Be calm and play the waiting game
Markets lose rapidly as a combination of factors result in ground slipping away
Markets were under pressure and lost on all five trading sessions. Friday was the eighth consecutive day of loss and hopefully markets should be in a better frame of mind when trading begins today morning. BSESENSEX was down 1,500.27 points or 3.85 per cent at 37,462.99 points while NIFTY lost 433.35 points or 3.70 per cent to close at 11,278.90 points. The broader indices like BSE100, BSE200 and BSE500 lost 3.61 per cent, 3.56 per cent and 3.49 per cent respectively. BSEMIDCAP lost 2.66 per cent while BSESMALLCAP lost 3.04 per cent.
There were no sectoral gainers but BSEIT lost the least. It was down 1.01 per cent. The top sectoral loser was BSEMETAL down 6.90 per cent followed by BSEPOWER 4.89 per cent and BSEREALTY 4.78 per cent. In individual stocks the top gainer was TCS up 0.14 per cent followed by Eicher Motors 0.03 per cent. The top loser was Tata Motors down 11.22 per cent followed by Reliance Industries 11.09 per cent and Tata Steel 11.01 per cent.
One doesn't remember another time, when three heavyweights of the BSESNSEX and NIFTY like Tata Motors, Reliance and Tata Steel have lost over 11 per cent each. It's a rare instance and points to the deep cuts that the markets witnessed.
Dow Jones too has been on a losing ground and was down 567.58 points or 2.12 per cent to close at 25,942.37 points. Dow rose on Friday and gained 114 points or 0.44 per cent. The Indian Rupee lost 69 paisa or 1 per cent to close at R 69.91 to the dollar.
Coming to the correction, which in eight trading sessions has wiped out almost 50 per cent of the gains made over two months, it seems to be done. The rally began February 19, which saw BSESENSEX make a low of 35,287.16 points. From there it rose 4,200.29 points to make a lifetime high of 39,487.45 points on April 18, 2019. From there after remaining sideways for some time, the fall began on 30th The 50 per cent correction to this rise would be at 37,388 and we are currently about 75 points higher. In intra-day trade the low was 37,370 points which means the level was reached. Similarly, on NIFTY the rally began at 10,585.65 points, gained 1,270.50 points to touch 11.856.15 points. The 50 per cent fall would be to 11,221.26 while the intra-day low on Friday was 11,251.05. The closing was 11,278.90 points and if these levels hold, could coincide with the correction.
What led to this correction is more significant. The first is that we had rallied quite strongly in two months without a correction. Secondly, there were reservations on whether the ruling BJP/NDA may or may not be able to form the next government. Thirdly, US President Donald Trump imposed duties of 25 per cent against 10 per cent on 200 billion dollars of Chinese imports with effect from midnight Friday, May 10. All these factors rocked the market and helped complete the necessary technical correction. The seventh and final round of voting would be held next Sunday May 19, for 59 seats.
Yogi Deveshwar, Chairman Emeritus of ITC passed away at the age of 72. He was credited for changing the tobacco and cigarettes company to a large conglomerate having diversified portfolio of paper, hotels and FMCG products. Today less than half of its revenues come from tobacco related products and the broader portfolio generates to the bottom line. The week ahead will continue to be volatile and choppy with two sided movements, however this time with an upward bias. Exit polls would be available only on Sunday evening next week and that would not impact trading this week. The strategy would be to look at corporate results and invest in companies which have shown growth with improved efficiencies. There are quite a few examples of such companies.
The strategy for the week ahead would be to remain calm and buy on sharp dips and sell on rallies. By the time you would be reading a similar column in the coming week on Monday, May 20, markets could be all over the place reacting to exit poll. One should note that exit polls are based on sample and have a lot of bias in them. Do not get carried away and when you have waited for a long 39-day election period, might as well wait for another four days for the results.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. 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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