Harsha Engineers makes a bumper listing with 36% premium

Harsha Engineers International clocked gains on listing as expected before rising further but most analysts advise booking profits amid market turmoil. The stock started off the first day's trade with a whopping 36 percent premium over issue price despite nervousness in equity markets. It climbed further six percent as the day progressed to take total gains to 43 percent over issue price.

Analysts said high premium at listing is justified with the IPO generating stronger than expected demand as qualified institutional investors' portion got subscribed over 178 times. Also, the ask price is fairly valued compared to industry peers.

"We recommend booking partial profits while remaining can be kept for the long term as the company is a comprehensive solution provider offering diversified suite of precision engineering products across geographies and end-user industries and has long-standing relationships with leading clientele," said Astha Jain, senior research analyst at Hem Securities.

Rajnath Yadav, research analyst at Choice Broking, urged investors to exit given the market volatility. Although Prashanth Tapse, senior vice president of research at Mehta Equities, sounded "very optimistic" on Harsha Engineers with its dominant position, he too advised booking profits in the current market scenario. "Risk takers can hold with a long-term perspective," he added.

Santosh Meena, head of research at Swastika Investmart, termed the company as a proxy play on India becoming a global manufacturing hub: "Those who applied for listing gains can maintain a stop loss at Rs 400. Our recommendation for investors is to hold the allotted shares and long-term investors can accumulate the stock on dips."

Harsha Engineers, which is the largest manufacturer of precision bearing cages in India, raised Rs 755 crore from the public issue with a strong 74.70 times subscription during September 14-16. Of the total issue size, Rs 455 crore was raised through fresh issuance which will be used in repayment of debts, capital expenditure towards the purchase of machinery, and existing production facilities.

Sensex was down 860.62 points or 1.48 percent at 57,238.30, and the Nifty down 285.50 points or 1.65 percent at 17041.80 following weak global cues. This is the fourth straight day of selling on Dalal Street.

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Expects market to open on a negative note on account of sharp decline across the global market. US, Europe and Asian markets fell by 1-2% (Dow fell intra-day low to below 30k psychological level) as investors had mounting fears that the Federal Reserve's aggressive policy tightening could tip the economy into a recession. Both Nasdaq Composite and S&P 500 declined 1% each while Dow Jones shed nearly half percent. European shares were deep in the red on Thursday as the central banks of Switzerland and the UK raised interest rates to help combat sky-high inflation and a looming global recession. UK Index slipped 1% while Bank of England hiked interest rate by 50bps. Both France and Germany Index declined 2% each. Asian stocks headed for a sixth weekly decline following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy. Equities in Australia, South Korea and South Korea Index fell between half to one percent. Japan Market is shut today. US Dollar Index spiked to 20-year high above 111 and 2-year G-Sec yield surged to fresh 15-year high which is a major concern in the market. SGX Nifty slipped by half percent.

Derivatives Snippet

·         Nifty September future closed at 17647.60 with a premium of 17.80 point v/s 13.10 point premium in the last session.

·         Nifty futures OI increased by 9.80% to 1.37 Cr and Bank Nifty futures OI increased by 10.35% to 24.48 Lakhs.

·         Nifty Put/Call Ratio (OI) increased from 0.95 to 1.04 level.

·         India VIX was down by 2.61% from 19.32 to 18.81 levels. Volatility fallen from highs post global events and buying interest overshadowed the tug of war between the bulls and bears.

·         On Options front, Maximum Call OI is at 18000 then 18500 strike while Maximum Put OI is at 17500 then 17000 strike. Call writing is seen 18200 then 18000 strike while Put writing is seen at 17600 then 17500 strike. Option data suggests a broader trading range in between 17200 to 18200 zones while an immediate range in between 17500 to 18000 zones.

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RBI Policy Meeting – More volatility to rock Indian equity markets, yet India to remain outperformer

RBI will take into consideration the impact of falling crude oil prices, amount of non-USD-based crude oil and other commodities India may import, and other ways of attracting dollar inflows via NRI remittances, while deciding the quantum of rate hike. However, it will be less than the US.

