Markets to continue with upward momentum

The week gone by had all the festivities on account of Diwali and the beginning of trading for Samvat 2079. There was just ‘Muhurat’ trading of one hour on Monday followed by a holiday on Wednesday which had disrupted and broken the market momentum. However, at the end of it all, markets did gain with a good showing for the week and they were up on 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 per cent to close at 17,786.80 points. The broader market saw BSE100, BSE200 and BSE500 gain 1.17 per cent, 1.12 per cent and 1.05 per cent respectively. BSEMIDCAP was up 0.98 per cent and BSESMALLCAP was up 0.43 per cent.

The Indian Rupee gained 21 paisa or 0.25 per cent to close at Rs 82.47. Dow Jones had a terrific week and was up a massive 1779.24 points or 5.72 per cent to close at 32,861.80 points. It gained on all the five trading sessions with Wednesday being actually a flat day. The best of the week was reserved for Friday when it gained a massive 828 points. The impact of this rally on Friday is likely to be seen in our markets on Monday when we would see a gap up opening.

October futures expired on a positive note and the series gained in the last week. The series ended with gains of 918.85 points or 5.46 per cent at 17,336.95 points.

FSN E-commerce, the company which is listed under the brand Nykaa, continues to face the wrath of investors ever since it announced an unexpected bonus issue of 5 shares for every one held. The share price has been under pressure ever since the announcement was made on 3rd of October. The share price post bonus announcement was Rs 1,304.90, and has now fallen to Rs 983.15. The fall is Rs 321.75 or 24.65 per cent. The low was Rs 975.50, which is a new low for the share since listing. The company would be declaring results for the quarter on Tuesday the 1st of November and one cannot be sure about their quality.

The primary market is seeing a sharp flurry in activity with companies wanting to beat the validity of results of the June quarter ending in a fortnight’s time. There is a spate of issues in the week ahead and the one following. The first of the block is DCX Systems Limited which is raising Rs 400 crore fresh and Rs 100 crore through an offer for sale. The company is into defence related activity primarily in the aerospace segment and is an Indian offset partner for Israeli companies amongst others. The issue opens on Monday the 31st of October and closes on Wednesday the 2nd of November. The price band is Rs 197-207. The EPS for the year ended March 22 was Rs 9.19. At this price the PE band is 21.44-22.52 times. Considering the huge shortfall in execution of pending offset contracts, the company has a huge future going forward. The business looks interesting and investment is warranted.

The second company is Fusion Microfinance Limited which is tapping the markets with a fresh issue of Rs 600 crore and an offer for sale 136.95 lakh shares. The issue opens on Tuesday the 1st of November and closes on Thursday the 3rd of November. The price band is Rs 350-368. The company has cleaned its books as far as provisions on NPA is concerned as of march 22 and has come with a clean slate to the markets. If one considers the EPS for March 22, it is a mere 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 that the quarterly numbers are annualised for simplicity’s sake we are talking of an EPS of Rs 35 to Rs 36 for the full year March 23. The EPS should be calculated on this basis. Another way to look at it is the price to book for the bank. The NAV for March 22 is Rs 161.67, which has improved to Rs 171.10 at the end of June quarter. The issue is priced at a price to book ratio of 2.27 based on March 22 numbers and 2.15 times June numbers. The company looks attractive and investment in the company should be considered.

The third and final issue for the week is from Global Healthcare Limited which is tapping the capital markets with its fresh issue of Rs 600 crore and an offer for sale of 507.61 lakh shares in a price band of Rs 319-336. The issue opens on Thursday the 3rd of November and closes on Monday the 7th of November. The company which uses the brand ‘Medanta’, operates five hospitals in the cities of Gurugram, Lucknow, Patna, Ranchi and Indore. It is in the process of setting up a hospital in Noida which would take another 24-30 months to be commissioned.

The growth for the company would come from additional beds which are set up at the existing facilities. The company has compared itself with Apollo Hospitals, Max, Fortis and Narayana. In terms of revenues, it is smaller than all of these. The company has reported losses in the new hospitals that have been set up while the oldest and established one in Gurugram is the cash cow of the company. On a net basis the company reported an EPS of Rs 7.77 for the year ended March 2022. At this EPS, the PE band is 41.08 to 43.24 on a diluted basis. This compares favourably with Apollo and Max. Is similar to Narayana but is more expensive than Fortis. While the business is good and Dr Trehan, the founder, has a tremendous background, it appears that there is hardly anything on the table in the near term for investors.

While in the long term, the turnaround in the four hospitals and utilisation of land available in Gurugram would impact the hospital positively, this needs to be put into action to bear fruit. Investors should look at the company post listing or after the September results are announced.

Coming to the markets, we are well poised to touch the levels of 18050-18,150 on NIFTY and 61,000 on BSESENSEX. If these levels are crossed and sustained, we have further upside possible. Assuming these levels are crossed which may not happen this week as we have FED meeting for their interest rate hike considerations on Tuesday and Wednesday, we are in for sharp upsides.

How the US markets would react is anybody’s guess. As far as a rally is concerned, we have already gained quite sharply. At best markets may consolidate or we may react small if all is well. If data and commentary is poor there could be a sharp correction as well. The market has very strong support in the region of 17,350-17,450 on NIFTY and 58,650-58,950 on BSESENSEX. This takes care of the previous top and also some more cushion on the downside.

The strategy would be to buy on any meaningful dips and sell on strong rallies. For some time now onwards, trade is going forward, with a positive bias.