The past week had all the festivities because of Diwali and the start of the exchanges for Samvat 2079. There was only an hour long ‘Muhurat’ exchange on Monday followed by a public holiday on Wednesday which disrupted and broke market momentum. However, at the end of it all, the markets won with a strong performance for the week and they were up in three of the four trading sessions.
BSESNESEX gained 652.70 points or 1.10% to close at 59,959.85 points while NIFTY gained 210.50 points or 1.20% to close at 17,786.80 points. The broader market saw BSE100, BSE200 and BSE500 gain 1.17%, 1.12% and 1.05% respectively. BSEMIDCAP increased by 0.98% and BSESMALLCAP by 0.43%.
The Indian rupee gained 21 paisa or 0.25% to close at Rs 82.47. Dow Jones had a tremendous week and rose 1779.24 points or 5.72% to close at 32,861.80 points. It gained on all five trading sessions, with Wednesday actually being a flat day. The best of the week was reserved for Friday when he earned a whopping 828 points. The impact of this rally on Friday should be felt in our markets on Monday when we see a gap open.
October futures expired on a high and the series won last week. The series ended with gains of 918.85 points or 5.46% at 17,336.95 points.
FSN E-commerce, the company listed under the Nykaa brand, continues to face the wrath of investors since it announced an unexpected free issue of 5 shares for an inmate. The stock price has been under pressure since the October 3 announcement. The announced share price after the bonus was Rs 1,304.90 and has now fallen to Rs 983.15. The fall is Rs 321.75 or 24.65%. The low was Rs 975.50, which is a new low for the stock since listing. The company would report its results for the quarter on Tuesday, November 1, and one cannot be sure of their quality.
The primary market is experiencing strong activity with companies wanting to beat the validity of the results for the June quarter which ends in two weeks. There are a series of problems in the coming week and the next. First in the block is DCX Systems Limited raising Rs 400 crore in fees and Rs 100 crore through a put offer. The company is engaged in defense-related activities mainly in the aerospace segment and is an Indian clearing partner for Israeli companies, among others. The issue opens Monday, October 31 and closes Wednesday, November 2. The price range is Rs 197-207. EPS for the year ended March 22 was Rs 9.19. At this price, the PE band is 21.44 to 22.52 times. Given the huge shortfall in fulfilling pending compensation contracts, the business has a huge future ahead. The case looks interesting and the investment is justified.
The second company is Fusion Microfinance Limited, which is tapping the markets with a new issue of Rs 600 crore and a sell offer of 136.95 lakh shares. The issue opens on Tuesday, November 1 and closes on Thursday, November 3. The price range is Rs 350-368. The company cleaned up its books on provisions on the NPA as of March 22 and wiped the slate clean of the markets. Looking at EPS as of March 22, it is only Rs 2.64 for the full year, while it is Rs 8.98 on a fully diluted basis for the quarter ended June 22.
Considering the quarterly figures are annualized for simplicity, we are talking EPS of Rs 35 to Rs 36 for the full year as of March 23. EPS should be calculated on this basis. Another way of looking at it is the price to reserve for the bank. The net asset value as of March 22 is Rs 161.67, which improved to Rs 171.10 at the end of the June quarter. The issue is priced at a price-to-book ratio of 2.27 based on March 22 figures and 2.15 times June figures. The business looks attractive and an investment in the business should be considered.
The third and final issue of the week comes from Global Healthcare Limited, which is tapping the capital markets with its new issue of Rs 600 crore and a sell offer of 507.61 lakh shares in a price range of Rs 319-336. The issue opens Thursday, November 3 and ends Monday, November 7. The company which uses the “Medanta” brand, operates five hospitals in the cities of Gurugram, Lucknow, Patna, Ranchi and Indore. He is in the process of setting up a hospital in Noida which would take another 24 to 30 months to become operational.
Growth for the company would come from the additional beds that are being set up in existing facilities. The company compared itself to Apollo, Max, Fortis and Narayana hospitals. In terms of income, it is lower than all that. The company has reported losses at the new hospitals that have been set up, while the oldest and established in Gurugram is the company’s cash cow. On a net basis, the company reported EPS of Rs 7.77 for the fiscal year ending March 2022. At this EPS, the PE band is 41.08 to 43.24 on a diluted basis. This compares favorably to Apollo and Max. Is similar to Narayana but is more expensive than Fortis. While business is good and Dr. Trehan, the founder, has a tremendous track record, it seems there is virtually nothing on the table in the short term for investors.
While in the long term, the turnaround of the four hospitals and the use of available land in Gurugram would have a positive impact on the hospital, it must be implemented to bear fruit. Investors should check the company’s release on or after the September earnings announcement.
Coming into the markets, we are well positioned to touch the levels of 18050-18,150 on NIFTY and 61,000 on BSESENSEX. If these levels are breached and maintained, we have further upside opportunities. Assuming these levels are breached, which may not happen this week as we have a FED meeting for their interest rate hike considerations on Tuesday and Wednesday, we expect strong upsides.
No one knows how US markets would react. As far as a rally is concerned, we have already won quite clearly. At best, markets can consolidate or we can react small if all goes well. If the data and feedback are poor, there could also be a strong correction. The market is enjoying very strong support in the region of 17,350-17,450 on NIFTY and 58,650-58,950 on BSESENSEX. This supports the previous high and also a bit more cushion on the downside.
The strategy would be to buy on significant declines and sell on strong rallies. For some time now, the trade has been progressing, with a positive bias.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)
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