Rockstar Rajan to the fore
As the RBI governor chairs his first meet on Friday, will it spell sweet music or strike a discordant note?
If last week was topsy-turvy then this week we saw the grand finale to finish the spectacular run at the bourses taking place on Tuesday. The markets gained a huge 726 points on the SENSEX and 216 points on the NIFTY.
Call it by any name but the rally was baffling and certainly unsustainable. The markets corrected themselves thereafter but still closed with handsome gains. The BSESENSEX gained 462.70 points or 2.40 per cent to close at 19,732.76 points. The NIFTY gained 170.20 points or 3.00 per cent to close at 5,850.60 points. The broader indices like the BSE100, BSE200 and BSE500 gained similar at 2.81 per cent, 2.89 per cent and 2.88 per cent respectively. The BSEMIDCAP gained 3.27 per cent while the BSESMALLCAP gained 3.10 per cent. The top gainer amongst sectoral indices was BSEREALTY which gained 8.85 per cent. The other gainers were BSECAPGOODS up 8.15 per cent and BSEPOWER up 5.44 per cent. There was just one loser in BSEIT down 0.69 per cent and this was the second week in a row that the index fell.
In individual stocks the biggest gainer was Wockhardt Pharma up 27.88 per cent. Others included PNB up 15.18 per cent, Union Bank up 14.95 per cent, Axis Bank 11.02 per cent and HDFC up 10.38 per cent. NSEL promoter Financial Technologies was up a whopping 44.61 per cent for reasons best known to the management of the company. There were very few losers and the biggest was Tech Mahindra down 5.10 per cent. Other losers included Yes Bank down 3.96 per cent and Wipro down 2.79 per cent.
The crisis at National Spot Exchange Limited (NSEL) is looming large with the auditor Grant Thornton appointed saying that the so call members declared defaulters in August 2013, many of them were in default for over two years. The crisis has also spread to the e-series of contracts in gold, silver and platinum where deliveries to customers who hold these commodities in demat form is not being done. One is not sure whether there is shortage of physical stock here or what? The crisis in the spot exchange which has violated all possible norms and done regulatory arbitrage by not being governed by SEBI or Forward Markets Commission (FMC) seems to have very strong patronage from the powers to be. It is quite surprising that with R 5,600 crore involved and over six weeks since the crisis has emerged, there is as yet no strong action against the management/promoter of the exchange. The image of the country and the future of commodities trading in India is at stake and no one seems to be bothered.
FIIs were aggressive buyers during the week and particularly on Tuesday with net purchases of R 4,108 crore. Their purchase of R 2,700 crore on Tuesday could justify the rally partially while the Syrian crisis being resolved could be the other reason. Domestic institutions were net sellers of R 820 crore. In global markets the Dow Jones gained 454 points or 3.04 per cent to close at 15,376 points.
The Syria issue seems to have quietened down with Russia and USA agreeing to destruction of the chemical weapons stockpile in Syria over the next couple of quarters. Markets had more or less discounted this news after the G20 summit where Russia had ruled out support to the US for a strike. IIP data surprised everyone with positive 2.6 per cent led by manufacturing which was up 3 per cent. One hopes that this is a turnaround in the economy and not a fluke. The chairman of the Prime Minister’s Economic Advisory Council (PMEAC), Mr Rangarajan has reduced the estimated GDP growth for the current year 13-14 to 5.3 per cent against an earlier estimate of 5.5 per cent and also said that the Current Account Deficit (CAD) of 70 billion dollars would have to be financed from reserves to the extent of 9 billion. This indicates that FII inflows through equity, debt and FDI will be lower than anticipated.
The rift between the erstwhile Finance Minister (FM) and now the President of the country, and the present FM, has come out in the open with the President clearing the air in a chamber of commerce meeting in Kolkata. This departure from convention does not augur well and one hopes it stops after this.
Petrol prices were raised by Rs 1.63 per litre on Friday while the previous day the oil minister had said that prices would be cut by a similar amount. In the last three months this is the seventh price hike in petrol prices and the base prices have been raised by R 10.80 paisa per litre. As expected there is no news on the diesel price hike where under-recoveries are currently at R 14.50 per litre.
The week ahead will belong to the central bank governors of US and India. The Fed meets on Tuesday and Wednesday, and our very own Raghuram Rajan will meet on Friday which would be his first review meet. The US is expected to begin the withdrawal of 10 billion dollars of bills which they were buying from the next month. In India the policy meet date was changed to take cognizance of the Fed meet and it is believed that rates would be kept unchanged. The expected volatility in the rupee which was supposed to change post the new governor is yet to happen as on Friday the currency lost a 100 basis points or 1.5 per cent in comparison to Thursday’s value. The rupee overall gained 74 paisa or 1.13 per cent during the week to close at 64.50, substantially weaker than the Rs 63.17 which it had touched.
The assuming of office by the new governor, the rupee value, stock markets and easing of tension in Syria have all coincided. The markets from Wednesday, September 4, to Wednesday, September 11 were on a roll, gaining over 9 per cent. Thereafter the rupee has corrected, stock markets have corrected, and the exuberance of last week seems to be waning. It is more than coincidence that these events happened and the Syrian crisis being resolved also helped matters in a great way.
The week ahead will once again be volatile and have plenty of drama. The announcement of Narendra Modi as the BJP candidate for Prime Minister is unlikely to create any fireworks at the bourses but what the Fed in US and ‘RR’ does at Mint Street, will create news. As mentioned earlier, there will be a gradual pullback in the case of US and unchanged rates in India.
While the markets seem to have moved ahead of time on short covering, ground reality is different and economic indicators are certainly not giving the sense that markets have given. Key levels for the SENSEX are 19,350 and 20,100 while they are 5,675 and 5,975 for the NIFTY. The support for the SENSEX is at 19,639 points, then at 19,423 points, then at 19,295 points, then at 19,071 and finally at 18,822 points. It has resistance at 19,862 points, then at 20,052 points, then at 20,212 points, then at 20,368 points and finally at 20,652 points. The NIFTY has support at 5,820 points, then at 5,757 points, then at 5,687 points, then at 5,624 points and finally at 5,554 points. It has resistance at 5,882 points, then at 5,942 points, then at 5,997 points, then at 6,054 and finally at 6,136 points. The week ahead could be yet another volatile one and needs to be carefully negotiated.
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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