We downgrade Ashok Leyland to neutral with a target price of Rs 93 a share. We maintain our target EV/Ebitda multiple at 9x FY18F, which is in the middle of its expected trading range of 8-10x during up-cycles. We discount the value to August 2016 @ 12% cost of equity. We also add R7/share as value of investments.

We value the standalone business at ~Rs 6.5/share based on 9x FY18F Ebitda, which is rolled back to Aug-16 at 12% cost of equity. We value the company’s investments at Rs 6.9 a share.

Ashok Leyland’s MHCV volumes were up 47% over April-July15. Consequently, its domestic market share has improved to ~31%FYTD from 28.5% in FY15. This is the highest market share that the company has had in more than the past 10 years.

The company has benefitted from higher growth in higher tonnage segments, where its market share is higher. We estimate that volumes will increase at 26% CAGR over FY15-18F to ~133,000 units by FY18F.

We expect a strong revival in domestic MHCV volumes over the next two years. However, if volumes are weaker than expected, there could be downside risks to our estimates.

We also expect profitability to improve going forward led by 1) lower discounts, 2) operating leverage benefits,and 3) positive impact of higher mix from Pantnagar plant. If margins do not improve, there could be downside risks to our estimates.

Infrastructure development company Sadbhav Infrastructure Projects’ initial public offering (IPO) sailed through on Wednesday, assuring the company of at least Rs 425 crore. The issue — largely structured for institutional investors — received nearly 2.3 times, or 6.4 crore shares, in total bids.

The qualified institutional buyers’ (QIB) book was subscribed 3.04 times on the final day. Institutions applied for
4.4 crore shares against 1.4 crore shares reserved in the offer, data showed.

The non institutional book comprising high networth individuals (HNIs) received 1.66 times the bids. More than 1.158 crore shares were bid against 69.7 lakh shares on offer.

Retail individual applicants, whose investment should not exceed a total Rs 2 lakh as per Sebi rules, bid for 77.4 lakh shares against 46.5 lakh on offer. Up to 10% of the issue was reserved for retail investors unlike a 35% quota in accordance with Sebi rules, showed the company’s prospectus.

In 2012, Sebi had tweaked IPO rules by lowering the retail investor issue size to 10% from 35% for public issues of companies less than three-year ‘profitability’ track record. The changes were introduced to protect retail investors.

The company’s shares in grey market were quoting at Rs 5-15 premium per share. Grey market is a pseudo over the counter market where IPO shares are bought and sold before officially listing on a stock exchange.

Sadbhav Infrastructure’s public offering was subscribed 0.2 times on day 2 of the three-day IPO, stock exchanges data showed on Tuesday. Last Friday, the Ahmedabad-based subsidiary company of Sadbhav Engineering had raised Rs 210 crore by issuing a little more than 2 crore shares to anchor investors, including Nomura, Morgan Stanley, HDFC Mutual Fund, Tata Mutual Fund,  Amansa and Tata AIA Life.

Sadbhav Infra’s IPO is 14th public issue on the main board this calendar. So far, 13 companies have tapped primary markets this calendar year and cumulatively raised close to Rs 6,000 crore – a three-year high.

The markets traded at an average of Rs 25, 149.72 crore during May 2014. The average daily turnover surged nearly 20% in August compared to Rs 19,727.27 crore in July. (Reuters)

Stock exchanges appeared to have benefited from the rout in the markets, with the average daily turnover in the cash segment of both the BSE and the NSE soaring to Rs 23,512.09 crore in August. With more volatility expected in the days to come, market participants expect further surge in daily turnover.

Before August, Indian markets had seen such a huge turnover in May 2014, when the NDA government came to power with a clear majority. The markets traded at an average of Rs 25, 149.72 crore during May 2014. The average daily turnover surged nearly 20% in August compared to Rs 19,727.27 crore in July and was over 9% higher than the average turnover during FY15-16 , stock exchanges data showed.

The market turnover also witnessed a brief surge during April and May when foreign portfolio investors (FPIs) pulled out from the markets amid concerns over a possible default by Greece.

“The stock exchange turnover goes up whenever there is volatility in the markets. Hence, it was expected,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, adding that increase in turnover wouldn’t essentially mean that sellers are making more money through trade.

The NSE VIX — a measure of market expectation of near-term volatility — climbed 52.1% during August, indicating the highly volatile sentiment in Indian markets. The trend was visible in the derivatives segment as well. The total turnover in the derivatives markets on both the exchanges during August was Rs 6,74,20,891 crore — up nearly 55% from Rs 4,33,85,483 crore in July.

Increase in speculative trading is one of the most important reasons behind the surge in trade volumes, experts told FE.

