Volatile times ahead

The markets had plenty of action and drama last week. We opened strong with a gap-up opening which was under pressure on Monday itself. By the end of Tuesday prior to the mid-week break on account of Ganesh Chaturthi, markets were almost flat after having risen over 250 points on the SENSEX. Thursday was a negative day and on Friday the markets simply went berserk gaining over 400 points on the SENSEX and 137 points on NIFTY. The week ended with the SENSEX gaining 288.56 points or 1.56 per cent and NIFTY gaining 113.50 points or 2.03 per cent. The broader markets fared better with the BSE100, BSE200 and BSE500 gaining 2.46 per cent, 2.50 per cent and 2.45 per cent respectively. The BSE SMALLCAP gained 2.81 per cent while the BSE MIDCAP gained 3.00 per cent.

Together, we can: Salesmen at a store watch Prime Minister Manmohan Singh address the nation about the necessity of a series of reforms to combat an economic slowdown and restore investor confidence. Pic/afp

In the sectoral indices, the beaten down sectors of recent times were big gainers with BSE CAP or capital goods sector gaining 12.49 per cent, BSE REALTY up 8.84 per cent, BSE BANKEX up 6.96 per cent and BSE PSU up 4.22 per cent. The biggest loser was BSE IT down 3.56 per cent followed by BSE HEALTH 2.18 per cent down and BSE FMCG down 2.05 per cent. In individual stocks, PSU banks Canara Bank gained a staggering 26.04 per cent, Union Bank 21.89 per cent and SBI gained 12.28 per cent. PSU financial institutions PFC gained 16.98 per cent while REC gained 11.98 per cent. BHEL gained 13.54 per cent. On the losing side, TCS was down 7.70 per cent, Hind Unilever down 3.26 per cent and Wipro down 3.22 per cent.

FIIs were big buyers during the week with net investments of R5,731 crore while domestic institutions were net sellers of Rs 2,289 crore. The Indian Rupee was a big gainer and closed at Rs 53.45 for the week gaining 1.58 per cent over the previous week.

TMC’s effect
Politics and markets don’t necessarily behave in the same manner. Trinamool Congress’s (TMC) decision to withdraw their support to the UPA-II government was considered as negative and kept the markets on tenterhook. Their final decision to withdraw and the notification of FDI in various sectors made the market go ballistic on Friday. This new found optimism drove the markets to new 52-week highs. Undoubtedly, the current market fundamentals are ahead of reality and certainly seem unjustified particularly in context of the fact that FDI in multi brand retail and inflows from the same are atleast 18 months away. The intention of the government is to give a picture that policy paralysis is no longer there and they have taken some steps to allay these feelings. Probably it was to further this that the Prime Minister chose to address the nation on the need to introduce tough measures on Friday evening.

The Rajiv Gandhi Equity Savings Scheme (RGESS) has been introduced and details were announced. Eligible persons would be first-time investors who have taxable income of below R10 lakh and invest a sum not exceeding R50,000 in stocks forming part of the BSE100 or CNX100. Investments in Navratnas, Maharatnas and Miniratnas would also be included in the list. FPO and IPOs from PSU companies who have a turnover of over R4,000 crore would also be eligible. Currently there is just one fund which tracks the CNX100 and is managed by IDBI. The further conditions state that there would be a lock-in for one year in the stock/fund invested after which the same could be rotated or traded with a minimum investment period in the category for two more years making the overall investment for a period of three years. The scheme seems a little too small for the kind of time involved of three years and a tax break of a mere R25,000 to attract first-time investors considering the fact that almost all government issues excluding Coal India has seen investors losing money. This scheme would give mutual funds an opportunity to attract a new class of investors and we would see a spate of new product offerings from them.

Thejo Engineering Limited was the first SME issue on NSE listed on Tuesday. The share was issued at R402 and closed the week at R360 down 10.44 per cent. This issue was overpriced as most IPOs are and probably what we are seeing is this price correction.

September series futures expire on Thursday, September 27, 2012. This series the NIFTY has gained 375 points or 7 per cent and the recent rallies in the market have squeezed out all shorts. As mentioned earlier, the beaten down stocks and sectors have rallied sharply and we seem to be more than richly valued currently. The markets would be driven by global news, foreign fund flow and any new policy decisions or initiatives from the government before the state elections in Gujarat and Himachal Pradesh are formally notified. This would lead to introduction
of code of conduct and there would be a forced period of policy inaction.

The markets need to consolidate the sharp gains made in recent weeks. The markets are likely to be volatile and one could see sharp two-way movements. With virtually no shorts there could be a selloff as we approach expiry on Thursday. BSE SENSEX has support at 18,523 points, then at 18,407 points, then at 18,291 points and finally at 18,031 points. It has resistance at 18,942 points, then at 19,131 points, then at 19,253 points and finally at 19,398 points. The NSE NIFTY has support at 5,604 points, then at 5,577 points, then at 5,447 points and finally at 5,392 points. It has resistance at 5,748 points, then at 5,825 points, then at 5,893 points and finally at 5,947 points. Critical week ahead where one’s patience would be tested.

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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