Neck deep in crisis

Aug 19, 2013, 01:17 IST | Arun Kejriwal

As the rupee weakens considerably, the National Spot Exchange Limited is in major trouble after losing funds of almost Rs 5,500 crore

The markets last week behaved as expected for the first three days and rallied over 3 per cent. On Friday after Independence Day, they behaved in a manner which could be at best described as, brutal, and lost over 4 per cent with the rupee weakening on global cues.

Crunching cash: A shopkeeper counts rupees at a local market in New Delhi as the rupee plunged to a new low and stocks saw their sharpest single-day fall in nearly two years. PIC/AFP

The BSESENSEX lost 191.16 points or 1.02 per cent to close at 18,598.18 points. The NIFTY lost 57.80 points or 1.04 per cent to close at 5,507.85 points. The broader indices like the BSE100, BSE200 and BSE500 lost less at 0.92 per cent, 0.71 per cent and 0.63 per cent respectively. The BSEMIDCAP gained 0.55 per cent while the BSESMALLCAP gained 0.67 per cent. The top gainer amongst sectoral indices was BSEAUTO which gained 3.96 per cent. The other gainers were BSEHEALTH up 1.99 per cent and BSEMETAL up 1.43 per cent. The losers were led by BSECON down 4.91 per cent. Other losers included BSEBANKEX DOWN 3.60 per cent, BSECAPGOODS down 3.02 per cent and BSEOILGAS down 2.20 per cent.

In individual stocks, the biggest gainer was Tata Motors up by 12.45 per cent. Others included Wockhardt Pharma up 20.98 per cent, Gitanjali Gems up 17.66 per cent, Hero Motocop up 7.13 per cent and Indian Oil up 7.23 per cent. The biggest loser was once again, BHEL down 9.87 per cent. Other losers included MCX down 17.64 per cent, Financial Technologies the promoter of crisis ridden NSEL down 15.26 per cent, Titan down 9 per cent and Canara Bank down 8.3 per cent.

The rupee weakened considerably, and at one point of time, it had crossed the 62 level, before recovering to close at R 61.66, a loss of 1.28 per cent for the week. The Reserve Bank has clamped down on the amount of investments that companies can make abroad, and this was seen as capital control measures, which the markets and FIIs have not taken to kindly. However FII provisional data indicates that they sold under R 600 crore on Friday, which could not have resulted in a close-to-800-point fall. FII were net purchasers of equity of Rs 223 crore last week, while domestic institutions were buyers of R 915 crore.

National Spot Exchange Limited (NSEL) is in a major crisis and funds of almost Rs 5,500 crore are lost. It appears that this issue which is likely to be debated in Parliament on Tuesday, August 20, is yet another case of gross violations and complete lack of corporate governance. This case is similar to the Harshad Mehta scam of 1992, where bank receipts were used, while here, warehouse receipts have been used. Investors seem to be caught in a bind, and it will be a long battle to recover even partial dues. This could be another blow to the markets, which are trying to recover from the vagaries of globalisation, a weakening rupee and a failing economy.

In India the government once again raised customs duty on gold from 8 per cent to 10 per cent. Gold price rose to Rs 31,000, a level last seen in November, 2012. With gold duties rising from 2 per cent to 10 per cent and the rupee depreciating from Rs 55 to almost Rs 62, the fall in international gold prices is simply, not helping. 

The fall on Friday has made the government nervous, and measures to make non-essential imports expensive by raising duties has been shelved. This was being talked about for the last three months or more, but not being acted upon. Industry is clamouring for controls, but their demands seem to be falling on deaf ears.

In global markets, Dow Jones lost 344 points or 2.23 per cent during the last week and market participants are convinced that, tapering of quantitative easing would begin in September, by the Federal Reserve System (FED). How soon it would end, is still being debated but with the easing expected, as early as 30 days from now. Global liquidity, and hence, stock markets were under pressure. This has been an issue affecting markets for quite some time now, and looks likely to happen.

The markets should gain this week, having lost for four weeks running. The key to revival is Friday levels being crossed, which looks unlikely as we need strong drivers for the same. Key levels for the SENSEX are 18,125 and 18,950 while they are 5,410 and 5,675 for the NIFTY. The support for the SENSEX is at 18,467, then at 18,315 points, then at 18,145 points and finally at 17,925 points. It has resistance at 18,796 points, then at 18,925 points, then at 19,086 points and finally at 19,315 points. The NIFTY has support at 5,465 points, then at 5,415 points, then at 5,354 points, then at 5,209 points and finally at 5,159 points. It has resistance at 5,616 points, then at 5,666 points, then at 5,724 points, then at 5,754 points and finally at 5,786 points. The week ahead will give traders plenty of trading opportunities, and patient investors a chance to cherry-pick stocks.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers can find out more about these and other issues on his website

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 and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk. 

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