Shaky and jittery

Published: Jul 11, 2011, 08:05 IST | Arun Kejriwal and Alex K Mathews |

Markets likely to remain volatile this week

Markets likely to remain volatile this week

The week gone by was extremely quiet on the first three days. Last Thursday, there was a huge gain in the indices and Friday saw a huge fall.


Markets will take cues from not only the overseas market but also from the quarterly results

Explanation for the gain and fall was still not available, and the only common factor has been that Foreign Institutional Investors (FIIs) have turned buyers and have put in over $1.5 billion in the last 10 days or so. The net gain in the BSE Sensex was 95.24 points or 0.51 per cent, to close at 18,858.04 points.

The NSE Nifty closed at 5,660.65 points, a gain of 33.45 points or 0.59 per cent. The broader indices closed with gains with the BSE100, BSE200 and BSE500 gaining 0.57 per cent, 0.66 per cent and 0.72 per cent respectively. The BSE Midcap and BSE Smallcap were big gainers.

Issues
There were two IPOs, which listed during the previous week. Birla Pacific Medspa had a terrific opening and was up a staggering 200 per cent at one point of time at Rs 30 against an issue price of Rs 10. In the last three minutes of trade, the share lost 1/3rd and was quoting at Rs 20. The share however closed at Rs 20.3 and it's a matter of time before this stock trades below the issue price.

The other share to list was Rushil D �cor, which closed with gains of 67 per cent last week. This share also received poor response in the institutional category and remained under subscribed. Almost the entire subscription was received from the retail category, which subscribed their category 6.57 times.

The share had recorded gains for the first two days and in the coming week there will be a reversal. It will then start falling sharply as is the norm when the issue is subscribed by "friendly intermediaries" and does not have fundamentals.

Turnover
The current week sees one issue opening today and closing on Thursday, July 14. The company Bharatiya Global Infomedia Limited is issuing 67.2 lakh shares in a price band of Rs 75-82. The company would raise an amount between Rs 50.4 crore and Rs 55.10 crore.

The company is in the business of Information Technology Based solutions RFID and smart card and also digital postproduction studio.

It has a total turnover of Rs 71 crore, of which its digital division generated revenue of just Rs 2.53 crore. The objects of the issue include upgradation of digital studio at a cost of Rs 13.65 crore, Rs 8.39 crore investment in IT division and corporate office at a cost of Rs 9.90 crore.

Earnings

The company reported a net profit of Rs 4.55 crore and the Earnings Per Share (EPS) on a fully diluted basis is Rs 2.87. The price earnings multiple on a fully diluted basis would be 26.12-28.56 times at the upper end of the price band.

The issue looks extremely expensive when compared to its peers. For the record books Bartronics had a turnover of Rs 907 crore for the year ended March 2011 and a net profit of Rs 118 crore. Prime Focus had a turnover of Rs 503 crore and a net profit of Rs 88 crore in the same period.

There is no single parameter under which the company can be compared to its peers. Like all small issues this one too will be subscribed with the help of "friendly intermediaries", but I believe it makes sense to avoid such issues and resist all temptation of making a quick buck, as the odds are against the investor.

Result

The result season kicks off with the first mega result from Infosys Limited on Tuesday,  July 12. The stock has risen from Rs 2,661 on June 20,  to Rs 2,978 on Friday July8 and has gained Rs 317 or 11.91 per cent. This gain is on account of better results and for the share to continue to gain, we need to have results which are better than expected. Secondly the fall on Friday has been huge, indicating that traders are reluctant to carry over positions on the weekend.

Future
Coming to the week ahead, we are going to see lot of volatility and nervousness. Markets will take cues from not only the overseas market but also from the quarterly results. The markets seem to be having lot of resistance at  5730-5750 on the Nifty and 19100-19150 on the Sensex. These levels would continue to act as resistances going forward.

The BSE Sensex has support in the coming week at 18,739 points, then at 18,649 points, then at 18,425 points and finally at 18,200 points. It has resistance at 19,053 points, then at 19,098 points, then at 19,367 points and finally at 19,548 points. The NSE Nifty has support at 5,627 points, then at 5,595 points, then at 5,538 points and finally at 5,471 points.

It has resistance at 5,717 points, then at 5,735 points, then at 5,806 points and finally at 5,858 points. The week will be volatile and Infosys could set the trend for the week ahead.

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

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.

Wild and unpredictable

After touching 5700, Nifty consolidated around 5650 levels last week, ahead of the quarterly numbers. Towards the end of last week the markets made a U-turn as inflation rate fell.

This boosted the market sentiment resulting in net gain by the end of the week. Markets are becoming extremely unpredictable given the wild swings that we saw  last Friday.

Gain
Markets are holding on to the recent gains backed by consistent fund flow from the Foreign Institutional Investors (FIIs). FIIs have remained net buyers last month supporting the uptrend.

Last week, we saw Greece government winning the vote of confidence to go ahead with their stringent five-year austerity plan supported by the International Monetary Fund (IMF) and the European Union.

But beginning of the week we saw Moody's Investor service downgrading Portugal's credit rating to Ba2 from Baa1. Economic data too was not that supportive to the markets globally.

Another important development was the approval of the draft of Metals and Mining Bill by the group of ministers, which made it mandatory for the miners to share their profits with the local communities who are affected by mining.

Consolidation
Nifty is in a consolidation mode and as we have entered the Q1 results season. It is for investors to decide, if they want to stick to the existing portfolio or substitute them with new ones.

For Nifty, the crucial level is between 5740-5750 and if it can close above this level consecutively backed by strong volumes, then we may see markets moving further up towards 5900-5950 levels. Support is there at 5542 and 5500 levels.

In the case of commodities, Gold is overbought and has lower level support at $1514 and target of 1554. Silver has support at $35 but target of $36.98.

Firm

On the other hand, crude looks firm and has support at $95.09 and target of $100. Tea stocks are looking strong but East African drought will negatively impact world tea supply as Kenya, one of the largest tea producers in the world, has been worst affected. Stocks like Jayshree Tea, Harrisons Malayalam, Mcleod Russell, etcetera are expected to gain more in the next fee days. Orchid chemicals, Hindalco, TCS and Tata Power, might remain weak for a while.

Domestic
On the domestic front there was some good news. For example-the HSBC Markit Business Activity index rose to 56.1 in June against 55 in May and the weekly food inflation declined to  a seven week low at 7.61 per cent in the week ended June 25 against 7.78 per cent a week ago.  The fuel price index declined to 11.67 per cent against 11.98 per cent. But the recent hike in price of diesel might affect inflation figures in the future. The auto and cement sales numbers were also good.

Economy
The FIIs are still in buy mode. Combined inflow in March and April was Rs 12977.6 crore in the equity and debt segment. The month of May saw profit taking worth Rs 4971.6 crore which could be attributed to the outflow towards the cheaper Japanese markets.

From June onwards we saw resumption in the FII activity. There was Rs 7625.8 crore inflow from June 1 to July 6 and we are still counting.

Last Thursday, the Telecom Regulatory Authority of India (TRAI) had raised the Foreign Direct Investment (FDI) limit to 26 per cent from 20 per cent in the FM radio industry indicating that our economy is further opening up after the recent FDI limit rise in retail sector.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill.

He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended.

Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

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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