RBI policy meet to LIC IPO filing - Key events to take place next week

Markets in the week gone by behaved as if there were two distinct halves. The first three days of the week saw markets gain and then correct themselves in the remaining two days. BSESENSEX gained 1,444.59 points or 2.53 per cent to close at 58,644.82 points while NIFTY gained 414.35 points or 2.42 per cent to close at 17,516.30 points. The broader markets saw BSE100, BSE200 and BSE500 gain 2.44 per cent, 2.43 per cent and 2.45 per cent respectively. BSEMIDCAP was up 2.33 per cent while BSESMALLCAP gained 2.63 per cent.

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It`s important to note that markets hit key resistance levels on the way up, and reacted quite sharply from such levels. The range for the week was 56,400 - 59650 on BSESENSEX while it was 16,825 - 17,800 on NIFTY. This would continue to be the range for the coming week as well with a couple of factors deciding the direction. However, volatility would be the norm and even though the net change may not be as much on a daily basis the swings would remain. Key factors would be the net sales by FII`s and global markets.

The Indian Rupee gained 34 paisa or 1.05 per cent to close at Rs 74.70 to the US Dollar. Dow Jones gained on the first three days of the week and lost on the remaining two, similar to what happened in India. It gained 364.27 points or 1.05 per cent to close at 35,089.74 points. Facebook or Meta had a disastrous outing post its results for the quarter and saw a massive fall of around 26 per cent. While it fell marginally on Friday, the damage was done with the share down a massive 21.15 per cent during the week. The closing price was USD 237.09, down 63.59 dollars for the week.

In primary markets news, we saw one issue list, one issue complete subscription and yet another issue opening for subscription. The issue to list was AGS Transact Technologies Limited which had issued shares at Rs 175. The share closed on debut day at Rs 161.20, a loss of Rs 13.80 or 7.83 per cent. During the remaining part of the week, the share recovered some ground and closed at Rs 165.60, down Rs 9.40 or 5.37 per cent.

The issue from Adani Wilmar Limited closed for subscription on Monday the 31st of January. The issue for Rs 3,600 crore was subscribed 18.33 times overall backed by strong response from HNI`s. The QIB portion was subscribed 6.04 times, HNI 59.40 times, Retail 4.14 times, Employee 0.54 times and Shareholder reservation 35.17 times. The price band was Rs 218-230. The issue would list on Tuesday the 8th of February with the allotment of shares done at the top end of the price band at Rs 230.

The issue from Vedant Fashions Limited is tapping the capital markets with its offer for sale of 3,63,64,838 shares in a price band of Rs 824-866. The issue opened on Friday the 4th of February and would close on Tuesday the 8th of February. The issue would garner Rs 3,149.19 crs at the top end of the price band. The market capitalisation at the top end of the price band would be Rs 21,017 crore for Vedant Fashions Limited. For the record, the company reported revenues of Rs 564.81 crore for the year ended March 2021 and a net profit of Rs 132.90 crore.

The details given in the price band advertisement issued by the company state that the PE band for the company is 153.73-161.57 times based on the EPS of Rs 5.36 for the year ended March 2021. A new matrix mentioned as per the SEBI advertisement gives the market cap to revenue at 37.21 times based on revenues for the year ended March 2021. Further the advertisement mentions the average PE ratio for the NIFTY 50 to be at 23.47 times against the price band mentioned of the company at 161.57 times. The multiplier is a steep 6.88 times.

Let us come to the business of the company. It is a top end fashion retailer having its stores as EBO`s in malls, fashion streets across cities and towns. The company retails wedding and celebration wear, a new category created by the company to identify itself. The category includes men, women and children wear. The size of this industry is estimated at a massive 1.02 lakh crore with the bulk of the same being women wear which is not the strongest segment for Vedant Fashions. For Vedant, the strongest segment is the men`s segment where their premium brand is `Manyavar`. Sales reported by Vedant Fashions in the year ended March 2021 were about Rs 565 crore which means a little under 0.6 per cent of the category that the company has mentioned as wedding and celebration wear. They have not mentioned any competitors for them in the RHP either. When there is such a large category and no meaningful names to talk about, it makes the categorisation itself difficult to accept.

Some names which come to mind in this segment include TCNS Brands Limited a women`s fashion brand, Raymond`s Limited, a premium men`s brand and Reliance Trends. While all these brands put together would hardly total Rs 3000-3500 crore in top line, what is really intriguing is the size of the category and the players.

The issue from Vedant Fashions is a high profile and hyped issue coming with unheard of valuations. The company has created a new category for itself in which it operates. It is for the investor to decide whether he would like to invest in such an issue or take a measured call and then decide what should be his response to such an issue. I urge investors to do some homework as there are still two days left before the issue closes. At the end of day one, the issue overall is subscribed 0.14 times with the retail portion subscribed 22 per cent.

The Union budget was announced on the 1st of February and it was better than expected. The markets were worried about populism with 5 states headed for polls from the 10th of February. On the contrary the sum and substance of the budget was to spend on infrastructure, give a boost to capex and keep things by and large the same. There was no tinkering, no changes in tax laws and incentives announced in extending the period by one year for new manufacturing units. Apart from the 14 sectors where PLI schemes have been already announced, the budget announced one more for the solar module and production sector with an outlay of Rs 22,500 crore. Surprisingly with talk of taxing the super-rich, nothing was done either on the tax front or the wealth tax front. Incentives have been given for GIFT city and I believe that with the UAE levying tax at 9%, the new scheme announced for GIFT City may see a shift of P-Notes to this place. More clarity on the same would be needed.

The week ahead sees RBI meet between the 7th and 9th of February for its monetary policy meeting. It is widely believed that key policy rates would be kept unchanged and signal the same message that the budget has given. While there could be a commentary which signals that inflation is a concern and that tightening of rates does happen going forward, things would remain at status quo currently.

Coming to the markets in the week ahead, the event of the week would be the filing of DRHP of LIC prospectus in the coming week. This would be a fast-track issue and would see the light of day in roughly four to five weeks. The issue would set a new record for receiving the largest number of applications ever, and it may be a good idea if the people connected with the issue look at keeping an extra day for just retail investors in the issue. Against the normal three days that an issue is open, this could remain open for an additional fourth day for just retail investors.

Markets would be volatile and trade in the broad band as mentioned earlier. They would be volatile and have no trend. Key factors would be FII trade who continue to be net sellers. Trade cautiously.