Home Markets After the rally last week, will markets make a new top?

After the rally last week, will markets make a new top?

by Arun Kejriwal (Market veteran investor and Opinion Maker)
Feb 19, 2024
After the rally last week, will markets make a new top?, Market, KonexioNetwork.com

Markets in the week gone by were volatile and choppy. On more than one occasion during the week one saw opening losses being wiped out and similarly profits too being wiped out. At the end of the week, we saw markets gaining on four of the five trading sessions and losing on one. BSESENSEX gained 831.15 points or 1.16% to close at 72,426.64 points while NIFTY gained 258.20 points or 1.19% to close at 22,040.70 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.26%, 1.23% and 1.08% respectively. BSEMIDCAP gained 0.91% while BSESMALLCAP was up 0.02%. The top sectoral gainer was BSEAUTO which outperformed the broad markets and was up almost 5%. 

The Indian Rupee gained 2 paisa or 0.02% to close at Rs 83.02. Dow Jones was choppy and gained on three of the five trading sessions, losing on two. At the end of the volatile week, Dow was marginally negative, losing 43.70 points or 0.11% to close at 38,627.99 points. 

The week gone by was full of listings and we had as many as five listings during the week. The first was from Apeejay Surrendra Park Hotels Limited which had issued shares at Rs 155. Shares of the company listed on Monday the 12th of February and closed day one at Rs 203.45, a gain of Rs 48.45 or 31.25%. By Friday, the shares lost some ground and closed at Rs 194.70, a gain of Rs 39.70 or 25.61%.

Wednesday the 14th of February saw three listings and they were certainly not the best that one has seen in a very long time. The first was from RP Tech Limited which had issued shares at Rs 311. The discovered price was Rs 335, a gain of Rs 24 or 7.71%. At the end of the day, the share closed substantially lower at levels of Rs 320.10, a gain of Rs 9.10 or 2.92%. By the end of the week, the share gained substantially and closed at Rs 345.65, a gain of Rs 34.65 or 11.14%. 

The second of Wednesday’s listings was from Capital Small Finance Bank Limited which had issued shares at Rs 468. The discovered price was Rs 435, a loss of Rs 33 or 7.05%. The share slipped further during the day and made a low of Rs 421.10. It recovered from here to close around the open at Rs 436.05, a loss of Rs 31.95 or 6.82%. At the end of the week, the share regained some ground and closed at Rs 449.25, a loss of Rs 18.75 or 4.01%. 

The third of Wednesday’s listings was from Jana Small Finance Bank Limited which had issued shares at Rs 414. The listing price was Rs 396, a loss of Rs 18 or 4.34%. The share lost sharply as the day progressed and made a low of Rs 365. The share closed marginally higher than the low at Rs 366.80, a loss of Rs 47.20 or 11.40%.  During the remaining two days of the week the share regained lost ground and closed at Rs 419.5, a gain of Rs 5.05 or 1.22%.

The fifth and final listing of the week was from Entero Healthcare services Limited which had issued shares at Rs 1,258. The discovered price was Rs 1,245, a loss of Rs 13 or just about 1%. The share closed day one at Rs 1,149.50, a loss of Rs 108.50 or 8.62%.

These four listings show one thing clearly that primary markets are overheated and the valuations which are being asked for are unrealistic in most cases. There is no comfort in the valuations and one bad day at the bourses can knock the company off its pedestal. Time for promoters and merchant bankers to pull up their socks and ensure that they and their clients do not become greedy or it would become a case of the chicken that lays the golden egg being killed. 

There is one IPO from Juniper hotels Limited which is tapping the capital markets. The issue consists of a fresh issue of Rs 1,800 crs in a price band of Rs 342-360. The issue would open on Wednesday the 21st of February and close on Friday the 23rd of February. The company is the only hotel developer which has a 50:50 Joint venture or partnership with a leading global hotel operator and is the only one of its kind in India. Further, there is no investment made by any global hotel operator in a hotel company in India. 

The issue has 75% reservation for QIBs, 15% for HNIs and 10% for retail as the company has not reported profits over the last three years. In terms of revenues, the company reported revenues of Rs 717.3 crs for the year ended March 23 and EBITDA of Rs 327.4 crs. EBITDA margin was at 45%.  The company has earned a negative EPS of Rs 13.88 in FY21, Rs 13.08 in FY22 and a much-improved negative Rs 0.10 for the year ended March 23. The objects of the issue are to repay Rs 1,500 crs towards the company’s debt. This would lead to a profit in the next financial year simply because of interest costs on the retired debt being saved. The company is currently paying about 11% on its debt. Post this payment, one would expect the debt rating of the company to also improve which would lead to savings and hence higher profits. The company is comparable to its peers which include the Chalet Hotels, Indian Hotels, Lemon Tree and East India Hotels. Juniper Hotels is an asset heavy company and owns all the hotels which are currently managed by Hyatt. It would continue this model and remain an asset owned hotel company. It is in the midst of expanding its hotel, Grand Hyatt at Kalina, Mumbai which would become the largest hotel in the country post the expansion.
Currently the company has 1,836 keys in 7 operating hotels, has a MICE area of 1.27 lac sq ft and commercial space of 1.44 lac sq feet. The company merits subscription looking at the opportunity that exists and the single largest benefits of becoming almost a debt free company post IPO and which has had a global hotel operator as its equal partner for 25 years.   

Coming to the markets in the week ahead, expect markets to remain choppy and volatile. What has happened in the week gone by is the fact that markets have weathered the storm and have made a setup from where the all-time high can be challenged. Whether they will be crossed or not is another question. The setup has become positive and there are possibilities that if the momentum continues, they could be crossed. As is expected in markets when a new high is made, markets become even more volatile and choppy. Already markets are in a choppy condition and with possibilities of new highs they would be choppier and even more volatile. Time therefore to become cautious. Trade with stop losses and refrain from taking large positions. 

The strategy for the week would be to keep one eye on the indices and the other on traded volumes. At around new highs, volumes tend to increase sharply. The direction or trend of markets gives an indication of where they are then headed. Use sharp rallies to sell into the market what you own and refrain from shorting the markets. At the same time use only sharp dips to buy and that too from the large cap space only. 

Trade cautiously.