After capitulation & covid-19 effect, expect recovery in week ahead (Market Watch)

The week gone by saw the markets under a lot of pressure and they capitulated on Friday in the last hour. There was fear in the markets with coronavirus (covid-19) written all over. The situation was no different globally. Every market saw prices reacting sharply.


The Sensex lost 2,872.83 points or 6.98 per cent to close at 38,297.29 points, while the Nifty was down 879.10 points and closed at 11,201.75 points. The broader markets saw BSE100, BSE200 and BSE500 lose 7.40 per cent, 7.36 per cent and 7.35 per cent respectively. The BSE Midcap lost 6.97 per cent and BSE Smallcap 7.04 per cent.

The Indian rupee lost 57 paise or 0.80 per cent to close at Rs 72.22 to the US dollar. Dow Jones was badly hit and lost 3,583.05 points or 12.36 per cent to close at 25,409.36 points. The Dow suffered losses of 1,032 points, 879 points, 124 points, 1,191 points and 357 points during the week. While the weekly losses were almost 3,600 points, the loss from the high on February 12 is about 4,200 points or over 14 per cent. Under the Dow parlance, it would indicate a bear market as losses are more than 10 per cent from the top.

It's not just coronavirus, which hit the sentiment, but also the fear of disruption in the supply chain as virus impact, which is alarming people. The whole world seems to be importing from China either products or components or both, and currently China is in a state of lockdown.

While this could be an opportunity for 'make in India', readers would recall the government had sometime in August-September 2019 allowed 100 per cent FDI in contract manufacturing and also lowered the taxes for new units to 15 per cent. This was allowed for four years for units to be set up till March 2023-24. India needs to exploit this and maximise investment through this window and capitalise on the opportunity. It could be once in a lifetime opportunity.

February futures expired on a weak note and were down 402.50 points or 3.34 per cent to close at 11,633.30 points. All the losses were in this week as the series was up 45 points when the week began.

There is plenty of action in the primary market with SBI Cards and Payment Services set to tap the markets with a fresh issue of Rs 500 crore and an offer for sale of 13.05 crore shares in Rs 750-755 price band. The company on Friday allotted 3.66 crore shares to 74 anchor investors, which included 12 mutual funds through 48 schemes. The highest allocation was to HDFC Mutual Fund, which was given 20.53 lakh shares or 5.60 per cent. Roughly 40 per cent of the allocation is to the top seven entities.

The issue opens on Monday and closes on Wednesday for the qualified institutional buyers (QIBs) and on Thursday for high net worth individuals (HNIs), retail, shareholders and employees. The grey market premium has been volatile and fluctuated between Rs 250 and Rs 375. It's currently at the lower end of the band. Interest for the leveraged HNIs has moved up sharply and is in the 13-15 per cent range for 9 days.

The last big issue, Ujjivan Small Finance Bank saw 8-8.5 per cent interest rates. SBI Card is in the business of selling own and co-branded credit cards. The unique thing about them is all cards are sold/issued against payment and there are no free cards unlike many competitors.

The price earnings (PE) multiple based on year ended March 2019 is Rs 80.06 at the upper band, but would change considerably at the end of the year when results are declared for March 2020. The driving factor for the company is the growth in consumer spending, rising disposable income among the younger generation and, above all, digitisation of the economy.

The company has excellent prospects, and considering that it has the first mover advantage and is a pure play card company, is poised to grow rapidly. Being the first issue, it would become a benchmark for future issues in the sector.

A second issue is opening on Wednesday and closing on Friday. The price band is Rs 295-300. It comprises fresh issue of Rs 35 crore and an offer for sale of 57 crore shares. The company is in the business of collection, transportation and treatment of municipal solid waste management services.

These contracts are of two types. While a collection and transportation contract remains valid for 5-9 years, a processing contract for 20-25 years. Both contracts have different conditions as the former is not capex heavy, while the latter involves setting up of plant and machinery. Based on March 2019 results the company earned a diluted EPS of Rs 12.35. In the six months ended September 2019, it improved to Rs 11.30 (non-annualised). Clearly, the company is in the business of creating wealth from waste.

Coming to the week ahead, it appears after the capitulation we are set for a period of recovery, followed by consolidation. While there could be an immediate sharp rebound, there would be periods of volatility where the markets would move in both directions. With a sharp 2,800-point fall on the Sensex and almost 900 point on the Nifty, we have a long way before we have recovered from the fall.

Buy on dips and allow the markets to recover as there is now deep value in the market coronavirus notwithstanding.

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