Weekend Investing Daily Byte - 4 Dec 2024

It’s a good day again, as the markets have surprised a lot of people by brushing aside a lot of negative news and are now consolidating at the current levels. I believe we are at the cusp of a huge rally, and of course, we are awaiting the outcome of the rate cut decision later in the week, which should serve as the trigger for the market to move forward. Today’s story is about a shocking IPO scandal that has been exposed by SEBI, our regulator. I think SEBI is doing a fair job in policing the system and trying to protect investors. While sometimes it might feel like they are overdoing it, in this case, I believe they deserve credit for pulling this particular IPO down. We’ll discuss this further in the second half of the video.

Table of Contents

Where is the market headed?
Sectors of the Day
Stock of the Day
Story of the Day : the IPO scandal exposed by SEBI.

Where is the market headed?

Market Overview

The market has surprised most people in the last few days, especially considering the negative news we’ve been seeing. Whether it’s the GDP slowdown, additional taxation, or weak auto and FMCG sales, the market has held up better than expected. It is now poised for the next leg up, which I believe will happen once the rate decisions are out. Nifty is still quite a bit far from its highs in September—around 2,000 points away—but the rest of the market is beginning to catch up. Today, Nifty was flat, giving up its morning gains, and closed at 24,467.

Nifty Next 50

Nifty Next 50 continues to rally hard, marking its eighth session post-gap and is looking strong at 72,200, up nearly half a percent.

Nifty Mid and Small Cap

Nifty Midcap is even stronger, beating this pivot and up 0.9% today. Nifty Small Caps are also showing strength, up for the fourth consecutive session at 18,143, looking like a runaway train. Despite the still-negative narrative around, the rally looks to be on strong footing, with small caps up by 0.76%.

Nifty Bank Overview

Bank Nifty has also broken out of its range between 52,500 and 51,000, rising 1.08%. Historically, when Bank Nifty makes a decisive move, the markets follow, so this is a key indicator to watch.

Advanced Declined Ratio Trends

The advance-decline ratio was more biased towards advances, with 292 advances to 204 declines, which looks positive.

Nifty Heatmap

Nifty 50 was skewed towards the red, with several stocks in the red. HDFC Bank was one of the key stocks supporting the Nifty upwards, while others like Reliance, Maruti, Tata Motors, Hindustan Unilever, ITC, and BTI were down. On the positive side, stocks like TCS, HDFC Bank, and HDFC Life were pushing the Nifty up.

In Nifty Next 50, we saw much more green, with stocks like PFC, IRFC, Chola Finance, ABB, Gas Authority, and ZATO continuing to perform well. PSU Banks are leading the pack, with nearly 4.5% gains in just two days. Over the last month, PSU Banks have wiped out all their losses, with a gain of 5.2%, and real estate has become the top-performing sector with a 10% gain over the last month. For the last three months, real estate remains one of the top contenders as well, while for the year, it’s also doing well.

Sectoral Overview

sectors like energy, FMCG, and auto are showing weakness. FMCG is down 10.2%, energy is down 12.8%, and autos have seen a 9.1% drop in the last three months, along with public sector enterprise stocks, which are also down. These sectors need a push, and perhaps the interest rate cut could trigger a recovery in autos and FMCG going forward.

Sectors of the Day

Nifty PSU Bank Index

PSU Banks continue to do well for the second day running, up by 2.2%. The recent banking amendments passed in Parliament, along with the Finance Minister’s recognition of the strength in these banks, has caused more money to flow into them.

Stock of the Day

HEG

In the stock spotlight today, we have HG, which is up 16.2% for the second day running. HG and Graphite have surged, likely driven by news from China, which is reportedly withholding certain exports critical for the EV industry. There’s a lot of tension in the global trade front, with China trying to devalue its currency against the USD, which could have implications on industries globally.

Story of the Day : the IPO scandal exposed by SEBI.

The IPO in question was Traffic Sols Technologies, a company specializing in intelligent transportation systems. The IPO had a proposed size of 45 crores and a price band of 66-70 rupees, and it was oversubscribed by an incredible 345 times. The subscription period was in September, and just after the IPO was subscribed, SEBI halted it. After a detailed investigation, SEBI found that the company’s office was locked, and there was no operational office at the claimed location. The audited financial statements presented in the DRHP were found to be fabricated, and the company had no real clients. The orders they claimed to have in the pipeline were all fabricated as well, and it was essentially a shell entity.

The IPO was canceled, and the funds were refunded to investors. This case highlights how easily investors can be misled into buying into fraudulent companies. With 345 times oversubscription, investors were about to bet thousands of crores on a company that didn’t even exist in a meaningful way. It’s a stark reminder that many investors don’t do proper due diligence, relying on gray market premiums and hopes of flipping the stock on the first day. SEBI’s action, along with the efforts of the whistleblower and the investor group, saved a lot of money. This sets a precedent for tighter IPO oversight and stricter norms for future IPOs.

Over the past year, we’ve seen IPOs get oversubscribed by huge multiples, with some even oversubscribed by 500, 700, or 2,000 times. In many cases, it’s just blind betting—similar to buying a lottery ticket. But that kind of greed often leads to disaster. Fortunately, this time the market has been saved, and investors should be thankful to SEBI for taking swift action. Going forward, I would advise against playing the “flipping game” with IPOs. Often, you won’t get meaningful allocations, and even if you do, the returns may not significantly impact your overall wealth. The risk versus reward isn’t always in your favor. Instead, it’s better to allow a stock to list, let it stabilize, and then take a long-term view. Most IPOs see a cool-off in the first six months before they show any real momentum. Patience and careful evaluation are key.