Weekend Investing Daily Byte – 11 July 2024

July 11, 2024 5 min read

After yesterday’s drubbing, markets opened slightly gap up but succumbed to pressures and closed pretty much flat. Today’s discussion will focus on whether this is the season of IPO multibaggers. We will explore which IPOs have come through, which are expected, how investors should approach these IPOs, and the psychology behind them.

Market Overview

Where is the market headed? The market is now consolidating within a shallow band, with the last six or seven sessions confined to a 200-point range. Nifty experienced a minor gain today, closing exactly where it did yesterday, making it a no-gain day.

Nifty Next 50

Nifty Junior saw a 0.22% gain, recovering slightly from yesterday’s sharp sell-off.

Nifty Mid and Small Cap

Nifty Mid Caps also had a sideways movement with a 0.21% gain, and Small Caps eked out a 0.61% gain after yesterday’s drop. Overall, the market remains on solid ground.

Nifty Bank Overview

Bank Nifty broke down its support today but recovered nicely towards the end, indicating that some weak hands have been taken out. Hopefully, we will see Bank Nifty starting to rise again above 52,500.

Nifty Heatmap

In terms of today’s heat maps, energy stocks like Coal India, BPCL, and ONGC were among the gainers. There were also gains in ITC, Tata Motors, and State Bank of India, while most other stocks remained flat or slightly down.

In the Nifty Next 50, PFC, REC, and Zomato saw gains, with Zomato up 2.73%. Cement stocks like Ambuja Cements also saw gains, along with Dmart, Trent, and IOC. Capital goods stocks like Siemens and ABB were down, as were banks like Canara Bank and PNB. LIC and RFC moved up slightly.

Sectoral Overview

Sectoral trends showed no significant movements, with most sectors moving within a zero to half percent range. Public sector enterprise stocks, in particular, saw a 1% gain, while real estate lost 1.5%. Over the last twelve months, public sector enterprise stocks have risen 118%, and real estate is up 110%, indicating minor losses in these sectors don’t matter much.

Sectors of the Day

Nifty PSE Index

The public sector enterprise index made a new all-time high today, breaking out of the election day high with a 1.1% gain.

Nifty Oil & Gas Index

Oil and gas stocks also gained 1.1%, up nearly 61% from November last year. Crude oil is looking up, with analysts suggesting it might rise smartly.

Stocks of the Day

Engineers India

Engineers India saw an 11% gain today, breaking its resistance near 270 to 290, forming an inverted head and shoulders pattern. This long-term chart indicates the potential for significant gains.

Story of the Day

Now, coming to the discussion of the day: Is this the season of multibaggers of IPOs? What you may not know is that IPOs and investors have made a strong showing in 2024, with significant returns both on listing and post-listing. Whenever there is a bull market, a lot of IPOs come through as everyone wants to benefit from the rising tide. This leads to a rush to get a piece of the IPO action, sometimes overlooking valuations.

Large IPOs, like those from Reliance and Hyundai, are expected in the coming months, potentially drawing a lot of liquidity. So far this year, 38 IPOs have come through, with an average listing gain of 25% and average post-listing returns of 49%, which is very impressive. The top IPOs of 2024 include Bharti Hexacom with an 85% return, Aadhaar Housing with 33%, and Gold Digit, Indigene, and Juniper Hotels all between 33% to 25%. The best returns have come from KP Green Engineering at 294%, Jyoti Automation, Execom Telecom, and others with hundreds of percent returns.

Nine IPOs were subscribed 100 to 300 times, and 22 IPOs were subscribed between 13 and 100 times, showing the rush to get in. The business prospects are favorable, pricing could be decent, and a strong secondary market all contribute to this rush. Domestic flows have kept the market buoyant, despite attempts by bears to bring it to equilibrium. So far, 34,000 crores have been raised in the first half of the year, compared to nearly 50,000 crores by 57 companies in all of 2023. In 2020, the total was 59,000 crores. This year is expected to see even bigger numbers.

However, there’s a deeper story: insiders are selling at an unprecedented rate. Promoters, private equity holders, and MNC parents are selling significant stakes. In the last two years, insider sales were around 40,000 to 60,000 crores, last year it was 140,000 crores, and FY24 saw two lakh crores. This year, in three months, it’s already 92,000 crores, potentially reaching three to four lakh crores by year-end. Private equity sales have also risen rapidly, from 83,000 crores to 109,000 crores, and already 35,000 crores this year. MNC parents’ sales rose from 45,000 crores to 82,000 crores, and 30,000 crores this year.

These sales may indicate insiders see current valuations as high. However, with continued liquidity from the Fed, valuations may remain high. Absolute valuation bases have become less relevant, with liquidity driving the market. Promoters and holders, being human, might be tempted to sell after significant gains.

By the end of 2024, about 36 more IPOs are expected, including big names like Ola Electric, Swiggy, and NSDL. Whether to subscribe or not is a guessing game. Prudent investors might let stocks list and stabilize before investing heavily. Playing for the pop with multiple applications from your household can be less risky, akin to buying a lottery ticket. However, holding onto stocks post-listing might be riskier, as seen with stocks like Zomato, Policy Bazaar, and LIC, which stabilized before going up.

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    Weekend Investing Daily Byte – 11 July 2024