Going ballistic

The markets went ballistic on Friday and the momentum will certainly continue on Monday, today, when markets reopen. The week gone by had global announcements which led the rally initially with the German court clearing objections raised on the ECB unlimited bond buyback. This was followed by the FED announcing QE3 where upto $ 40 billion of bonds would be bought every year. This was followed up by the Indian government announcing a diesel price hike of Rs 5 per litre and a ceiling cap of six cylinders per year of LPG for every connection. All this happened during the week and was followed up by a slew of measures concerning FDI announced on Friday evening after markets closed.

A protest in Mumbai against the Centre's decision to increase diesel prices and restrict supply of LPG gas
Roiled reaction: A protest in Mumbai against the Centre’s decision to increase diesel prices and restrict supply of LPG gas 

FDI in multi brand retail at 51 per cent, 100 per cent in single brand, 49 per cent in aviation, with foreign carriers allowed to own stake in Indian carriers, FDI in broadcasting services increased to 74 per cent and 49 per cent (26 per cent FDI and 23 per cent FII) holding in power exchanges. The government announced these measures, which would act as a stimulus for the markets when they reopen today.

The markets had a great Friday and a good week, with the BSE SENSEX gaining a staggering 714.62 points or 4.03 per cent to close at 18,464.27 points, while NIFTY gained 218.95 points or 4.09 per cent to close at 5,577.65 points. The broader indices like the BSE500, BSE200 and BSE100 gained less at 3.15 per cent, 3.29 per cent and 3.54 per cent respectively. BSE MIDCAP and BSE SMALLCAP gained 1.66 per cent and 1.95 per cent, clearly denoting that widespread gains have not occurred and the rally has been restricted to a small group of stocks.

The top sectoral gainers were BSE METAL up 5.42 per cent, BSE AUTO up 5.27 per cent, BSE REALTY up 5.22 per cent and BSE OIL up 4.07 per cent. The losers included BSE HEALTH down 1.57 per cent while BSE FMCG gained a mere 0.85 per cent. In individual stocks, the top gainers were Hindalco up 10.53 per cent, Tata Motors up 10.01 per cent, L&T up 8.38 per cent, Tata Steel up 8.01 per cent and ICICI Bank up 6.91 per cent. Losers were few and included the oil pack with HPCL losing 1.36 per cent and IOC down 0.12 per cent. What is surprising in the oil marketing companies is the fact that after a bonanza with the change in prices for diesel prices and the restriction on LPG usage at subsidised prices, one expected these companies to sustain the gains made. After intra-day gains of between 6-10 per cent on Friday, these companies all closed in the red signifying that euphoria does not last.

It must be mentioned here that the diesel hike getting clubbed together is of the government's own making as they chose to not increase prices for over 16 months. Secondly, what has been done is that the government has raised prices and collected excise duty as well. It is this excise duty, which has been passed on towards petrol and thus avoided a petrol price rise. The restriction of subsidised LPG cylinders to six a year would give rise to some sort of a parallel trade in cylinders and create hardship for consumers. Considering that the government has finally acted is by far the most positive factor. Opposition to these moves is but natural from the opposition forces and some UPA allies and to counter criticism and divert attention from the issue, the timing of the FDI announcements are critical and timely.

In yet another development, the Supreme Court has criticised the coal allocation of blocks and asked the government to give its reply. Over the last few days the IMG (inter-ministerial group) has cancelled a few blocks, encashed the bank guarantees of a few of the blocks and discussion on many more blocks would continue. It is most unfortunate that precious natural resources like iron ore coal and spectrum have all been systematically looted by politicians of this country. Had it not been for the Honourable Supreme Court's prompt actions and ably supported by a CAG (Comptroller Auditor General), the nation would be far poorer than it is.

Coming to the markets, the FDI announcements of Friday evening have steam left for a sharp gap up opening on Monday. Friday had seen a similar gap up opening with the SENSEX having a 222 point gap between 18,062-18284 and NIFTY a gap of 79 points between 5,447-5,527 points. Monday also sees a review of the monetary policy by RBI. The broad consensus is that all rates would be left untouched simply because inflation is still on the rise and the government has not done anything to ease the situation. The present diesel price hike though necessary would not help in reducing inflation but would add to it and there would be a cascading effect with prices rising post this hike.

The present sharp rally in the last week particularly Friday saw shorts in the market being covered. There is steam left on Monday but announcements of FDI have to be translated into action and states have to announce their intention of permitting FDI.

BSE SENSEX has support at 18,333 points, then at 18,119 points, then at 17,928 points and finally at 17,785 points. It has resistance at 18,546 points, then at 18,755 points, then at 18,954 points and finally at 19,154 points. The NSE NIFTY has support at 5,540 points, then at 5,481 points, then at 5,411 points and finally at 5,351 points. It has resistance at 5,601 points, then at 5,663 points, then at 5,742 points and finally at 5,805 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.  

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