Rebound Effect Ensures Higher Closure

After witnessing a huge sell off last week, the markets rebounded and closed higher on the back positive global and domestic cues. Nifty closed at 5842 and Sensex lost at 19395. The next immediate target for Nifty will be at 5915 (50 DMA), movements above can take Nifty towards 6000 plus in the near term. Nifty has support at 5802 and 5775. Last week, SEBI tightened norms regarding share buybacks in order to avoid mis-use in stock re-purchase. The capital market regulator mandated companies to purchase at least 50 per cent of their offer size. Failing to do this may cause a penalty of 2.5 per cent of the amount allotted for buy backs.

SEBI also mandated the companies opting for buy back to create an Escrow account to keep at least 25 per cent of the amount allocated for re-purchase and to complete the share purchase offer within six months. Earlier, the mandated minimum buy back quantity was 25 per cent of the offer size and the period was fixed to 12 months. Also, the new norm mandated that the company can't raise further capital for one year against the period of six months.

The RBI eased the fund raising norms for low cost affordable housing projects by the external commercial borrowing route. Now, housing finance companies and developers can raise cheap funds at concessional rates to promote low cost buildings. The developers having a minimum of three years experience in undertaking projects can avail the benefit as against a five-year period specified earlier. But the minimum net owned funds for the past three financial years must remain Rs 300 crore. RBI also extended the ECB norms for the financial years 2013-14 and 2014-15 with a ceiling of USD 1 billion in each of the two years. This move can also bring some relief to the falling rupee as the amount of borrowings can be swapped into Rupees for the entire maturity.

The current account deficit fell to 3.6 per cent of the GDP in the March quarter, which made the current account deficit hit a record of 4.8 per cent of the GDP in the fiscal year ended March. The data stood below the expected level of 5 per cent and as also against the revised 6.5 per cent in the December quarter. The government approved the C Rangarajan Committee report on the gas price hike by doubling the prices of natural gas. The Prime Minister hiked the natural gas price from $ 4.2 mbtu (million British thermal unit) to $ 8.4 mbtu from April 1, 2014. The gas price hike may boost domestic production, which, in turn, will lessen the country’s dependence on fuel imports. Companies like ONGC, OIL India and Reliance are the ones to be benefiting most from the move. Also, the new price will be reviewed every three months.

The markets all around the globe were trading lower in the early part of last week on concerns that the US Federal Reserve may reduce its stimulus. The commodities space were showing weakness as gold was nearing for the biggest annual decline in more than three decades. Silver was heading towards its biggest quarterly loss since 1980. The strong data in the US for May also added to concerns of the tapering of FED bond buy back programme. But the weak US economic growth data and on the assurance by FED officials that they might not immediately withdraw the stimulus plan, made the markets cheer up. Also, the news of the Chinese central bank's promise to adjust liquidity to ensure stability after funds short supply on inter-bank markets, supported the markets. Gold is weak and tested levels below $1200, but chances are very high that it will move towards $1228 and $1235 levels in the near term. It has support at &1192 and $1185. Counters like HDFC, ONGC, Bharti, Sun Pharma, SBI and Maruti are the few counters, which can lift the Nifty upwards.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).  

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