Could September series bring about a long overdue correction

New Delhi: Markets continued their gains and made new highs on an intraday and closing basis on the benchmark indices.

The benchmark indices recorded gains on all five trading sessions of the week. In doing so, NIFTY has created a new record of gaining 12 straight sessions.

BSE SENSEX could not do so as it had lost ground on August 19 when it was down a mere 12 points while NIFTY gained 31 points. BSE SENSEX gained 1,279.56 points or 1.58 per cent to close at 82,365.77 points while NIFTY gained 412.75 points or 1.66 per cent to close at 23,235.90 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.53 per cent, 1.37 per cent and 1.32 per cent respectively.

BSEMIDCAP gained 1.54 per cent while BSESMALLCAP was up 0.61 per cent. The intraday high made on the BSE SENSEX was 82,637.03 points. The closing of Friday was the closing high.

The Indian Rupee gained three paise or 0.04 per cent to close at Rs 83.86 to the US Dollar. Dow Jones gained on four of the five trading sessions and lost on one. Dow Jones gained 388 points or 0.94 per cent to close at 41,563.08 points.

Reliance Industries Limited at its AGM held on August 29 decided to announce a bonus of 1:1 at its Board of Directors meeting convened for the purpose on September 5. This would be a bonus issue after seven years of being announced by the company. The impact of the announcement did not have any significant impact on the share price and the weekly gain on the share was a mere Rs 20 or 0.67 per cent. Not sure how one should read this as it appears the adage; 'Buy the rumour, sell the fact, apply or the counter has become tired after being active over the last couple of weeks.

August futures expired on August 29 on a positive note. For the series, the gains were 745.85 points or 3.06 per cent to close at 25,151.95 points. The series had begun at 24,406.10 points.

The week saw an active primary market with two listings during the week. There were two issues which opened and closed for subscription during the week. Looking at subscription numbers, one can clearly conclude that investor appetite and liquidity seem to have no limits.

The first issue to list was Interarch Building Products Limited which had allotted shares at Rs 900 per share. The share debuted on August 26 at Rs 1,291.20, a gain of Rs 391.20 or 43.46 per cent. The share closed on Monday at Rs 1,196.45, a gain of Rs 296.45 or 32.93 per cent. Over the remaining four days, the share lost some ground and closed at Rs 1,171.75, a gain of Rs 271.75 or 30.19 per cent.

The second share to list was Orient Technologies Limited which had issued shares at Rs 206. The discovered price of the share which was listed on Wednesday was Rs 290, and thereafter it was locked at the upper circuit at Rs 304.45, a gain of Rs 98.45 or 47.79 per cent.

On NSE, the discovered price was Rs 288 and the upper circuit was at Rs 302.40. The share continued to hit the upper circuit of 5 per cent on the remaining two days of the week and closed at Rs 335.60, a gain of Rs 129.60 or 62.91 per cent. The share would trade for the next seven trading sessions in the trade-to-trade segment as the issue size was less than Rs 250 crore.

The first IPO to open and close its subscription was Premier Energies Limited. This issue became the second company to garner a subscription of over Rs 1 lakh crore after Tata Technologies Limited which had done so on November 23. Premier garnered Rs 1.48 lakh crore. The issue was oversubscribed an overall 75.62 times. The QIB portion was subscribed 212.62 times, the HNI portion 51.27 times and the Retail portion was subscribed 7.88 times. There were 40.63 lakh applications. The issue was open from August 27 and closed on August 29.

The second issue to open and close during the week was ECOS (India) Mobility and Hospitality Limited. This issue was open from August 28 to August 30. The issue was oversubscribed an overall 64.26 times with the QIB portion subscribed 136.85 times, the HNI portion subscribed 171.23 times and the Retail portion 19.79 times. There were 25.12 lakh applications in all.

The week ahead has two issues open for subscription with one issue having opened on Friday and yet another opening on Monday. The issue from Bazaar Style Retail Limited opened on August 30 and would close on September 3. The issue consists of a fresh issue of Rs 148 crore and an offer for sale of 1,76,52,320 equity shares in a price band of Rs 370-389.

The company reported an EPS of Rs 3.14 for the year ended March 24. It is in the business of being a value fashion retailer offering quality and affordable products under the apparel and general merchandise segments through a chain of value retail stores. Its stores are primarily located in Orissa and West Bengal and the company has a total of 163 stores.

The PE multiple is 117.83-123.89 based on the March 24 numbers. On the face of it the PE multiple looks a little expensive but looking at the flavour and the market liquidity one may apply for listing gains as there is substantial activity in the counter in the grey market.

The second issue is from Gala Precision Engineering Limited which is tapping the capital markets with its fresh issue of 25,58,416 equity shares and an offer for sale of 6,16,000 equity shares in a price band of Rs 503-529. The issue opens on September 2 and closes on September 4. The company is a precision component manufacturer of technical springs like disc and strip springs including wedge lock washers. It reported an EPS of Rs 21.77 for the year ended March 24 and based on the above EPS, the PE multiple is 20.94-22.02 times.

There are several roadshows planned in the week ahead for IPOs on the main board. Besides this, the two IPOs that closed last week would be listed on Tuesday and Wednesday respectively while the issue that opened on Friday and closed on Tuesday, Bazaar Style Retail would also be listed on September 6.

Coming to the markets in the week ahead, expect markets to have volatility as the key driver. With surplus liquidity and optimism, people are willing to buy on every dip. Gut feeling says that this month (September) would be the month where markets sit back, relax and take a pause after a hectic rally over the last 12 months or so. It’s time to retrospect on what has happened and take a hard look at June results which saw the slowest growth in the last 9 quarters. It would be time to reflect, ponder and think out of the box as to what could change in the quarter ahead, which would bring the sequence of falling growth back on track.

With markets at new highs, we are in uncharted territory and the upside has no immediate levels of resistance. Support levels of 25,000 on NIFTY and at 81,650 on BSESENSEX become crucial levels for longs. If these levels are decisively broken and sustained, one should liquidate long positions and brace for corrections. This is for the brave-hearted and impulse traders. For the seasoned player, systematically reducing positions could be a better idea.

If I had to play to my thoughts and gut feel, I strongly believe that the series which began on August 30 would end with losses when the series closes on September 26. This is considering many factors which include the expected US FED interest rate cut, expected September quarter results and many more factors.

In conclusion, trade cautiously.

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