Going strong this week

Feb 06, 2017, 10:46 IST | Arun Kejriwal

Several positives in the past few days, with the budget coming shining through

US Senator Charles Schumer at a rally in front of the Stonewall Inn in solidarity with immigrants, asylum seekers, refugees, and the LGBT in New York. The demonstrators protested the policies of US President Donald Trump. Pic/AFP
US Senator Charles Schumer at a rally in front of the Stonewall Inn in solidarity with immigrants, asylum seekers, refugees, and the LGBT in New York. The demonstrators protested the policies of US President Donald Trump. Pic/AFP

The Indian Rupee had a strong week gaining 73 paisa or 1.07 per cent to close at Rs 67.31. Dow Jones was virtually flat losing 22.32 points or 0.115 at 20,071.46 points. The contentious visa bill of Donald Trump against select countries has been struck down by the courts. There would be many instances where such things are done as many of Trump’s acts are unconventional. The North America Free Trade Agreement (NAFTA) is up for discussion with Mexico whose biggest trade partner is the USA. Similarly the H1-B visas in the IT space have been criticised by all. However in the interim IT stocks have fallen significantly since Trump was elected as President.

Lots of cheer
The Union budget was presented on Wednesday, February 1. This is the first time that the budget has been advanced to this date with the intention that the bill would be law before March 31. There was no separate rail budget and was part of the budget itself. The budget this year had to tackle three issues and it appears to have done so reasonably well.

The first was the issue of effect of demonetisation and restoring the confidence of the middle and lower strata of society. The second was the electorate in the five states which have gone to polls starting with Punjab and Goa on Saturday. Thirdly, was to kick start the economy. The budget has taken care of all these three issues and gone further in tackling two more burning issues.

Reform season begins
The first is the electoral funding which has been very well tackled by reducing the limit of cash and anonymous donations to Rs 2,000 from the present limit of Rs 20,000. The second reform which is even more far reaching is the introduction of bonds where the payment of same is by way of digital form and the same in a time bound manner becomes secret as far as the party receiving the same is concerned. There would of course be a time limit during which the bonds would have to be encashed. The second is in the case of long term capital gains where the issue of bogus companies assisting people to convert black money to white through huge gains by manipulating prices has been tackled. In case STT is not paid on such purchase of shares they would not be entitled to the benefit of long term capital gains.

Such huge gains
Shares of BSE limited listed on the NSE and registered spectacular gains. On Friday the NSE where the shares are listed and located at BKC became Dalal Street and one had the most well attended listing ceremony ever held. Shares which were issued at Rs 806 in the offer for sale closed at Rs 1,069.20 a gain of Rs 363.20 or 32.66 per cent. Going forward the valuation of BSE would become a benchmark when NSE does file its RHP. Incidentally the DRHP has been filed and a number of contentious issues raised.

RBI meets on Wednesday, February 8, for its bi-monthly review. There are expectations of a rate cut post the budget in the policy. The run up in share prices of PSU banks is also on the expectation of the rate cut.

Poll outcome vital
Polls in two of the five states were held on Saturday in Punjab and Goa. Over the next four weeks they would be held in three more states. The outcome of these polls would be important for the market. The results will be available just before Holi. The key drivers for the market in the coming week are RBI policy and what Trump does after his visa bill has been turned down. In the US, there are many contentious issues and it appears Trump’s term would see many a confrontation with the judiciary.

Markets have had a strong run up in the last four weeks or so. Very rarely has one seen a pre-budget rally followed by a strong budget day performance. It probably is unique at least in the last decade if not more.

Markets need to consolidate at these levels and digest the large number of results which would now come in the last 10 days of the reporting season for the quarter October to December 2016. It therefore makes sense to book profits and let the trend play out after a successful and heady run up.

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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