Churning the stocks

Jun 30, 2014, 08:25 IST | Alex K Mathews

The Sensex stays afloat as the new government tries its best to push for profits with various policies

In the last week, the markets shifted between profit and losses because of profit booking and Iraq concerns. The FIIs were also sellers most days.

But the short covering ahead of the June F&O expiry and some of the initiatives by the new government supported the markets.

Nifty has support at 7441 and 7400, and it has resistance at 7650 and 7715 in the short term. During this week a lot of portfolio churning can be expected.

Dollar game
According to the Department of Industrial policy and promotion, the foreign direct investment to the country has declined by 26 to $ 1.70 billion in April which is the lowest in last five months. In a year ago period, India received FDI worth $2.32 billion.

The highest FDI growth was seen in the sectors like services ($ 382 million), hotel and tourism ($ 109 million), metallurgical industries ($ 72 million) and construction ($ 69 million). Pharmaceuticals received lowest FDI at $ 1 million as compared to $ 987 million in April 2013.

The union government in the last week accepted a report on rationalising the definitions of FDI and FII. The report said that if an investor has 10 per cent stake or less in a company, it will be treated as FII and if an investors have over 10 per cent stake it will be treated as FDI.

The report also confirmed that if the stake is not raised to 10 per cent or above then the investment can be treated as portfolio investment and the investment in an unlisted company irrespective to the threshold limit will be treated as FDI. The committee also recommended the merger of FII and QFI (Qualified Foreign Investors) under the new Foreign Investors (FPI) system.

The finance ministry is planning to lift the ceiling on the investments by the pension funds in stocks and debt mutual funds which are likely to free up about Rs 1.5 lakh crore. The planning proposal seeks to allow pension, gratuity and provident funds to invest 30 per cent of their corpus in equity and up to 40 per cent investments in debt mutual funds regulated by SEBI.

The finance ministry is also planning to reduce the maximum exposure of retirement funds to government securities from present 55 per cent to 40 per cent. According to the finance ministry, half of the funds that are pumped into equity can be invested in company shares which are trading on the F&O segment and equity linked savings scheme of mutual funds. A new investment category will be created to allow 15 per cent of the corpus to be invested in ETFs or index funds that track two indices NSE and BSE.

Major announcements
The finance minister announced that the government will extend excise duty cut on automobiles till December 2014. The government also will extend excise cut on consumer durables and capital goods till December.

The previous government has slashed the excise duty on small cars, scooters, motorcycles and commercial vehicles to 8 per cent from 12 per cent in the interim budget in February this year in order to support the struggling sector. The duty on larger cars was cut to 24 per cent from 27 per cent earlier.

In the global front, the US markets were high as the investors were waiting for more economic data. The first one in the row was the Chinese June HSBC manufacturing PMI which remained positive.

Also the US May exist home sales and the preliminary reading June manufacturing supported the markets. But the escalating tensions in the Middle East made the markets to trade lower.

The comment from the FED official, also added some sort of concerns. The president of the Federal Reserve Bank of St Louis said that the interest rate increases should come sooner than later.

Risk takers can buy Nifty 7600 call options of July series without any time delay. Metal stocks like Tata Steel, NMDC and Hindalco are weak and these stocks may show weakness in the early part of this week.

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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