The key benchmark indices managed to end the week at new record highs for the third week in a row. The domestic equity markets edged higher for the week ended on Friday, 27 September with the S&P BSE Sensex jumping 1653 points or 1.99% to settle at 84544 levels.
On the other hand, the Nifty 50 index advanced 434 points or 1.71% to close at 25790 levels. No doubt, the Indian stock market has been firing on all cylinders after the US Fed rate cut of 50 basis points. However, the breadth of the market remained weak during the last trading sessions on the back of higher volumes in index heavyweight stocks while the Mid Cap and small-cap stocks faced profit-booking and selling pressure.
On the other hand, the Domestic Institutional Investors remained net buyers and were seen supporting the markets at periodic intervals. However, the Foreign Institutional Investors turned net sellers in the cash and derivative segment. The sentiment of the market has turned euphoric leading to a left-out feeling among traders and investors.
Although the benchmark indices have been touching historic highs, the stock market rally is not broad-based and a follow-up buying support is needed for the markets to sustain higher levels. There are expectations that the stock markets could rally further in anticipation of an interest rate cut in the forthcoming RBI meeting outcome on 9th October 2024. In case the rate cut cycle starts in our country then it would give a further impetus to the current stock market rally. This week in the column, DCM Shriram Industries Ltd is the selected stock for analysis.
DCM Shriram Industries Ltd. operates in three business verticals, viz. Sugar and Distillery, Rayon, Drones and Defence Engineering and Chemicals.
The company is doing well across all the three verticals including spinning off the Rayon and Chemicals segments into independent, demerged entities while retaining the Sugar and Distillery business. DCM Shriram Industries operates its Sugar and Distillery plant which produces sugar, industrial alcohol, ethanol, and bottles of potable alcohol. Daurala Organics and Daurala Chemical Industries manufacture fine chemicals, new-generation drug intermediates, and contract manufacturing of drug intermediates while Shriram Rayons which is situated in Kota is involved in the production of rayon tyre cord, yarn, fabric, and chemicals.
This particular unit has now expanded into the manufacture of drones, containers, and goods for the defense segment. The company is proposing a demerger of the company’s units ultimately leading to improved performance from the current financial year onwards.
While the company’s management has approved the three-way demerger effective from April 2023, it is still pending approval from regulatory bodies and stock exchanges. Hopefully, the delayed demerger is anticipated to be completed within the current fiscal year with the demerger effective from April 2024.
This delay over the last more than one year in regard to the three-way demerger appears to have contributed to the underperformance of the stock. Given the special circumstances surrounding the three-way merger, the stock might deliver even better returns going forward . Following the receipt of necessary statutory approvals, the record date for the demerger of DCM Shriram Industries or DSIL will be announced and shareholders will receive one share with a face value of Rs. 2 each in both the resultant companies for every share held in DSIL.
The newly formed DCM Shriram International Ltd. and DCM Shriram Fine Chemicals Ltd. may also attain an impressive listing price after the demerger. Portfolio Investors can accumulate the DSIL stock currently quoting at Rs 200 before the announcement of the record date for the demerger as they may experience substantial returns over the medium term.