Markets to gain after initial setback

By Arun Kejriwal

The past week has had all the action you can imagine. The markets lost heavily, gained heavily and were also undecided. To add to the drama, we had a bank holiday midweek which left us in the dark about the action overseas.

At the end of the week, BSESENSEX gained 764.34 points, or 1.33 percent, to close at 58,191.29 points, while NIFTY gained 220.30 points, or 1.29 percent, to close at 17,314.65 points. Among the broader indices, the BSE100, BSE200 and BSE500 were up 1.22 percent, 1.28 percent and 1.37 percent, respectively. BSEMIDCAP gained 2.14 percent while BSESMALLCAP gained 2.57 percent. Markets gained on two of the four trading sessions and lost on the remaining two.

The Indian rupee was under pressure, losing 98 paisa or 1.20 percent to close at Rs 82.32 against the US dollar. Dow Jones gained the first two days and lost the remaining three days, rising 571.35 points, or 1.99 percent. It closed at 29,296.76 points. What is troubling, however, is the fact that the Dow is down a staggering 19.43 percent year-to-date. Of concern, the Dow is barely about 2 percent above its 52-week lows with less than 2.5 months to the end of the calendar year.

In the primary market news, Electronics Mart Limited’s new issue received overwhelming support, drawing 75.78 subscriptions. The QIB share was subscribed 178.63 times, the HNI share was subscribed 67 times and the Retail share was subscribed 20.77 times. There were 20.46 lakh applications. The issue, which was for Rs 500 crore, received a reply for around Rs 26,700 crore, including anchors.

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There is another issue from Tracxn Technologies Limited which is hitting the capital markets with its offering for sale of 3,86,72,208 shares at a price range of Rs 75-80. At the upper end of the range, the issue would be valued at Rs 309.38 million. The issue opens on Monday 10th October and ends on Wednesday 12th October. The issue is 75 percent reserved for QIBs, 15 percent for HNIs and 10 percent for retail investors.

Tracxn Technologies is a leading global Private Market Intelligence SaaS platform. It offers the use of its extensive database as a service against payment of the necessary fees. The average turnover is around Rs 6.5 lakh and this is for three users per year. 70 percent of the company’s revenue comes from overseas, the rest from domestic. This company’s business can only be compared to Bloomberg for understanding purposes which has a database of companies in the public or public space. Tracxn has data in the unlisted range and so it is much harder to get data. Currently, Tracxn is among the top five global players in terms of profiled companies.

In terms of revenue, the company recorded revenue of Rs. 63.45 crore for the year ended March 22, which has increased to Rs. 18.40 crore by the end of the first quarter of FY23. The company reported a loss of Rs 4.85 crore for the year ended 22nd March. For the first quarter there is a marginal loss of Rs 72,000 on an adjusted basis. While the logical conclusion would be that the company would become profitable in the future, that may be a long way off.

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The company is currently a loss-making business and is not likely to become profitable in the near future. ESOP conversion accounting entry would be a hindrance for some time. So there would be no EPS and therefore no PE either. The path to that value would be a revenue multiple, which would be a whopping 13.90x based on fully diluted post-ESOP equity. Outstanding ESOPs are 1 Cr shares issued at Rs 1. In terms of spending, almost all spending is labor related and this is something that cannot be reduced. Readers are advised to skip the topic when applying and look for better options after the listing.

In what could be described as highly unexpected, Nykaa announced a bonus issue of five shares for every share held even before the first year of listing on the stock exchange was completed. Considering it has yet to demonstrate sustained profitability and growth, that seems out of place. Usually one sees bonus outputs from capitalized winnings. Here the company does this from the reserves due to the issue price premium. While it may not be fair or accurate to compare this company to what Reliance Power has done, the idea is to keep investors in the company as the lockup period is approaching, as the shares were listed on November 30, 2021 if the price of the stock traded in the 200-250 range without a bonus, more retail investors would be drawn into the web the company is weaving.

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The earnings season due out next week will begin as the top three IT companies announce their results. TCS will do so on Monday 10th October, Wipro on Wednesday and Infosys on Thursday. This would give a sense of this industry, rupee parity and the impact of inflation on US jobs and IT spending.

The previous week’s highs were 58,578 points and 17,428 points for BSESENSEX and NIFTY respectively. These would be strong resistances for what is likely to be a week of volatility and markets testing patience over the coming week. The next targets would be 59,250-59,550 and 17,650-17,750. On the support side, the 57,250 and 17,000-17,050 levels should serve as strong support. On breaches, last week’s lows at 56,150 and 16,750 would serve as support.

I believe that the lower levels would not be reached and the markets would try to trade higher after initial setbacks. Look for supports and buy on dips. The results for the July-September quarter will be crucial for the future markets. Buying dips and selling strong rallies would be the strategy for the week ahead.

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