The week gone by was topsy turvy but showed signs of consolidation after the sharp fall witnessed over the previous week. Markets gained and lost and ended with two days of gains and three days of losses. BSESENSEX lost 307.09 points or 0.38% to close at 81,381.36 points while NIFTY lost 50.35 points or 0.20% to close at 24,964.25 points. The broader indices like the BSE100, BSE200 and BSE500 gained 0.01%, 0.20% and 0.30% respectively. BSEMIDCAP was up 1.11% while BSESMALLCAP gained 1.17%.
The Indian Rupee lost ground and was down 9 paisa or 0.11% to close at Rs 84.06 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two sessions. It was up 511.11 points or 1.21% to close at 42,863.86 points.
RBI in it’s bi-monthly meeting kept policy rates unchanged. This was the 10th consecutive meeting where rates were kept unchanged. The stance at the meeting is now hinting that there could be some softening of rates in the December 24 meeting if inflation remains at similar or lower levels.
FPIs have in the month of October sold equity worth Rs 58,711 crores so far. It’s a massive number and explains the fall in the market as well. China was expected to announce some stimulus over the weekend which has not met market expectations. One may expect that post this event the massive selling witnessed in Indian markets may take a back seat. If this were to happen, domestic funds who are not only flush with funds but have been matching FPI selling with buying, may actually press the pedal and buy aggressively. If this were to happen, one may see the markets seeing some buying and helping them regain partially lost ground.
The week ahead sees the largest ever IPO hit the market. The issue from Hyundai Motor India Limited is tapping the capital markets with its offer for sale of 14,21,94,700 equity shares in a price band of Rs 1,865-1,960. The issue would garner Rs 27,870 crores at the top end of the price band, way above what has been talked about from the time that the company planned and filed its DRHP. This number hovered around Rs 24-25K.
The fact that the grey market premium was being quoted in the region of Rs 700-725, brought a big smile on the faces of the merchant bankers and the promoters of the company, and they felt it appropriate to charge higher from the issue which is entirely an offer for sale issue. In doing so, they achieved two things. Firstly, the issue size went up by about Rs 3,000 crores. Secondly, the premium of around Rs 700 is now way below Rs 100. Clearly the market in what is being termed as the largest issue ever, investors expect to have listing gains and if the company thinks that everything should be earned by them, they are surely mistaken.
The anchor would be available late on Monday night and it would be very important to note whether the same is FPI driven or there is a fair share of domestic institutions and participation as well.
Coming to the company, Hyundai hovers between the second and third largest automobile manufacturer in the company after Maruti and Tata Motors. They have a single location plant currently at Chennai and have a capacity of 8.24 lakh cars per annum. They are in the process of setting up a new plant at Talegaon near Pune which would have an initial capacity of 2.5 lakh cars. The plant is running at near optimum capacity and roughly 80% of its production is sold domestically while 20% is exported. The company enjoys better margins than Maruti, simply because Hyundai never made entry level cars like Maruti-800, Alto and Wagon-R which were the mainstay for Maruti in the initial years. This helps Maruti capture the lion’s share of market but affects the margin. In the case of Hyundai, they don’t have such products and therefore earn higher margins.
With lack of capacity and new plant about 15 months away, the company will struggle with growth and market share. The PE multiple is comparable with Maruti but the discount not sufficient considering they are the market leaders and dominant players. Finally, there is a global discount that Korean products are available at when compared with Japanese products.
Considering the present pricing, lack of adequate capacity, higher pricing and sharp drop in grey market premium, the issue looks expensive from the listing day and short term prospects. Readers should invest only for the long term and may take that call even after listing.
Coming to the markets in the week ahead, we seem to be trading in a broad band of 24,700-750 on the lower side and 25,300-400 on the upper side. Similar levels on the BSESENSEX are at 80,650-800 points on the lower side and 82,450-750 points. Markets need to break out of the upper range for a meaningful rally and a breakdown from the lower level if we are to fall further. The course of direction will be decided by the upcoming quarterly results and what FPIs do in the coming days. As a strategy it makes sense to move to the large cap stocks as the volatility there is better contained and you have options to hedge yourself.
Trade cautiously.