08 August,2011 07:41 AM IST | | Arun Kejriwal
Markets likely to remain volatile this week
It was a bad week on the bourses and it left equity markets worldwide battered and bruised. Last week, the BSE Sensex lost 891.33 points or 4.90 per cent to close at 17,305.87 points. The Sensex, dropped to a low of 16,990.91 points last Friday.
Standard & Poor's downgrades US credit
rating from AAA to AA+
The NSE Nifty lost 270.75 points or 4.94 per cent to close at 5,211.25 points but not before touching an intra-day low of 5,116.45 points. These levels on the BSE Sensex and Nifty were last visible 14 months ago, during June 2010.
The broader market like the BSE100, BSE200 and BSE500 lost 4.51 per cent, 4.56 per cent and 4.54 per cent respectively, while the BSE Midcap lost 4.72 per cent.
The big loser was the BSE Smallcap with weekly losses of 5.91 per cent. In individual stocks Sterlite Industries and Sesa Goa were big losers with weekly losses of 11.35 per cent and 9.40 per cent respectively.
Foreign Institutional Investors (FIIs) sold shares worth Rs 3,000 crore last week, while domestic institutions bought stock worth Rs 2100 crore.
The weakness in the markets was led by the rapidly deteriorating US economy and is likely to get further compounded with Standard & Poor's downgrading the US debt to AA+ against its earlier rating of AAA.
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This downgrade has come after 1917, a gap of 94 years and came after the US markets closed for trading on Friday, August 5.
This event will have an impact on various asset classes like equities, commodities and currencies globally. China could be a big loser as they are the largest investors in US Treasury bills followed by Japan.
There are some good things, which would also happen post, this downgrade. Crude and commodity prices falling would be great news for India and its corporates.
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This is likely to help in curbing inflation in the medium term and the rupee strengthening would also help importers.
At the same time, it would affect exporters and companies from the IT space. It would be in the interest of investors to allow the markets to settle down and not jump the gun on the first day itself.
Last week saw the listing of brokerage firm Inventure Growth and Securities Limited. The share appears to have had "unnatural" movement, which speaks of manipulation and action detrimental to investor health, which has happened.
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In a nutshell the share had a great listing on Thursday but was under selling pressure on Friday and ended with gains of 46 per cent for the two days of trading last week.
The bond issue from India Infoline opened during the previous week would close today. There is another bond issue opening this Thursday, August 11.
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The issue from Shriram City Union Finance Limited is for a sum of Rs 375 crore and there is an option for over subscription of another Rs 375 crore, making the total issue size Rs 750 crore. The coupon rates vary from 11.5 per cent to 12.10 per cent depending on the duration and the category of applicant.
Retail investors applying for upto Rs 5 lakh would earn a coupon rate of 11.85 per cent for three-year duration and 12.10 per cent for 5 year duration.
The scheme appears attractive compared to the issue from India Infoline and is comparable as the credit rating of both papers is an identical AA- and is for similar duration as well.
There is an Initial Public Offering (IPO), which opens on Wednesday, August 10 and closes on Friday, August 12 from Tree House Education & Accessories Ltd. The issue price band is Rs 135-153 and has a fixed discount of Rs 6 for retail investors.
The issue would raise Rs 113.83 crore at the lower price band and Rs 129.01 crore at the upper end of the price band.
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The fully diluted post issue IPO would value the company which has revenues of Rs 41.15 crore and a net profit of Rs 9.19 crore for the year ended March 2011 at a staggering Rs 455.16 crore at the lower end and Rs 515.84 crore at the upper end.
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Valuations at 49.5 times to 56.10 times appear extremely expensive considering the small size currently and the present market scenario currently. Investors with high risk appetite alone must look at this issue.
L&T Finance Holdings Ltd would be listing during the week and it is likely to be under pressure from the day of listing looking at the global scenario. The issue has been priced at Rs 52 against the issue price band of Rs 51-59.
This week, the markets would follow global cues from the US, Asia and Europe. One must be cautious as we would take some time to stabilise and find new levels of stability having hit a new 52-week low.
The BSE Sensex has support at 17,156 points, then at 17,078 points, then at 16,717 points, then at 16,510 points and finally at 16,318 points. NSE Nifty has support at 5,139, then at 5,105, then at 5,077, then at 5,034 and finally at 4,984 points. It would be a volatile week. Hence trade cautiously.
