A real mixed bag

Jan 02, 2012, 08:18 IST | Alex K Mathews

The global, political and the national came together to give us both joy and sorrow

The global, political and the national came together to give us both joy and sorrow

The year-end sell-off happened on expected lines, with Nifty moving below 4650 levels, closing the year's trade with a yearly loss of close to 25 per cent.

Gold prices too, fell towards $1520 levels, even though recovery was seen later. The last week of the year remained muted with very little institutional participation in the initial days of the week and on the day of December F&O expiry, we saw heavy FII selling to the tune of over Rs 1,000 crore, which justifies negative sentiment.

On the first day of the New Year new month contract, we saw some value buying in counters like banking, infra, midcap stocks etc and this was also due to the fact that it is a holiday on Monday in most of the western equity markets and some in Asia as well.

The rollover figures of December were decent around 61 per cent but not impressive. Good rollovers were seen in banking, IT, auto, telecom and realty while that of oil, FMCG etcetera were lower than the previous month's. The outlook for the Nifty remains weak and Nifty may find mind support at 4531 and 4400.

Parliament session was another major event as it tabled the most awaited Jan Lokpal Bill. It was passed by the Lok Sabha but faced stiff resistance in the Rajya Sabha from the opposition and some of its own allies. The government also introduced the Prevention of Money Laundering Act Bill 2011, which proposes to allow confiscation of proceeds of crime even during the trial.

Also, there were reports that Indian and Mauritius tax officials have started talks on revising the DTAA pact between the two countries. Around 42 per cent of FDI and about 40 percent of FII fund flows into India comes through Mauritius. Another main decision that happened was RBI's move to allow NRIs to hedge their currency risk for external commercial borrowings. denominated in rupees with Indian banks.

A crucial move by the SEBI brought to light certain malpractices done in certain latest IPOs. It cracked down on promoters, key officials and directors of companies like, Brooks lab, RDB Rasayans, Tijaria polypipes, Bhartiya global, Onelife capital advisors, Taksheel, PG Electroplast etc for allegedly rigging price of the share on the listing day.
A major irregularity found was the siphoning of money through inter-corporate deposits. In many cases, SEBI found the status of clients and vendors of the company and the fund flow between the company and clients and vendors was abnormal.

This money was, in turn, used to boost the stock prices on listing. SEBI has now asked these companies to put the whole raised amount into an escrow account and also has barred the promoters and key officials from raising further funds. This has taught us a lesson that IPOs should be selected after proper scrutiny of the fundamentals and the credibility of the management rather than purely going by the prospectus.

Investors can buy Nifty 4500 January put options or the risk averse can sell 4400 Nifty call option January and can buy 4800 Nifty call as hedging position. The outlook of Reliance Industries, AXIS Bank, Larsen and Toubro, Hindalco and Sterlite are looking weak.

Weak economic outlook of China will keep the base metal prices under check. Today, there can be minor bounce back due to holiday in major markets including U.S. and U.K.  But the chances of Nifty moving above 4700 and 4745 are limited.

On the global front, there were major events in the Middle East and North Korea. Iran continued with its naval exercise along the Strait of Hormuz and threatened to shut the Strait if more sanctions against the country were imposed by US, which may cause oil movements from the gulf.

In reply US Navy's 5th fleet warned Iran that any disruption of traffic flowing through the Strait of Hormuz would not be tolerated. This caused crude prices to move above $100 on fears of supply disruption.

Apart from that, emerging major China, showed signs of slowdown in its manufacturing which contracted for a second month in December due to a fall in its exports to Europe.

The final HSBC purchasing managers' index reached 48.7 in December, which was slightly better than the 47.7 in November but lower than preliminary PMI of 49 which came out earlier this month, as new orders dropped.

Europe has remained muted last week, except for the Italian bond sale. Germany is planning to speed up payments into Europe's future bailout fund, aiming at securing the highest ratings for its bonds. Italian bond auction failed to cheer the markets as the borrowing cost fell sharply.
The Italian PM started a new phase of austerity measures after the failed bond auction which most of the nations have given a wait and watch approach.
As far as Spain is concerned, the economy shrank in the final quarter of 2011 due to weak financial markets and worsening liquidity situation in Euro Zone. In its move to shore up money to deal with the debt, Greece has announced a move to raise electricity prices by 9.2 per cent.

After the death of North Korean dictator, Kim Jong II, his son Kim Jong Un was made the supreme leader. Many were of the expectation that the new ruler would ease the tension that exists with North Korea and the Western world but the new ruler has openly said that no changes should be expected from North Korea.

In the near term, the rupee outlook against dollar is weak and it may test 53.84 and 54.25 despite RBI's intervention and exporters profit booking during the year-end.

Investors can buy Nifty 4500 January put options.  Investors can even buy the put options of L&T, Tata Motors and Hindalco. Short positions can be created in Kotak Mahindra Bank and ICICI Bank.

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 alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

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.

MALO-LES-BAINS, Nord, FRANCE: People run to take part in a traditional sea bath during the New Year's celebrations at Malo-Les-Bains beach in Dunkirk, northern France. Pics/AFP

Munich, Bavaria, GERMANY: Fireworks explode to welcome the New Year on January 1, 2012 in Munich, southern Germany

Rome, ITALY: A young man dives into Rome's river Tiber as part of traditional New Year celebrations on January 1, 2011. Divers jump from the Cavour bridge, continuing an annual tradition which dates back to 1946

Berlin, GERMANY: Winter bathers of the 'Berlin Seals' pose in the four degrees celsius cold water of the Orankesee lake during a New Year's swimming event on January 1, 2012 in Berlin

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