If in doubt, stay out

Updated: Dec 12, 2016, 11:07 IST | Arun Kejriwal

Volatile times will see sharp reactions. Press the caution button or keep away

The Dow Jones gained since the results of the US election. Police stand guard outside of Trump Tower as U.S. Rep. Carolyn Maloney and New York Congressman Jerry Nadler hold a news conference to request more money from the government to help pay for police protection for President-elect Donald Trump on December 9, 2016 in New York City. Pic/Getty Images/AFP
The Dow Jones gained since the results of the US election. Police stand guard outside of Trump Tower as U.S. Rep. Carolyn Maloney and New York Congressman Jerry Nadler hold a news conference to request more money from the government to help pay for police protection for President-elect Donald Trump on December 9, 2016 in New York City. Pic/Getty Images/AFP

The week gone by had its unpredictable and illogical moments. The Reserve Bank of India (RBI) kept rates unchanged and markets fell predictably post the announcement, but rose the very next day to not only recover the losses but end with big gains. What changed between 2.30 pm on Wednesday when the policy was announced and the next day, beats me. Very clearly, the market took the lack of rate cut in its stride and moved on. The net result was that BSESENSEX gained 516.52 points or 1.97 per cent to close at 26,747.18 points while NIFTY gained 174.95 points or 2.16 per cent to close at 8,261.75 points. The broader market saw the BSE100, BSE200 and BSE500 gain 2.23 per cent, 2.23 per cent and 2.17 per cent respectively. BSEMIDCAP gained 2.755 and BSESMALLCAP gained 1.96 per cent.

Turn of events
The top sectoral gainer was BSEMETAL up 5.165 followed by BSEAUTO 4.17 per cent, BSEREALTY 3.89 per cent and BSEOIL&GAS 3.45 per cent. There was just one loser in BSEHEALTHCARE down 0.51 per cent. In individual stocks the top gainer was Steel Authority up 11.41 per cent followed by NMDC 8.63 per cent. Cairn India and Hindalco gained an identical 7.55 per cent. On the losing side was Sun Pharma down 6.40 per cent followed by TCS 1.37 per cent and Axis bank 0.76 per cent.

Dow Jones gained 586.43 points or 3.06 per cent to close at 19,756.85 points. The Indian Rupee gained 77 paisa or 1.13 per cent to close at Rs 67.42. Strange are the ways of the market and quite often, it behaves in an unpredictable manner. No wonder it is said that markets have a mind of their own. I was told that US president elect Donald Trump was not good for the US economy. Since the day of the election (November 8) the Dow Jones has gained 1,497 points or 7.57 per cent and from the low made on the November 4, the gains are even more at 1,873 points or 9.48 per cent. It sure is a strange world.

Rates stay consistent
The expected rate cut did not materialise back home and the committee voted 6-0 to keep rates unchanged. Net result markets fell on Wednesday from the intraday highs of plus 148 points on the BSESENSEX to lose 376 points. Similar levels on NIFTY was plus 47 points becoming minus 113 points. What happened on Thursday was completely different where markets gained more than what they had lost on Wednesday.

The US Fed meets this Tuesday and Wednesday and is widely expected to increase interest rates. Logic dictates that such an event would lead to markets losing steam but going by past events of one month, anything may happen.

Brand new view
In primary market news, the IPO from Sheela Foam Limited, who manufacture and market mattresses under the ‘Sleepwell” brand had a stellar listing. Shares were issued at Rs 730 and closed at the upper circuit at Rs 1,032 gaining 41.37 per cent.

Very rarely, has one seen shares hitting the upper circuit within 30-35 minutes of listing and remaining there for the rest of the day. State Bank of India (SBI) mutual fund which had invested in the anchor portion as well bought 10.66 lakh shares on debut at an average of Rs 979.73.

The other issue which had opened for subscription from Laurus Labs Limited was oversubscribed 4.57 times with QIB portion subscribed 10.54 times, HNI 3.58 times and Retail 1.67 times. The issue had a price band of Rs 426-428.

Time to investigate
A very disturbing trend has begun amongst a new breed of investor relation firms. These firms have cropped up over the last few years. These firms have started a differential pricing model which is linked to price performance. This is nothing short of price manipulation and is loaded against the very community whom these firms service, i.e. the investor. They should mention this as a disclaimer when presentations are made by these firms on behalf of clients that they stand to gain financially if the share price moves up. While many promoters may not be aware of what they have signed up for this is an interesting area where the regulator SEBI needs to take a careful look and book these overzealous firms who are taking mandates to rig the share price. It is unfortunate and is happening right under the nose of the regulator.

Mistry vs Tata
The boardroom battle of Cyrus Mistry-Ratan Tata would continue with the shareholder meets called to oust Cyrus Mistry beginning in the next fortnight. The fight has become quite ugly with a lot of dirty linen being washed in public.

Markets would be volatile in the coming week and it makes sense to stay with the large cap stocks and preferably use the BSE500 as a base. This index accounts for 83 per cent of the market capitalisation and offers a wide variety in terms of companies and sectors.

With Christmas holidays around the corner, smallcap and midcap space could see a lot of sharp and unhealthy movement. Trade cautiously and if in doubt stay away.

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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