The market was weak in the initial part of last week and then rallied on expiry. On Friday, it was simply going crazy post the increase in gas prices from $ 4.2 per MMBTU to a staggering $ 8.4 effective, April 2014. The SENSEX gained a staggering 843 points in two days while the NIFTY gained 253 points. The SENSEX ended last week with gains of 621.57 points or 3.31 per cent to close at 19,395.81 points. The NSE NIFTY gained 174.55 points or 3.08 per cent to close at 5,842.20 points. The broader indices gained less with the BSE100, BSE200 and BSE500 gaining 2.43 per cent, 2.08 per cent and 1.81per cent respectively. The BSE MIDCAP lost 1.21per cent while the BSE SMALLCAP lost 1.29 per cent.
The rally affected almost all sectors and there were gains in almost all the sectoral indices. The top gainer was BSE OIL,which gained 6.59 per cent. The other gainers included BSE IT up 4.06per cent, BSE BANKEX up 2.24 per cent and BSE HEALTH up 2.17 per cent. The losers were led by BSE CON down 5.98 per cent. The only other loser was BSE FMCG down 0.46 per cent. The top gainer in individual stocks was Reliance Industries up 8.56 per cent. Other gainers included IFCI up 10.57 per cent, ONGC up 7.18 per cent and Hindalco up 6.57 per cent. The losers were led by Gitanjali Gems, down 53.32 per cent, MMTC down 22.52 per cent and Tata Communications down 11.56 per cent and Ranbaxy down 11.30 per cent.
The week saw June futures expiring at 5,682.35 points, a monthly loss of 421 points or 7.21 per cent. There was a smart recovery on expiry day and markets gained almost 1.75 per cent. The next day saw a great rally on account of the gas prices being raised to double. What is surprising is that while the output prices of gas have been raised the effect of what this would do to users like fertilisers and gas producers is yet to be considered. Comments from the Finance Minister (FM), P Chidambaram on the issue suggest that there would again be a subsidy element that would be there. Yet another concern is that why should gas prices be fixed in dollars and not in Indian Rupees?
The Indian Rupee depreciated to its lifetime low of Rs 60.76 and recovered from these levels to close at Rs 59.39, a weekly loss of Rs 0.12 or 0.20 per cent. The run on the Indian Rupee saw FIIs selling debt and equity with net sales of Rs 8,470 crore in debt and Rs 3,120 crore in equity. The sales in June have been staggering at Rs 31,340 crore in debt and Rs 10,530 in equity. These sales in excess of 7 billion dollars in a single month put pressure on a vulnerable Rupee or vice versa where the falling Rupee forced FIIs to sell more and added more pressure to the rupee. Domestic institutions sold Rs 202 crore last week and a mere Rs 100 crore in the month. One must remember that activity of LIC is not included in the final figures of domestic institutions. The CAD (Current Account Deficit) for the January-March 2013 quarter was at 3.6 per cent while that for the whole year was at 4.8 per cent or $45 billion. The depreciating Rupee took its toll on petrol prices, which were raised Rs 1.82 per litre. Petrol prices in India are at their highest level ever and this would have a bearing on inflation going forward. One must also remember that RBI would be meeting for its review meet at the end of July and if inflation which fell for a couple of months again rises, RBI maybe constrained to keep interest rates unchanged.
Open interest in the new July series has opened roughly 20 per cent below the corresponding level of June series, indicating that shorts have been either squared off or allowed to expire. The rally in the last two days has made the markets hollow and now vulnerable going forward. On a day when markets went up on the gas price revision, it is surprising to note that PSU exploration company OIL India was actually a net loser of 0.5per cent while shares like Reliance and ONGC rose between 3 and 4 per cent, simply because this share is not traded in futures. This rally seems deceptive and lacks conviction. The week would be choppy and it would be advisable not to get carried away with the Friday Feel good factor after the two-day rally. Key levels for the SENSEX are 18,975 and 19,700 while similar levels for the NIFTY are 5,705 and 5,935 respectively. The BSE SENSEX has support at 19,181, then at 19,093 points, then at 18,841 points, then at 18,688 points and finally at 18,514 points. It has resistance at 19,521 points, then at 19,711 points, then at 19,861 points, then at 20,109 and finally at 20,241 points The NSE NIFTY has support at 5,776 points, then at 5,673 points, then at 5,616 points and finally at 5,566 points. It has resistance at 5,880 points, then at 5,941 points, then at 5,983 points and finally at 6,038 points. Trade with extreme caution and do not get caught in the euphoria around you. Use all rallies to exit and if you are a risk taker, short fresh rallies are the way to go.
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
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