03 January,2011 07:15 AM IST | | Arun Kejriwal
Bidding adieu to 2010 on An optimistic note, the coming year presents us with its own set of challenges and opportunities
Trading for the year 2010 ended on a positive note with the BSE Sensex gaining 120 points and the NSE Nifty gained 33 points. The BSE Sensex closed the week gaining 436 points or 2.17% to close the year at 20,509 points. The NSE Nifty gained 123 points or 2.04% to close the year at 6,134.5 points.
Illustration/Jishu Dev Malaka
The BSE Sensex gained 3,045 points or 17.44% for the year while the NSE Nifty gained 933 points or 17.95%. The BSE Midcap index gained 1,085 points or 16.16% to close at 7,803 points while the BSE Smallcap gained 1,313 points or 15.72% to close at 9,670 points. Some individual stocks moved sharply in the last few hours of trade on NAV (Net Asset Value) support and could be taken as an aberration.
Overall Positive
The markets were on an uptrend almost throughout the year but there were periods of corrections on three occasions which ranged between five to seven weeks each.
The net gains scored by the indices indicate a healthy return and the fact that markets have stabilised around the 20K on the Sensex and 6Kplus on the Nifty are creditable. The salient feature of the rally during the year, or one of the big triggers for the rally has been the FII(Foreign Institutional Investors) inflows which have reached a level of US$ 29.3 billion, or Rs 1,33,266 crores. This is a record figure and the contribution to the rally at the bourses due to this is one of the major reasons for the same.
History created
On the IPO(Initial Public Offering) front 2010 has been a great year in terms of number of issues and as many as 69 issues listed during the calendar year. The divestment of Coal India revived the retail interest in the primary markets and one saw huge number of applications from the retail category.
The divestment of Coal India created history as it was the largest IPO in size ever till date. The performance of the issues is another matter and we would discuss in detail next week as to how the year panned out for the IPOs as a whole, which could at best be described as a mixed bag.
The week gone by saw the listing of Punjab & Sind Bank which was very heavily subscribed but failed to live up to its expectations. Successful retail applicants were allotted 50 shares by lottery as the retail segment was oversubscribed over 44 times.
The average profit earned by investors was Rs 850 per successful applicant which was well below expectation. Incidentally as far as leveraged HNIs are concerned this was the third consecutive government issue where they have lost money and not been able to recover the cost of leverage. The IPO pipeline going forward is very strong and for them to receive good response and be successful, the pricing of IPOs would be a key.
Caution
2011 is likely to be a tough year to make money at the stock markets. I am not a bear nor am I sounding or advocating doomsday. Last year was far easier while this time around it would be really tough. Sector specific movement may not be as pronounced and it would be more stock specific. Some of the sectors which seem better placed than the rest are the agriculture sector whether it is fertilisers, seeds, micro-nutrients or food processing units.
FMCG or fast moving consumer goods look a good bet in 2011, as does the infrastructure space. The realty sector looks like having a tough time in 2011 and this year one is likely to see pressure in this space as one may see distress sales from builders.
Banking stocks would see pressure from NPAs or non-performing assets and possible interest rate hikes. In the medium and long term the sector will do well simply because India is a capital deficient country and demand for capital needs to be met.
Apprehension
The political climate is not the best and the huge number of scams which seem to have hit us seem one too many. What will be the solution or resolution of these multi scams is difficult to predict, but our markets so far have taken the same in their stride.
If history is to be relied upon, even an earth shattering event like a midterm poll gets discounted in a couple of days. The only event which can derail the feel good factor or the smooth movement which the markets are now used to could be the economic situation in some of the European countries which seem to be in trouble.
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The other factor of concern could be if the American economy improves and as a result of the same, fresh investments or inflows could be diverted to developed markets instead of developing economies. These could be two factors which could trip the Indian rally.
Corner
Rising oil prices could become a global concern and for India it could be a triple whammy as we need to import a large portion of our crude oil requirement and the demand is rising because of the growth in auto numbers and our consistent 8% GDP growth.
The problem India faces is in such a situation the currency gets affected, the import bill goes up, the subsidy on petro products and the biggest of them all, inflation which is already very high goes for a bigger toss. We all know that we have elections in Tamil Nadu in May 2011 and in West Bengal a little later where the two strongest allies of the UPA are the ruling party and the main opposition respectively. They will put pressure on the centre for maintaining a status quo as far as possible. This could be negative for our markets.
Prediction
C Mahendra Exports Limited has launched its IPO which opened on Friday, 31st of December and closes on Thursday the 6th of January. The issue is for 1.5 cr shares in a price band of Rs 95-110 and would raise Rs 165 crores at the upper band.
Diamond companies have not rewarded investors and even though shares are being offered at reasonable valuations based on current year expected profits, which are comparable to listed peers, scope for making money in this sector are fairly low and the issue could be given a miss.
The first week in the year 2011 will be a low volume week and things will come to normal in the second week starting 10th of January. The BSE Sensex has support at 20,430 points, then at 20,295 points and then at 20,150 points. Its final support for the week is at 19,965 points. The resistance is at 20,575 points, then at 20,710 points and finally at 20,875 points.
The NSE Nifty has support at 6,109 points, then at 6,065 points, 6,030 points and finally at 5,925 points. It has resistance at 6,153 points, then at 6,195 points, then at 6,275 points and finally at 6,345 points. Markets are likely to be weak in the beginning and then recover as the week progresses. Volumes need to improve before any sustainable trends may emerge in the market.
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 https://ak57.in
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