Pushing for consolidation

Feb 13, 2012, 10:56 IST | Arun Kejriwal

The markets have rallied well and now need to consolidate before going forward

The markets have rallied well and now need to consolidate before going forward

The markets continued their upward journey last week and recorded their sixth consecutive weekly gain since the beginning of 2012, but with the first few signs of fatigue setting in. We had two days of correction in the previous week and the lowest net gains on a weekly basis in the rally. The BSESENSEX gained 143.73 points or 0.82 per cent to close at 17,748.69 points. The NSENIFTY gained 55.75 points or 1.05 per cent to close at 5,381.60 points. The broader indices outperformed the benchmark indices and the BSE100, BSE200 and BSE500 gained 1.30 per cent, 1.43 per cent and 1.60 per cent respectively. The BSEMIDCAP and BSESMALLCAP were bigger gains and clocked gains of 3.32 per cent and 3.06 per cent respectively.

Amongst the sectoral indices, BSEREALTY was the outperformer with gains of 5.79 per cent, BSEMETAL up 4.12 per cent and BSEBANKEX up 2.95 per cent. In individual stocks JSW Steel was a big gainer up 15.23 per cent, REC up 8.525.34 per cent and TCS up 5.34 per cent. Hind Unilever was the odd man out and closed with losses of 3.23 per cent.

The previous week saw markets losing ground on Tuesday. This was in sharp contrast to the "Terrific Tuesdays" that we saw on all the five Tuesdays of January. It would be interesting to recall that the markets gained a staggering 1,622.79 points or 93.94 per cent of the monthly gain of 1,738.63 points on the 5 Tuesdays. This time on Tuesday we lost 85 points on the SENSEX and 26 points on the NIFTY.

The Indian Rupee lost some ground during the previous week and closed at Rs 49.42 to the US Dollar. Foreign Institutional Investors (FIIs) continued to be buyers with net purchases of Rs 3100 crore, while domestic institutions were net sellers to the extent of Rs 590 crore. On the global front, the Greek crisis is coming to a boil.

Tata Steel reported a net loss of Rs 603 crore for the quarter ended December 2011 on a consolidated basis. The loss is on account of an inventory write off on the European operations. Oil marketing companies HPCL and BPCL reported huge profits for the quarter on the back off receiving subsidies from the government, which got clubbed in the third quarter. There would be no point in extrapolating the Q3 results to try and anticipate full year results as these companies have made losses for the nine-month period.

Index of Industrial Production (IIPs) numbers came in at 1.8 per cent for the month of December 2011 and were below expectations. This could be a cause for worry going forward and could derail the current rally which has gained a staggering 17.26 per cent on the SENSEX in 6 weeks and 18.77 per cent on the NIFTY. If one were to just extrapolate this gain we would be talking of the indices gaining 1.5 times the level that they were at the end of December 2011, which looks unlikely.

SBI, India's largest bank would be reporting results on Monday. This could give further direction to the markets. Incidentally, this is also the last week for reporting results for the December quarter and the overall picture of results so far is that there is a slowdown with the rate of sales growth slowing down and the net margins dropping. This week could see this summary of results further getting impacted.

Akzo Nobel managed to get approval for its controversial merger, approval courtesy UTI, who abstained. The reason for abstinence was the fact that they have no CEO. In a matter, which affects minority shareholders and almost all of them voted against the proposal, the fund manager should have got permission to vote on the issue as it was of prime importance. This incident would have created history but for UTI. This is a sad day for minority shareholders as they have been squarely cheated by an MNC and helped by an unwilling Indian Institution. It's high time that SEBI mandates that in matters of prime importance, sitting on the fence by mutual funds will not be permitted.  Tax-free bonds from NHAI listed last week and there was a gain of about 4 per cent on listing. The bonds, which were issued in two tenures of 10 and 15 years, carried a coupon rate of 8.2 per cent and 8.3 per cent respectively. The 8.3 per cent bonds were quoting at Rs 1036-1037. Similar bonds issued by PFC would be listing this week.

The markets have rallied well and now need some consolidation before going forward. The rally, which has been driven by liquidity, has been very strong and swift and has certainly changed the sentiments of the market and investors alike. The markets are back to levels of August 2011 and can no longer be considered cheap as far as investment is concerned. We have begun to become expensive and caution needs to be exercised. The BSESENSEX has support at 17,655 points, then at 17,579 points, then at 17,357 points, then at 17,278 points and finally at 17,055 points. It has resistance at 17,883 points, then at 17,985 points, then at 18,146 points, then at 18,285 points and finally at 18,440 points. The NSENIFTY has support at 5,339 points, then at 5,304 points, then at 5,252 points, then at 5,222 points and finally at 5,174 points. It has resistance at 5,425 points, then at 5,478 points, then at 5,512 points, then at 5,536 points and finally at 5,584 points.

The markets look like they are tired and need to consolidate before the next rally begins. The earlier the consolidation or correction the stronger and healthier would be the rally. Play for the correction that is likely this week.       

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 http://ak57.in

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