A wild turn

The markets went wild on Thursday and Friday in the week gone by. Thursday, which also happened to be expiry day for the July series futures, was weak while Friday was a day of euphoria. In retrospect, both days looked like aberrations and neither could be justified. The net effect of both days was neutralised and on a net weekly basis the BSE SENSEX lost 319.25 points or 1.86 per cent to close at 16,839.19 points. The NSE NIFTY lost 105.25 points or 2.02 per cent, to close at 5,099.85 points. The broader indices lost more with the BSE100, BSE200 and BSE500 losing 2.28 per cent, 2.52 per cent and 2.68 per cent respectively. The carnage, which happened on Thursday, hit the BSE MIDCAP and BSE SMALLCAP in a big manner and they lost a whopping 4.8 per cent and 4.76 per cent.

Expectations: RBI governor D Subbarao

With Gains
The only sectoral index, which closed with gains, was BSE FMCG up 0.83 per cent. The big losers included BSE REALTY down 6.67 per cent, BSE CAP down 6.45 per cent and BSE METAL down 4.50 per cent. In individual stocks FMCG major Hindustan Unilever was a standout gainer up 4.23 per cent. ITC also chipped in with a small gain at 0.59 per cent. The losers were many with Pipavav Defence losing a staggering 30.11 per cent. Other prominent losers included SBI down 9.09 per cent, BHEL down 9.00 per cent, JSW Steel down 8.52 per cent and Chambal Fertiliser down 8.05 per cent.

Rain, wane: Even though umbrellas are out, the monsoon is a cause for concern

Sharp Fall
On Thursday, the market place was full of negative news and various reasons were attributed to the sharp fall. These rumours included some margin call selling, hedge fund selling and rumours about SEBI investigation into some operator driven positions in selected companies. The news flow and huge selling in the counters concerned saw the midcap and smallcap stocks take a big beating. NSE has removed 51 stocks from the futures and options list and these stocks would not be available in the futures segment after the end of the September futures expiry. The majority of these stocks have lost between 5-9 per cent, post this announcement.

Banking Sector
Results from the banking sector has shown that there is concern on the quality of assets and most of the PSU banks have reported a significant rise in gross and net NPA's (non-performing assets). This has affected the banking sector and most of these stocks were hit on Friday. The private banks remained largely unaffected, but in case the markets go down or the banking sector takes a hit, these banks could become vulnerable. As far as results in general go, the sales growth seen so far in the basket of stocks, which have reported results, this is the slowest growth over the last 6-8 quarters. Clearly this is a cause for concern and coupled with the fact that margins are under pressure, fresh investments in the market could be a challenge.

Precarious Monsoon
RBI meets on Tuesday, July 31 for its credit policy review and the market is expecting a 25-50 basis points cut. Minimum 25 basis points cut are already built into the market prices and in case it does not happen this could be negative for the markets. People are divided on the issue and considering the precarious state of the monsoon and the fact that food inflation seems to be again rising, this could put pressure on the RBI governor to keep rates unchanged. Petrol prices were marginally increased and petrol and diesel prices were adjusted for local levies which saw some half the states having increase and the other half having decrease in price. The surprising part is the reluctance of the government taking any steps to reduce or contain the fiscal deficit. With the monsoon issue and rising inflation the fiscal deficit would be further tested.

Pause Button
FIIs who have been big buyers in recent months have pressed the pause button and were net sellers last week with sales of Rs 505 crore while domestic institutions were marginal sellers of Rs 58 crore. The Indian Rupee after being under severe pressure, recovered lost ground and closed marginally weaker at Rs 55.39. This week is likely to open on a positive note considering the sharp recovery we have seen from the lows of Thursday. Global markets led by the US have rebounded on Thursday and Friday and we are likely to open stronger on Monday (today) when trading begins. Post the credit policy review markets could change tracks depending on what the Governor D Subbarao does. Global cues and the results as they are announced would decide the trend of the market. I believe a strong opening on Monday followed by some profit taking and then short selling if there is no rate cut happening, is likely in the market.

Vulnerability View
The markets in the course of last week have shown their vulnerability and any retest of Thursday’s lows would confirm that weakness. The BSE SENSEX in the week ahead has support at 16,741 points, then at 16,527 points, then at 16,366 points and finally at 16,161 points. It has resistance at 16,955 points, then at 17,170 points, then at 17,318 points and finally at 17,507 points. The NSE NIFTY has support at 5,068 points, then at 5,033 points, then at 4,996 points and finally at 4,903 points. It has resistance at 5,140 points, then at 5,213 points, then at 5,257 points and finally at 5,297 points.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk. 

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