With July futures expiring this week, rally to continue

Market Down

Markets began the week on a quiet note and at the end of Tuesday it appeared as if we would end the week in no mans land. Market behaved in a completely different manner and over the next three days the BSESENSEX gained almost 1,000 points with NIFTY chipping in 300 points. The week closed with BSESENSEX gaining 425.81 points or 1.16 per cent to close at 37,020.14 points while NIFTY gained 133.65 points or 1.24 per cent to close at 10,768.05 points. The broader indices saw BSE100, BSE200 and BSE500 gain 1.24 per cent, 1.14 and 1.04 respectively. BSEMIDCAP was up 1.00 per cent while BSESMALLCAP lost 0.17 per cent.

The Indian Rupee gained 18 paisa or 0.24 per cent to close at Rs 75.02. Dow Jones gained 596.65 points or 2.29 per cent to close at 26,671.95 points.

The primary issue from Rossari Biotech was oversubscribed 79.37 times. QIB portion was subscribed 85.26 times, HNI 239.83 while Retail portion was subscribed 7.23 times. The cost of funding for the leveraged HNI will vary between Rs 127-137 which is 30-32 per cent of the issue price of Rs 425. This effectively means that the share needs to trade above Rs 562 for the HNI to break even and make money if it trades higher.

The follow-on public offer from Yes Bank which is the largest follow on offer was subscribed. The company received bids for 1251.51 crore shares and taking the allotted price of Rs 12 would amount to Rs 15,018 crore. There could always be some rejections on technical grounds. The share price of Yes Bank lost Rs 5.70 or 22.35 per cent to close at Rs 19.80. Shares of Yes Bank allotted through the follow-on offer are to list on Monday the 27th of July by which time the market price would be close to Rs 12-14. How they correct in the remaining five trading sessions is a matter of discussion and permutation and. combinations.

Covid-19 has many issues and different people have been impacted in different ways, but one positive impact has been the streamlining and fast track of fund raising by SEBI. We have had India’s largest rights issue from Reliance and now the largest FPO from Yes Bank. There have been rights issue from Arvind Fashion which closed on Friday and Aditya Birla Fashion and Retail which would close in the coming week. Issues go ex-rights and the entire process gets completed in less than four weeks’ time from ex-right to subscription and subsequent listing.

Mahindra and Mahindra Financial Services Limited has announced its rights issue to raise Rs 3,089 crore. The rights price is a steep 75 per cent discount to the last traded price of Rs 207.90 on Friday on the BSE. The rights ratio is one for one at a price of Rs 50. The record date for the right is Thursday (July 23). The share price would correct to some extent Monday onwards.

The important point here is that the number of rights issue and fund raising by companies is on an advanced pace and many companies are taking advantage of the relaxed conditions by SEBI to do so. The response to these issues has also been encouraging. Even in the primary market the pipeline is full and it would be interesting to see how many issues tap the market finally.

BPCL was the star performer last week with the government having extended the last date for inviting bids to July 31. The share gained Rs 67.55 or 17.95 per cent to close at Rs 443.90. The market cap of the company is Rs 96,300 crore and the street believes that bids for acquiring 53.29 per cent stake in the company would come around Rs 1.20 lakh crore, implying a further 20-25 per cent upside. Expected bidders include Rosneft, Saudi Aramco, Kuwait Petroleum, Exxon Mobil, Shell, Total and Abu Dhabi National Oil Company. This should be an interesting counter in the week ahead.

The week ahead sees July futures expire on Thursday (July 23). The current value of NIFTY is higher by 612.80 points or 5.96 per cent at 10,901.70 points. Bulls certainly have the upper hand and with disbelief in the market rally gaining further ground, it should be even easier for bulls to push home the advantage.

Coming to covid-19, the number of patients globally has increased to 144.29 lacs with 6.05 lakh deaths and 86.21 lakh patients recovering. In India the number of people affected by Covid-19 has touched 10.77 lakh with 26,828 deaths and 6.77 lakh people recovering. Compared to the previous week, globally has seen 16.81 lakh new patients with 37,219 deaths and 9.37 lakh people recovering. In India, we have added 2.27 lakh new patients, 4,132 deaths and 1.41 lakh people recovering.

The week ahead sees July futures expiring and this would keep markets choppy and volatile. There is complete disbelief in the ongoing rally and markets are in the grip of bulls in India and globally. In this situation the tendency of people to short the market on every rally is natural and therefore acts as fodder for the bulls who are on the rampage. Having made money since markets fell sharply in March 2020, in April, June and July, the bulls are sitting pretty and are likely to squeeze the bears once again in the four remaining days of trade left in the series. While valuations look skewed undoubtedly, it makes sense to ride the rally, avoid shorting and book profits whenever the situation warrants.

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

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