Petrol hike spells doom and gloom

Sep 19, 2011, 11:07 IST | Arun Kejriwal

After petrol prices were raised last week, the next few days would be driven by global cues and markets would be extremely volatile

After petrol prices were raised last week, the next few days would be driven by global cues and markets would be extremely volatile

Last week was extremely volatile and one felt at times that the market is behaving illogically. The markets lost substantial ground on the opening day of the previous week and then spent the remaining part of the week recovering lost ground. The markets finally closed in positive territory with small gains for the week. The BSE Sensex gained 66.86 points or 0.40 per cent to close at 16,933.83 points while the NSE Nifty gained 24.80 points or 0.49 per cent to close at 5,084.25 points. The broader market also rose with the BSE100 up 0.45 per cent, BSE200 up 0.29 per cent and BSE500 up 0.21 per cent. The broader indices were losers with the BSE Midcap losing 0.70 per cent and the BSE Smallcap losing 1.25 per cent respectively. In individual stocks, PFC gained Rs 12.60 or 8.51 per cent at Rs 160.70 while Infosys gained Rs 122 or 5.35 per cent to close at Rs 2393. The rupee was weak and closed at Rs 47.27.

Illustration/ Jishu Dev Malakar

It would be interesting to point out that though the market has now closed positive for the third consecutive week after being on a losing streak for five consecutive weeks, there is fatigue in the market. It seems that the market has run out of steam and is struggling to go up. We use global cues as a reason to become strong and then give up the gains as the day comes to an end. A case in point would be last Friday, where the BSE Sensex made a high of 17,122.54 points and then lost 188.71 points from that level to close at 16933.83 points.

Petrol prices were raised by a staggering Rs 3.14 per litre, which is just about 5 per cent, and diesel prices remained unchanged. The middle and lower middle class will be hit by this as they are the ones who use two wheelers and cars which run on petrol. RBI raised repo and reverse repo rates by 25 basis points each. During the previous week Index of Industrial Production (IIP) were released for the month of August 2011, which saw the industrial output tumble to the lowest level in two years.

Inflation rose once again and it might further increase due to hike in petrol prices and rate hike by the RBI.

Yet another significant event, which happened, was the selling shareholder (Government of India) deciding to postpone the follow-on public offer (FPO) of ONGC. What came as a surprise was that the issue was postponed. This led to a sharp rise in the prices of the ONGC stock, which rose 4.91 per cent to close at Rs 274.70. The October futures, which were trading at Rs 7 discount to the cash price, recouped the discount and were trading at par to the cash price. Some more recovery is likely to be seen in the coming weeks due to the arbitrage, which has been done on account of the follow-on-offer (FPO).

There will be a lot of discussion and debate on why the issue was postponed and whether it should have been done or not. One thing however is certain that it sends wrong signals to investors and also tells the world that the Government believes that the Indian markets are in a bad shape and do not have the capacity to collectively absorb a fresh issue of $2.4 billion. I believe this will affect the future divestments from the Government of India (GoI).

The previous week saw one IPO from SRS listing. The company had sold shares at Rs 58 and the issue was subscribed 1.25 times. The issue was under pressure and lost substantial ground on day one itself. The stock closed at Rs 33.65, losing 42 per cent on day one. I believe this share has some more ground to lose and is likely to stabilise around Rs 25. The NCD issue from Manappuram also listed during the week and is trading at a discount to the issue price of Rs 1000.

Religare Finvest, which had tapped the markets with its bond issue, closed during the week. The week ahead would see the bond issue from Muthoot Finance listing. There are a couple of issues opening this week which need not be talked about or discussed. These are small issues and are extremely expensive and overpriced. They have weak fundamentals and though they may be subscribed by friendly intermediaries, investors should refrain from being tempted by such issues.

The week ahead would be driven by global cues and our markets would be extremely volatile. It would be prudent to look at stock specific and buy on sharp dips. The market is looking vulnerable and is likely to gain in strength only if it can cross key resistances at 17260 on the Sensex and 5210 on the Nifty. The markets need to not only cross the same but thereafter also sustain these levels.  In the week beginning September 19, the BSE Sensex has support at 16,841, then at 16,608, then at 16,498, then at 16,378 points and finally at 16,068 points. It has resistance at 17,074, then at 17,246, then at 17,307, then at 17,358 and finally at 17,664 points. The NSE Nifty has support at 5,053 points, then at 4,978 points, then at 4,911, then at 4,806 and finally at 4,735 points. It has resistance at 5,129 points, then at 5,181 points, then at 5,204 points, then at 5,229 points and finally at 5,323 points.

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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