China on our minds

The dragon is going through a tumultous phase and given its size, the world has no option but to sit up and take note

The week gone by saw huge tension in the capital markets globally. The Greek issue has been on for some time and then China happened. Size-wise Greece is miniscule compared to China and when something happens in China, the world better take note.

An investor looks at a board showing stock market movements at a securities company in Beijing as Chinese stocks surged for a second day on July 10 as a government rescue plan offered a respite from a month-long rout.  Analysts warned of further uncertainty and volatility ahead. Pics/AFP
An investor looks at a board showing stock market movements at a securities company in Beijing as Chinese stocks surged for a second day on July 10 as a government rescue plan offered a respite from a month-long rout.  Analysts warned of further uncertainty and volatility ahead. Pics/AFP

We survived the Greek onslaught but faltered when China happened and lost around 2 per cent. Retail ownership of stocks is around 80 per cent compared to 23 per cent in India. The Chinese have a gambling streak which makes them leverage and invest in markets.

Dhruv Agrawal (r), Director, Manpasand Beverages Ltd poses with the bull statue at the listing of the company at Bombay Stock Exchange in Mumbai. Pic/PTI
Dhruv Agrawal (r), Director, Manpasand Beverages Ltd poses with the bull statue at the listing of the company at Bombay Stock Exchange in Mumbai. Pic/PTI

Sensex lost 431.39 points or 1.54 per cent to close at 27,661.40 points while Nifty lost 124.35 points or 1.47 per cent to close at 8,360.55 points. Broader indices saw BSE100, BSE200 and BSE500 lose 1.24 per cent, 1.11 per cent and 0.99 per cent. BSEMIDCAP was flat and remained unchanged while BSESMALLCAP gained 0.29 per cent.

In sectoral gainers, the top gainer was BSECAPGOOD up 2.99 per cent followed by BSEHEALTCARE 2.34 per cent. The losers were led by BSEIT down 4.09 per cent followed by BSEMETAL 3.99 per cent, BSETECK 3.89 per cent and BSEAUTO 2.99 per cent.

Taking stock
In individual stock, the top gainer was Dr Reddy’s up 4.50 per cent followed by BHEL 4.08 per cent and L&T 3.54 per cent. Losers were led by Vedanta down 14.99 per cent followed by Cairn 8.02 per cent.

Other losers included Tata Motors 6.65 per cent, NTPC 6.48 per cent, GAIL 6.45 per cent, Tata Steel 6.65 per cent, Infosys 5.35 per cent and TCS 5.10. Majority of the heavyweights ended up on the losing side.

FII’s were sellers for the week of R900 crores which looking at the global turmoil in insignificant. Domestic institutions too turned sellers of Rs 180 crores. The Indian rupee gained 5 paisa or 0.08 per cent at Rs 63.39. Quarter one result has begun and would be the key driver for the markets.

Greece is virtually gone and it appears there would be no resolution in a day or two. They are seeking a third bail out since 2010 and it appears to have become a habit. The reforms that they are promising seem too much for them and the political will to implement is just not there.

I believe with every passing day from now on Greece will lose relevance to the world scenario other than those who are directly involved in the action that is the people of Greece and its lenders. At the time of writing this article the scheduled meeting of Greece and the EU has been postponed.

What should concern India are happenings in China. India introduced reforms in 1991 and allowed FII’s to invest in 1992-1993. After this period, they are now the larger owners of shares compared to the local retail public. Till date there have been no restrictions the kind of which was imposed in China last week after the melt down.

Chinese challenges
Companies have the right in China to suspend trading in their shares and more than half the shares in the market were suspended. The rule was then introduced that suspension in trading can only happen for three days.

The government also brought about a rule that owners cannot sell their shares for next six months and also included investors owning 5 per cent. This is an unheard of restriction and has unnerved investors but because it is China no one is talking.

These restrictions in China are great news for India and will direct the flow of emerging market money to India as we have fair controls and they are directed to the benefit of owners of capital not depending on whether they are local or foreign.

I believe the speculative bubble that was built up in China and now burst will see ramifications for quite some time to come. There will and can be just one beneficiary and that is India. Shares of Manpasand Beverages Limited listed for trading on Thursday amidst the flood of news from China and Greece and just held on.

Shares which were issued at R320 closed the week at Rs 332.45, a weekly gain of 3.89 per cent. The company would shortly be declaring results for the fourth quarter which is a good quarter for the company. The week ahead would be driven by quarterly results and any news emerging from China.

Greece would start taking the back seat and any final outcome from Greece may have a one day effect on the markets. They are crucially poised and would be sensitive to news flow. Trade cautiously.

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 http://ak57.in

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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