Global cues are spooky

May 21, 2012, 07:09 IST | Arun Kejriwal

A volatile week and uncertainty around the world spell trouble

The week ended May 18, was extremely volatile. Had it not been for a terrible Wednesday the week would have ended in positive territory. Friday was another volatile day and impressive and unexpected results from banking major State Bank of India changed the mood and turned around the markets completely. The BSE SENSEX made a low of 15,809 and closed at 16,152.75. The weekly loss was 140.23 points or 0.86 per cent. The low on NSE NIFTY was 4,788.95 points. The weekly loss was 37.45 points or 0.76 per cent. The broader indices like the BSE 100, BSE 200 and BSE 500 lost 0.78 per cent, 0.87 per cent and 0.94 per cent, respectively. The BSE MIDCAP lost 1.41 per cent while the BSE SMALLCAP lost 2.19 per cent, indicating a substantial across the board fall. The sectoral gainers included BSE FMCG up 1.72 per cent and BSE IT up 0.55 per cent. The losers included BSE AUTO down 5.6 per cent, BSE PSU down 1.04 per cent and BSE CAPGOODS down 1.03 per cent. In individual stocks, Sesa Goa was up 7.85 per cent, IRB Infra was up 7.46 per cent, Sterlite up 6.35 per cent, SBI up 4.86 per cent and ITC up 2.31 per cent. The big losers included Tata Motors down 12.54 per cent, BHEL down 8.93 per cent, REC down 6.95 per cent and Axis Bank down 5.19 per cent.

Gloom room: Seoul, republic of Korea: Currency dealers monitor exchange rates in a dealing room at the Korea Exchange Bank in Seoul. Asian markets slumped and the Euro fell further on May 18 as the Eurozone debt crisis was stoked by a ratings downgrade for Greece and 16 Spanish banks, while weak US data added to the pessimism. Pic/AFP

The markets were spooked on global cues particularly Greece, where fresh elections are to be held in June because no government could be formed. The US markets have fallen for 12 out of the last 13 days of trade, an event, which has occurred after October 1974. Facebook listed on NASDAQ and closed at $ 38.37 after touching a high of $42 per share. The market cap of the company is 104 billion dollars and the price earnings ratio at 107 times. The share has probably peaked out at this price.

The issue from Plastene India Limited turned out to be a disaster and did not receive a single bid from any QIBs. The overall subscription was a mere 29 per cent. This is the third issue to be withdrawn in this year after Goodwill Hospital and Samvardhana Motherson. Last year, in the month of May 2011, the merchant bankers of Plastene India had withdrawn the IPO of Galaxy Surfactants. Very clearly, each of the issues that has been withdrawn the common link is expensive pricing and it is high time merchant bankers realise that investors are no longer willing to pay ridiculously high prices for issues.

The second issue during the last week was from Speciality Restaurants Limited the brand owners of the well-known 'Mainland China'. The issue was subscribed 2.54 times overall but received subscription of 0.55 times, the reservation of retail investors. The price band was Rs 146-155 and is expensive considering the current market valuations. The current flavour is consumption story and probably that prompted the merchant bankers to overcharge. Results from various companies are showing the pressure of rising interest on the performance. Net margins have been severely impacted by interest costs and this has reduced net margins for almost all companies. To add to this concern, is the rising number of bad loans and restructuring of accounts being done by the banking sector.

FIIs continued to be sellers during the week and sold stock worth Rs 412 crore, while domestic institutions were buyers to the extent of Rs 482 crore. The Indian Rupee depreciated to Rs 54.42 and has become a major cause of concern. The government must take concrete steps to curtail the fiscal deficit and reduce subsidies in the immediate term. Their failure to do this would bring about greater pressure on the rupee and also ensure that interest rates do not soften.

The week ahead would continue to be volatile and choppy. Volumes have reduced considerably and global cues are not supporting the market. Technical bounce is likely to make the markets recover in the coming week. The BSE SENSEX has support at 15,906 points, then at 15,844 points, then at 15,678 points and finally at 15,509 points. There is resistance at 16,302 points, then at 16,425 points, then at 16,699 points and finally at 16,776 points. The NSE NIFTY has support at 4,843 points, then at 4,801 points, then at 4,754 points and finally at 4,697 points. The resistance is at 4,936 points, then at 4,974 points, then at 5,056 points and finally at 5,094

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

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