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The stock market, which was sailing along nicely without any global cues to roil it faced a nasty setback on Thursday. Reports of the Indian army’s surgical strikes across the Line of Control fanned fears about an escalation in Indo-Pak tensions. The BSE Sensex dipped 1.64 per cent and the sleeping India VIX woke to post a 30 per cent spike on Thursday.
This fuelled social media debates on how unpatriotic these stock market people were to react like this. Unfavourable comparisons were also made to the Karachi Stock Exchange, which saw only a 0.15 per cent dip. As if to prove its patriotic fervour though, both the bellwether and mid-cap indices made a smart recovery on Friday.
But patriotism aside, valuations are looking over-ripe in some segments of the market (particularly mid and micro-caps) and markets are bound to be scrounging for reasons to sell off a bit.
Down debut
Listing gains on IPO stocks depend only on one thing. If you thought it is fundamentals, you are wrong. It is market behaviour on the day of listing. ICICI
Prudential Life became the latest IPO to bear the brunt of a down market on listing day. Choosing to list on Thursday, the stock took a beating and closed 11 per cent below offer price at Rs 297. What happened to all those HNIs who put in bids for over 25 times in the IPO, one wonders?
Anyway that prompted some analysts to say that they always knew it was over-priced and others to call it a ‘long term’ buy. Choose what you want to believe. The next IPO on the block is the aptly named Endurance Technologies. Hopefully it will endure in this choppy market.
Price no bar
Amid all the gloom, there was a ray of sunshine from tyre-maker MRF whose stock hit the milestone of Rs 50,000 per share, thus earning the moniker of the most ‘expensive’ stock on the Indian exchanges. That’s expensive in terms of absolute price, not PE (price earnings) which is till at about 11 times.
This stock offers a good lesson to investors who hunt for sub-Rs 100 stocks on the exchanges while shunning the ones with a high absolute price. Had you invested Rs 1 lakh in MRF (at Rs 6,650) exactly five years ago, you would be sitting on a cool Rs 7.6 lakh today. Yes, factors like falling oil and rubber prices, reviving vehicle demand and the market fancy for auto components have given the stock a recent leg-up.
But in the long-term, so has the management’s amazing ability to scale up to this size with a tiny equity base of Rs 4.24 crore that hasn’t changed from the nineties. Nor have they split the stock to improve liquidity or make it ‘affordable’.
New option
One stock which seemed immune to the volatility was that of commodity bourse MCX. The stock has climbed a neat 29 per cent from last Friday to Rs 1,355. First it moved up on news of a 25 per cent increase in transaction charges by the exchange, which was seen to boost earnings by nearly a fifth. There’s the question of how the higher charges will impact volumes though. https://www.thehindubusinessline.com/markets/stock-markets/mcx/article9159197.ece
But the stock received another shot in the arm on Wednesday after SEBI’s surprise announcement ushering options contracts into commodity derivatives. This is seen to sharply increase both volumes and participation in ailing commodity platforms, which have seen volumes dwindling over the last three years. As of now, MCX is the leader in commodity trading, but who knows what can happen when big boys such the NSE and BSE throw their hat into the ring too. But the stock seems to have the support of Rakesh Jhunjunwala, who was said to have bought a 2 per cent stake in June.
More nails
Proxy advisory firm SES drove a few more nails into the coffin of Treehouse Education by urging shareholders to vote against adopting its accounts at its AGM. SES questioned the pre-school chain operator’s extra-ordinary decision to invest slightly more than its entire revenues on acquiring furniture in FY16, even as it paid its teaching staff peanuts (Rs 50,323 a year), thus poking a few more holes in its financials.
Not that it needed those nails. The stock has already been under fire for the last two years, plunging all the way from a high of Rs 510 in October 2014 (when it was still a fancied ‘play’ on education) to Rs 29, without the benefit of any stock split. Doubts about the financials have dogged it ever since the proxy firm first questioned the company’s high receivables in 2015. This was followed by the company reporting a sharp fall in both receivables and profits and putting off a merger with Zee Learn.
Little drops of equity
After resisting equity investments staunchly for many years, the Employees Provident Fund Organisation (EPFO) now seems to have become a great fan. Having invested Rs 6,577 crore in FY16 and made a 13.5 per cent return, it now plans to double its equity bets to Rs 13,000 crore in FY17. The investment like last year will be funnelled into Sensex and Nifty ETFs. The trade unions have promptly protested this move.
Their worries are unfounded because the EPFO’s equity bets are still a drop in the ocean, when you consider its corpus of Rs 8 lakh crore. While the Labour Ministry is talking of ‘doubling’ equity allocations to 10 per cent from 5 per cent, the reference is to 10 per cent of the incremental flows of the EPFO and not its total assets. So an investment of Rs 13,000 crore means a 1.6 per cent allocation in the portfolio.
That’s good if you hate equities, but bad if you love high returns!
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