Contrarian state of affairs

Last week the markets made attempts to break out of the 21K mark but were unsuccessful on holding out there. It was just in intra-day trade that the mark was broken. Weak fundamentals and increased selling at higher values brought the markets down. Weakness globally on Friday saw the Sensex ending with net losses of 199.37 points or 0.95 per cent at 20,683.52 points. The Nifty lost 44.45 points or 0.72 per cent to close at 6,144.90 points. 

Fireworks: With high inflation, the week ahead seems to be choppy

The broader indices like the BSE100, BSE200 and BSE500 lost less at 0.45 per cent, 0.43 per cent and 0.26 per cent respectively. The BSEMIDCAP was a gainer up 1.19 per cent while the BSESMALLCAP gained 1.53 per cent. This was a positive indicator for the markets as the rally in the earlier weeks has been largely confined to the benchmark indices only. The top gainer amongst sectoral indices was BSECAP GOODS up 5.43 per cent and BSEMETAL up 3.43 per cent. The other gainer was BSEBANKEX UP 1.56 per cent. The losers were led by BSEREALTY down 2.13 per cent. Other losers included BSEFMCG down 1.92 per cent and BSEHEALTHCAREdown 1.78 per cent.

In individual stocks the biggest gainer was Larsen & Toubro up 8.6 per cent. Others included Bank of Baroda up 7.46 per cent, IDFC up 6.49 per cent and Union Bank 6.31 per cent up. The losers were led by BHEL down 7.30 per cent, Jindal Steel down 6.73 per cent down, Wipro 5.11 per cent down and Hindalco 4.84 per cent down.

During last week, FIIs were aggressive buyers and they bought shares worth R 4,066 crore. In the current month they have so far bought about 2.1 billion dollars of equity. Domestic institutions continued to be sellers and sold shares worth R 1,046 crore. It is the continuous buying from FII’s, whose horizon of stocks is limited probably to the top 150-200 stocks, which has seen the benchmark indices like the Sensex and Nifty back to life time highs. The retail public is absent from the markets and this improvement in midcap and smallcap indices augurs well for the market. The Dow Jones gained 61 points or 0.39 per cent and closed at 15,570.

This week is an action packed week, and has enough events, which could make the markets move either way. The Reserve Bank of India (RBI), meets for its monetary policy review on Tuesday the October 29. Thursday sees the expiry of October series futures and the extended week bends with ‘Muhurat’ trading for Diwali and the New Year on Sunday. Each of these events has the capacity to turn the markets and it would be expected that there would be sharp two way movements in the market.

RBI is expected to raise repo rates by 25 basis points, at the meet on Tuesday, and reduce the identical amount the Marginal Standing Facility (MSF). This will effectively make the refinancing at the stated difference of 100 basis points over the repo rate. Inflation at the wholesale and consumer levels were substantially higher and this gives rise to the expectation of increase in repo rates. October series futures expire on Thursday, October 31. This month has been a long month with settlement happening after five weeks. The current level of Nifty is higher than the previous month’s expiry of 5,882 points by 262 points or 4.46 per cent. This will ensure that there will be plenty of volatility in the markets at expiry.

The last time the Sensex had touched these levels was around Diwali in 2010 when the issue from Coal India had listed. At that time there was some amount of euphoria on the Coal India IPO and the markets peaked out on Diwali day. Things are different this time around. Forget euphoria there is pessimism. Fundamentals of the economy are probably at their worst and yet the markets are virtually at their all-time high, is a fairly contrarian state of affairs. The two drivers for this are very clearly identifiable with FIIs buying or investing in India, in a very select group of stocks, which are part of the benchmark indices being one reason. Second, there is a section of market men who believe that the BJP will do well in the state elections which are due in November-December and are punting the market. If the BJP improves its state tally, which is currently 2-2 to 3-1 or an astounding 4-0, the markets could go crazy on December 8. It is this expectation that is keeping markets going against all odds.

It is widely believed that to maintain the fiscal deficit, the government would once again roll over 15 billion dollars of subsidies, into the next year. This week is event driven and is expected to be choppy. Some initial weakness and then a ride into Diwali is what will likely happen. Trade cautiously and with an upward bias. Key levels for the Sensex are 20,355 and 21,055 while they are 6,040 and 6,260 for the Nifty. The support for the Sensex is at 20,609 points, then at 20,502 points, then at 20,375 points, then at 20,199 points and finally at 20,052 points. It has resistance at 20,769 points, then at 20,929 points, then at 21,039 points, then at 21,228 points and finally at 21,401 points. The Nifty has support at 6,122 points, then at 6,083 points, then at 6,021 points, then at 5,954 points and finally at 5,825 points. It has resistance at 6,171 points, then at 6,219 points, then at 6,262 points, then at 6,312 points and finally at 6,361 points. Trade cautiously and Happy Diwali to all. 

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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