Trade cautiously as markets expected to be volatile

Markets are tired. The super Monday, which saw a rally of more than one per cent, saved the blushes for the market and saw it close with the slimmest of gains for the week. The real stars were the midcap and small cap stocks, which seem to have become the darling of bourses. These are dangerous indications and we seem all poised to consolidate and give up the strong position that we are in for the time being.

Markets will take cues from the US Federal Reserve's monetary policy review and wholesale price index-based inflation (WPI) data due this week. On Monday, stocks will react to tepid factory growth and lower retail inflation figures released after markets closed on Friday. WPI-based inflation for August is expected to be released on Monday. Trend in investment by overseas investors, movement of rupee against the dollar and crude oil price would continue to dictate trading in the stock market for the week. Global markets will track the US Fed's two-day meeting ending on Wednesday. J uly's index of industrial production saw a contraction slipping to 0.5 per cent against 3.9 per cent in the previous month. On the other hand, retail, or consumer price index-based, inflation for August fell further to 7.80 per cent against 7.96 per cent in the previous month. This augurs well.

The listing of Snowman Logistics was a super hit with the share gaining a stupendous 69.7 per cent to close at Rs79.75 on the Bombay Stock Exchange. Shares were issued at Rs47 and the issue was oversubscribed 60 times. There is likely to be further action as institutional investor Reliance Mutual fund and a high net worth individual bought about 60 lakh shares on the first day. This is against an issue size of 3.25 crore shares and total delivery of 104 lakhs on day one.

This week sees Shemaroo Entertainment Limited trying to raising Rs120 crore in a price band of Rs155-Rs170 with a 10 per cent discount to retail investors. The issue appears to be piggyback riding the goodwill generated by the previous two issues-Snowman Logistics and Sharda Cropchem. The issue on a fully diluted post issue is valued between 15.68 times and 16.76 times on March 14 earnings, which is not cheap by any standards.

This is a working capital intensive company with receivables a huge concern. The company has debtors for the year ended March 14 of Rs140 crore against revenue of Rs264 crore. I would recommend that investors stay away from this issue and not get carried away by the discount.

The Cabinet has cleared three issues for divestment in the form of Sail, Coal India and ONGC. What would be the order of these divestments is not known but they could begin as early as next week itself as they would be through the offer-for-sale route and the stock exchange mechanism. Changes have been made in the way these shares will be sold since the last divestment. There is a retail bucket of 20 per cent reserved for investors who apply for a sum not exceeding Rs2 lakh and there would also be a discount to this category. The idea of these changes is to bring the retail investor back to markets.

Foreign institutional buyers bought equity worth Rs 2,550 crore last week while domestic institutions were sellers worth Rs 593 crore. The week ahead is likely to be choppy and much more volatile than the previous week. The fatigue factor is likely to kick in and we should see consolidation. Trade cautiously.

(The writer is an investment analyst)