than one IPO opening every day of the week and things could not be tighter. In the coming week we see the issue from Muthoot Microfin Limited is tapping the capital markets with its fresh issue of Rs 760 crore and an offer for sale of Rs 200 crore. The price band is Rs 277-291.

The issue would be opening on Monday (December 18) and closing on Wednesday (December 20). The company as the name suggests is into the business of microfinance.

In terms of financials, the company reported revenues of Rs 1,446.34 crore for the year ended March 2023 and Rs 1,047.23 crore for the half year ended September 2023.

The Profit after tax was Rs 163.88 crore for the year and Rs 205.25 crore for the half year. The EPS was Rs 14.19 for the year and Rs 11.66 on a fully diluted basis. For the half year the diluted EPS was Rs 14.22. The PE band for the full year earnings is 23.76-24.96. The range for the industry is 9.33 at the lowest and 551.18 at the highest. In the peer group, five of the seven are below the PE band of Muthoot while only two are more expensive. A better yardstick for the financial performance to be evaluated is the price to book. Here the price to book for Muthoot is at 2.58 based on September 23 NAV. The peer set again sees five out of seven peers having a lower price to book to Muthoot.

The share looks expensively priced but as per the flavour of the day there are listing gains to be made. Apply for immediate short-term gains as a strategy.

The second issue to open is from Suraj Estate Developers Limited which is tapping the markets with its fresh issue of Rs 400 crore in a price band of Rs 340-360. The issue is opening on Monday (December 18) and closing on Wednesday (December 20).

The company has a focus area of operation in the South Central region of Mumbai covering Mahim, Matunga, Dadar, Prabhadevi and Parel areas. The company has expertise in redevelopment of tenanted properties under regulation 33(7) of the Development Control and Promotion regulation in the Mumbai region.

As on June 30, 2023, the company has 13 ongoing projects with 20.34 lakh sq. ft. developable area and saleable carpet area of 6.09 lakh sq. ft. It also has 16 upcoming projects with an estimated carpet area of 7.44 lakh sq. ft.

The company also has 216 flats unsold from various projects which form a substantial part of inventory on books. The business is attractive and does not involve land banks as redevelopment projects are joint development and therefore asset light. Going forward the company has huge opportunities to scale the business with working capital which will get freed up.

The PE multiple of the share is 33.66-35.64 based on fully diluted earnings for the year ended March 2023. The NAV is Rs 27.12 as at June 30 and would improve to Rs 109.58 post the completion of the offer. The share offers value to an investor with a medium to long-term investing horizon.

The other issues tapping the markets in the coming week include Happy Forgings Limited, Credo Brands Limited, Motisons Limited and RBZ Jewellers Limited.

Coming to the markets, technically speaking markets are looking overbought and need to consolidate before any further up move. The strategy for the week would be to book short term profits and allow the markets to cool-off. The fact that IT stocks which were so far a laggard have also moved sharply, give you the feeling that sector rotation is almost done. Probably FMCG is still pending and may happen while the rest of the markets correct. The upside could be 200-250 points on Nifty while the downside is a good 500-600 points on Nifty.

Trade cautiously.

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