“There are a lot of day traders and arbitrages who try to amplify the volumes to make profits. Whenever the markets are volatile and traders know that a particular sector — like FPIs — is going to offload stocks in large numbers, a lot of arbitrage and speculative traders sell their shares along with them to let the shares fall to such a low level that they can buy them back and make good margins,” said UR Bhat, managing director, Dalton Capital Advisors.

Benchmark indices tanked nearly 6% on August 24, the worst session in last seven years. Since then, the markets have been shaky. FPIs have pulled out more than $2.5 billion during August, making it the worst month since October 2008.

Numerous brokerages, including Bank of America Merrill Lynch, Macquarie and CLSA, have trimmed their Sensex and Nifty targets in the last one week, citing poor market forecast and the crisis in China.

Foreign portfolio investors on Wednesday welcomed India’s decision to scrap efforts to make foreign funds pay tax on past profits, but they remained wary of the country’s unpredictable tax regime.

A high-profile row with foreign investors had erupted late last year following the retrospective imposition of the minimum alternative tax (MAT) on funds, including Aberdeen Asset Management.

With foreign investors holding a quarter of the shares on the main Sensex board, the controversy rattled Indian markets and there was relief after the government announced on Tuesday that it would waive those tax demands.

“The fact that government has acted on the recommendations so fast shows that they really don’t want to rock the boat,” U.R. Bhat Managing Director at Dalton Capital, a Mumbai-based fund that caters exclusively to foreign investors, said.

“What’s clear is the government really wants to resolve its tax disputes with foreign investors.”

The government’s about-face comes at a time when equity markets around the world are suffering due to volatility in China. India has been no exception, with foreigners selling a record amount of Indian shares last month.

Announcing the decision late on Tuesday, Finance Minister Arun Jaitley said the changes would be made to tax legislation in the coming parliamentary session, and said it might help investor confidence.

MAT had previously existed in statute books but had never been imposed on foreign investors. The change reinforced longstanding perceptions that India’s tax officials were overly aggressive toward foreign investors.

India is separately in international arbitration with Cairn Energy over a retrospective $1.6 billion tax bill, as well as in dispute Vodafone over tax related to the transfer of shares.

New Delhi has long sought to tighten the criteria of who can benefit from the treaty, which allows investors registered in the East African island to avoid paying any capital gains taxes, and both sides are expected to negotiate any changes.

“There’s market talk that the capital gains exemption for equities under the Mauritius-India tax treaty may be taken out. That’s one of the biggest upcoming concerns,” said Patrick Pang, Head of Fixed Income and Compliance for industry body Asia Securities Industry & Financial Markets Association.

A lukewarm response to two small initial public offerings (IPOs)in India this week has raised concerns about the impact of market turmoil ahead of big-name debuts including Cafe Coffee Day and airline IndiGo.

Indian shares hit their lowest level in about a year last week, hit by global turbulence sparked by steep market drops in China. Foreign investors – crucial in larger offerings – sold a record amount of shares in August, offloading even more than during the financial crisis.

Prabhat Dairy was forced to cut its $78 million IPO price band and extended the subscription period for investors by two days. Just over a quarter of its book was covered on Tuesday evening.

Sadbhav Infrastructure, meanwhile, had received orders for only a fifth of its planned $74 million IPO in mid-afternoon trade on Wednesday. It was subscribed 1.34 times at the close.

By contrast, power infrastructure services firm Power Mech and clinical research firm Syngene, which listed in August, were oversubscribed more than 30 times over.

Investment bankers said retail investors were pulling back, while institutions were being pickier.

“It will be tricky and more selective in the coming few months. Small and mid companies may see cuts in their sizes,” said one investment banker with a foreign lender. “Big IPOs demand may not get hit as much, but valuations certainly will.”

Bankers and investors in India had previously hoped for a bumper year for IPOs, with 13 companies already having listed so far this year – the most since 2011.

“Valuation expectations may need to be tempered,” said a second senior Mumbai-based investment banker. “We have to be careful about what we take to market.”

Among the most anticipated offerings is the IPO of up to $181 million of Coffee Day Enterprises, which operates the Cafe Coffee Day chain. Interglobe Aviation <IPO-INAI.NS>, which runs the IndiGo airline, is seeking a $400 million listing.

Analysts warn more uncertainty is in store given the U.S. Federal Reserve is expected to raise interest rates as early as September, raising the prospect of continued outflows from emerging markets.

India’s NSE index is down 14.5 percent since hitting a record high on March 4 and is down 6.8 percent for the year.

“The last quarter of the year is expected to see some of the larger-sized IPOs hitting the markets,” said Kaustubh Kulkarni, head of investment banking at J.P. Morgan India.