Doubled Your Money In D-Mart? Read This Before It's Too Late

Apurva Sheth

D-Mart was one of the most highly anticipated initial public offerings (IPO) in recent times. A lot of people opened demat accounts specially to apply for this IPO. The last time I remember people doing that was with Reliance Power in 2008.

But unlike Reliance Power, D-Mart didn't disappoint its investors. It listed more than 100% above its issue price of Rs 299, making it the best listing in thirteen years and the fourth best since 1990.

The stellar listing has cheered those who subscribed and were allotted shares. But it has also had a side-effect. It has made people overconfident.

Take this conversation I overheard on my commute yesterday...

Commuter 1: Hey guys, I booked a profit of 103% in D-Mart today.

Commuter 2: Wow! That's great. Congratulations.

Commuter 3: You seem to have become a pro in markets.

Commuter 1: Yeah...thanks. I have invested in all the IPOs recently and have made good money in them. I am now planning to increase my allocation to stock markets.

This guy was on a high after his recent stint of success in IPO's. And I am sure many other retail investors are also feeling very smart. But that's when you need to be careful.

There's an old teaching in the market that it's time to get out when retail investors start flocking to pour in. It's sad but true... Professional investors exit when retail investors enter. And the retail investor often ends up on the losing side.

It's because they enter after the up move - when the stocks are trading at rich valuations and offer little margin of safety. This seems to be the case with D-Mart. The stock is currently trading at a trailing twelve-month PE ratio of 80.

At that valuation, most of the future growth seems to already be priced in to the stock. There's very little upside for anyone who wants to enter after the listing.

We recently studied the performance of stocks with an issue size of Rs 500 crore or more listed between 2010 and 2016. Of the 31 IPOs during that time, just ten generated positive returns a year after listing. This is extremely poor. If you'd invested in each of these IPOs on the day they listed and exited in a year's time, your return would have been -16%.

IPO Returns After One Year

Of the IPOs that generated positive returns, three of them gained only 1%. If we exclude them, the success ratio drops to an abysmal 22%.

Now I know that D-Mart has great fundamentals and is arguably the best-managed food and groceries retailer in the world. But this data clearly indicates limited success for investors in newly listed companies.

Perhaps time will prove D-Mart to be an exception to the rule.

Do you think D-Mart will be a multibagger from its listing price of 640? Share your views in the Club or share your comments here.

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Market Notes

S&P BSE Health Care Index: Turn Around the Corner

The pharma sector is the most 'hated' sector today. It is in the news for all the wrong reasons. The USFDA issues are well known. A few days back, Dr.Reddy's Laboratories Ltd got 13 USFDA observations for its Visakhapatnam plant. Yesterday, Divi's Laboratories Ltd received an USFDA import alert for its Vizag unit.

The negaive news is keeping the S&P BSE Healthcare Index down. It's underperformed the Nifty 50 Index by more than 11% from the March 2015 highs.

The sector is hated and buzzing for all the wrong reasons. But that is excatly why we will be keeping an eye on it.

Hated investments often have the potential to generate huge returns. In an earlier market note, we told you IT sector was hated and underperforming and in the news for all the wrong reasons.

Well, today, it's the pharma sector.

We studied the S&P BSE Healthcare Index chart. Looking at the big picture, we can interpret that the S&P BSE Health Care Index is trading in a strong uptrend. The recent downtrend is only a correction in the larger uptrend. The correction has taken the form of what is called a falling wedge pattern. Since it's high in August 2016, the index is trading between the converging trend lines as seen in the chart below.

S&P BSE Healthcare Index in a Falling Wedge Pattern
 Cutting Losses Short in Bosch

In December 2016, the index bounced back from the wedge's support line of 14,500. But the rally halted near 15,500 as the 40-week exponential moving average (EMA) provided resistance a day before.

The RSI indicator, which tells us about the strength of the trend, is unable to go above 60, which acts as typical resistance in a downtrend. We also observe a double bottom pattern forming in the RSI indicator. A break above 60 will confirm the pattern.

The price and the RSI are facing stiff resistances. This indicates some weakness in the current price trend.

Based on this, the index could correct further and re-test its previous low or even the wedge pattern support line.

As we said in our earlier market note, hated investments can often take longer than you expect to come around. And that's why you need to be very patient with them.

If the S&P BSE Healthcare Index gains some momentum, we can expect the RSI to cross above 60 levels and the price to close above the 40-week EMA and even the wedge's resistance line. This might help the index resume its larger uptrend.

For the time being, the index will continue to trade in the wedge unless we get a sustained breakout above its resistance line.

So keep an eye on the pharma sector. The market hates it. But fortunes are made when you buy what others are selling.

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2 Responses to "Doubled Your Money In D-Mart? Read This Before It's Too Late"
DR BHARAT GOPALJI PANDYA
22 Mar, 2017
THE VALUATIONS ARE EXORBITANT WITH VERY LITTLE CHANCE OF UPSIDE.IT IS A SENTIMENT DRIVEN RALLY AND AFTER THE INITIAL EUPHORIA DIES DOWN, IT MIGHT CORRECT SUBSTANTIALLY.ALSO, ONE OR TWO ORDINARY/BAD QUARTERLY NUMBERS MIGHT SEE A STEEP CORRECTION AND IT MIGHT BE DIFFICULT TO GET OUT AT THAT TIME.ALSO, THE NEW STORES WILL TAKE TIME TO CONTRIBUTE TO PROFITS AND HENCE AFFECT THE BOTTOM LINE, MAY BE TEMPORARILY.MERITS LONG TERM INVESTMENT AT A PRICE OF 400 TO 450. Like 
Ganesh
22 Mar, 2017
No investment in the IPO gives the listing gains, because nobody gets 100% allotment. Like (2)
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