Post a sensible Budget, markets have rallied; now, a consolidation is needed

NEW DELHI: The week gone by was super eventful, volatile and action packed. We had the last of the Union budgets by the present government being presented. Even though it was just a vote-on-account, there was expectation which got built up into the same.

This was partly on account of media hype and the opposition wishing and wanting to counter the government if they made announcements which went against the spirit of this being just an appropriation bill. Thankfully none of this happened and the budget saw markets move up even sharply on the following day.

For the week, markets were up on three of the five sessions and lost on two. BSE SENSEX gained 1,384.96 points or 1.96% to close at 72,085.63 points while NIFTY gained 501.20 points or 2.35% to close at 21,853.80 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.36%, 2.50% and 2.62% respectively. BSEMIDCAP gained 3.13% while BSESMALLCAP was up 3.35%.

The Indian Rupee gained 20 paisa or 0.24% to close at Rs 82.92 to the US Dollar. Dow Jones had a great week and gained on four of the five trading sessions.

This was even though the FED kept rates unchanged at its meeting during the week. It now appears any rate cut may happen in either two months’ time or maybe four months. This did not affect the markets and they continued to rally strongly.

RBI would be meeting for its bi-monthly policy review meeting between February 6 and 8. It is widely expected that repo rates would remain unchanged. The current repo rates are at 6.5% and they have remained at this level since February 2023.

RBI took strict action against Paytm payments bank and debarred Paytm from allowing fresh transactions and credits into the wallets which are operated by Paytm payments bank because of serious compliance issues.

The stock markets reacted in the manner that they know best and the share lost 20% each for the last two days. The share price of Paytm stands at Rs 487.05, a loss of Rs 273.95 or 35.99% from Rs 761 on Wednesday.

While the business of Paytm and its use as a payment facilitator is not impacted, it needs to shift balances and appoint new payments bank at the earliest within the current month of February.

In what could at best be described as a major coincidence, the Jio Payments bank, which had been granted a licence in April 2018, is all over social media. I believe as investors realise the ground reality, the share Paytm should begin to consolidate in the coming week.

The budget was announced on Thursday and markets were fairly quiet on a net basis on that day. They lost marginally and were down about 0.15%. The event saw a couple of important events from the market perspective. There was a very strong message and body language that was visible from the FM’s speech when she said that the government would present the full budget in July 2024.

The temptation to splurge some money on populist measures ahead of the general elections was done away with. On the other hand, the budget has remained within the confines of the fiscal path and actually cut some of the capital expenditure.

Indian bonds would list later on during the calendar year in international markets and to ensure that they get fair valuation, the budget targets and fiscal prudence are being exercised for a fourth year in a row.

Increased expenditure on infrastructure projects, railway development and announcement of new freight corridors were highlights of the budget.

The budget led to euphoria in the markets the next day and intraday the BSE SENSEX was up about 1,450 points while NIFTY was up 425 points. Markets ended with gains of 440 points on BSE SENSEX and 150 points on NIFTY.

In the process, NIFTY made a new lifetime high at 22,126.80 points beating the previous high made on January 16 by a whisker. The difference was a mere 2.65 points. However, BSE SENSEX was unable to make the new high and fell quite short of it, almost 340 points.

The week ahead is yet another bumper IPO week with as many as four mainboard IPOs opening and closing during the week.

These IPOs are from those companies for whom listing before February 15 is important as they have bonds listed on the exchanges and need to declare quarterly results and also those who were waiting for the budget and hoping that it would not dampen sentiments.

The first IPO is from Apeejay Surrendra Park Hotels Limited, which is tapping the capital markets with its fresh issue of Rs 600 crore and an offer for sale of Rs 320 crore. The price band is Rs 147-155.

The issue opens on Monday (February 5) and closes on Wednesday (February 7). The retail portion is 10% of the issue as the company had not reported profits in the financial years 2021 and 2022.

The company has 2,123 keys in 27 hotels through a combination of ownership, leased and managed properties. It reported revenues of Rs 524.43 crores for the year ended March 2023 and a profit of Rs 48.06 crores after tax. The average occupancy for the hotel is a very healthy 91.77%.

The company reported an EPS of Rs 2.75 for the year ended March 2023. The PE multiple for the company is 53.45-56.36 which is comparable with its peer set such as Chalet Hotels, Lemon Tree and Samhi Hotels. The issue merits subscription.

The second issue is from Rashi Peripherals Limited which is into the national distribution of global technology brands for information and communication technology products. The company is tapping the markets with its fresh issue of Rs 600 crores in a price band of Rs 295-311. The issue would open on Wednesday (February 7), and close on Friday (February 9).

The company reported revenues of Rs 9,454.27 crores and a net profit of Rs 123.34 crores for the year ended March 2023. The EPS for the company on a fully diluted basis was Rs 29.50. The PE for the company is 10-10.54 times which compares favourably with its listed peer, Redington India Limited. Subscription to the issue is warranted.

The third issue to open during the week is from Jana Small Finance Bank Limited which is tapping the capital markets with its fresh issue of Rs 462 crores and an offer for sale of 26,08,629 equity shares. The price band of the issue is Rs 393-414 and the issue would open on Wednesday (February 7), and close on Friday (February 9).

The company reported a fully diluted EPS of Rs 42.64 for the year ended March 23. Based on this EPS, the PE multiple for the small finance bank is 9.22-9.71.

Post issue, the NAV of the bank would be Rs 298.52. At this NAV, the price to book, a key ratio for evaluating banks would be at 0.72 which makes the offering very lucrative and would receive overwhelming support. The issue becomes one where investors should try their luck and hope that their application is successful in the lottery.

The fourth and final issue to open this week on Wednesday (February 7) and close on Friday (February 9) is from Capital Small Finance Bank Limited.

The company is raising Rs 450 crores in a fresh issue and consists of an offer for sale of 15,61,329 shares in a price band of Rs 445-468. The company is into Agriculture, MSME and mortgage loans and is present in 5 states and one union territory. Its presence is strongest in Punjab followed by Haryana, Delhi and it has entered Rajasthan and Himachal Pradesh as well. Chandigarh is the union territory it is present in.

The company reported an EPS of Rs 27.21 on a fully diluted basis for the year ended March 23. The PE for the company is 16.35-17.20. It is expensive compared to another issue which is open at the same time from Jana Small Finance Bank Limited. The NAV for the bank, post the issue, is at 232.79.

The price to book for the bank at the above NAV assuming the issue is priced at the top end would be 2.01. The issue is reasonably priced looking at the opportunity. However, if we were to look at subscribing to just one of the two banks on offer, the issue from Jana is better priced and offers a higher return than Capital.

Coming to the markets in the week ahead, one can clearly say that the risk reward ratio is against the investor. The sharp volatility witnessed particularly on Friday is a dangerous sign and does not augur well for the markets.

The sharp gains in the PSU stocks particularly the way railway stocks are behaving is another reason to feel discomfort. It makes sense to take some money of the table and allow markets to cool off. FPIs were big sellers in January 2024 and sold stock worth Rs 25,744 crores.

In short, it’s time to be cautious and with no news flow in the immediate future, cooling off is a must for markets.

While the RBI meeting in the coming week is expected to keep rates steady and the election results are a no-brainer, the pace at which markets are rising need to taper. We cannot peak so soon with result day still four months away.

Trade cautiously.