The past week has been a week of interest rate hikes by central banks across geographies as the world scrambles to rein in one of the worst inflations in history. As many as close to 10 countries have hiked rates in the past two days (21st and 22nd), which include USA, England, Switzerland, Taiwan, Hong Kong, Norway, Saudi Arabia and UAE, among others. The quantum of rate hikes in these economies has been either 75 basis points (bps) or 50 bps, except for Taiwan which has increased its rates by 12.5 bps.

Come September 30, the Reserve Bank of India (RBI) will be announcing by how much it will increase the interest rates for the world’s fastest-growing economy.

In the backdrop of continued aggressive rate hikes by the US Fed, the ripple effect from a global macro perspective is being felt as the dollar index strengthened and rupee made another low. Along with this, the continuously evolving geo political tensions continue to fan supply-side inflation.Experts are expecting the RBI to toe the US Fed’s line and remain hawkish. But the quantum of rate hike would be lower at 50 bps compared to Fed’s 75 bps.

“Given the challenge of currency pressures in the context of a hawkish Fed commentary, we expect that RBI might be induced to move towards a 50-bps hike in favour of maintaining macro stability,” said Vivek Goel, Joint MD, Tailwind Financial Services.

Inflation in the US is still above 8 percent and there is a long way to go to reach the target. “Fed Chair Jerome Powell’s speech this week was probably the strongest one in terms of demonstrating a commitment to controlling inflation,” said Mohit Ralhan, CEO, TIW Capital. It means that the rate hikes are likely to continue till it tops 4.5 percent.

The rise in inflation is primarily led by the rise in crude prices because of the Russia-Ukraine conflict and reluctance of the Organisation of the Petroleum Exporting Countries (OPEC) to increase output.

However, Prasenjit K Basu, Chief Economist, ICICI Securities, holds a different opinion, and said, “Contrary to noise, US inflation pre-dates the Russia-Ukraine war, and is largely a consequence of excessive monetary growth. US M2 grew faster YoY in every month between March 2020 and February 2022 than in any month in the previous 60 years.” The Fed is now scrambling to undo the damage it inflicted with those expansionary policies, which should have ceased no later than October 2021, he said.

While India has inflationary pressures, the inflation rate relative to our target rate is much more benign compared to the US and UK.

“The higher crude prices have also impacted India, but to a lesser extent due to availability of crude supply from Russia at less than market rates,” said Anand Varadarajan, Director, Asit C Mehta Financial Services Ltd. Hence, actions from RBI may not be on the same lines as the Fed.

Expectations from RBI Policy Meeting

The US Federal Open Market Committee (FOMC) will hold two more meetings (November 1-2 and December 13-14) this year and experts expect that it is likely to raise rates by 75 bps and 50 bps during this period. While after the upcoming September 28-30 meeting, the RBI Monetary Policy Committee (MPC) has only one meeting left on December 5-7.

RBI will weigh the impact of crude oil prices going lower, the amount of non-USD-based crude oil and other commodities India is likely to import, and other ways of attracting dollar flows via NRI remittances, among others, and then decide on the quantum of the rate hike. However, it is going to be much less than the US.

“If RBI doesn’t increase the rates, the rupee will depreciate as well as outflow of funds will cause further depreciation. And with a depreciated rupee and the oil imports at hand, we will end up importing inflation,” said Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital. Thus, to stamp out the existing Indian inflation, outflow of money, rupee depreciation, and importing more inflation, RBI will be forced to raise rates.

“RBI is also likely to hint at further “potentially aggressive” rate hike in the December meeting so that the rupee doesn’t depreciate much after the November FOMC meeting,” added Gupta.

However, Basu of ICICI Securities, expects a rate hike of 25 bps in December by when he expects the CPI inflation to moderate to below 6 percent.

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