Some solace in numbers

Jan 21, 2014, 08:25 IST | Arun Kejriwal

Softening inflation lends zip to opening

Markets opened with a bang on Monday last week on expectations of softening inflation. The Sensex gained 376 points while the Nifty gained 101 points. By the time the week closed some of Monday’s gains were surrendered and the Sensex closed at 21,063.62 points, a net gain 305.13 points or 1.47 per cent.

The greens are greener... ...on our side. Softening inflation gives rise to optimism
The greens are greener... ...on our side. Softening inflation gives rise to optimism

The Nifty gained 90.20 points or 1.46 per cent at 6,261.65 points. The BSE100, BSE200 and BSE500 gained less at 0.97 per cent, 0.69 per cent and 0.49 per cent. The BSEMIDCAP and SMALLCAP were losers down an almost identical 1.43 per cent and 1.42 per cent respectively.

CPI (consumer inflation) was lower at 9.92 per cent against 11.16 per cent, which was a revised figure. Inflation was lower on account of fruits and vegetables becoming cheaper. WPI (Wholesale Inflation) similarly fell to a six month low of 6.16 per cent, against the previous month’s low of 7.52 per cent. These lower numbers would surely be welcome news for the beleaguered government and would, in all probability, allow the RBI governor to keep rates unchanged for the time being.

TCS declared a net profit of R 5,314 crore which included a forex gain of Rs 299 crore against a loss in the corresponding quarter. The growth in revenue was a mere 1.8 per cent which was not liked by the market. The share was weak on Friday and closed with a loss of about 5.8 per cent for the day and a weekly loss of about 3 per cent. Reliance declared results post market on Friday with net profit at Rs 5,511 crore but with lower margins.

The other income was up 32 per cent at R 2,305 crore. ITC too posted a good set of numbers but markets were unhappy with the operating performance which is under pressure. What these results indicate is that the tough times continue for the cream of corporate India and the environment is still challenging. Immediate relief or improvement looks unlikely with general elections due in about four months.

The markets were extremely choppy and the expected momentum in midcap and smallcap did not materialise as they were net losers for the week. The volumes in the previous week were better, and, one could see a sigh of relief on the faces of investors and brokers as life became easier.

There is danger lurking at the corner. The buzzword is midcap and smallcap, and everyone wants to invest in these shares. There is value in the sector but it is in particular shares and not the whole pack. One would advise investors to be careful in stock selection and do some homework before investing in this space.

In a major relief for the government finances, Coal India was cajoled into declaring an interim dividend of R 29 per share. Post the dividend the stock weakened. The contentious issue of divestment of IOC has been resolved with the two upstream oil ONGC and OIL being forced to buy the 10 per cent of the government stake. This would fetch some money to the government and burden these companies further already reeling under huge under recoveries.

The PSU banks and other PSUs are all in the process of declaring interim dividends, which would help the government resources. FIIs seem to have turned cautious and sitting on the fence. One has not seen such a mixed trend with them being buyers or sellers on different days in the past. They were net buyers of R 1,580 crore while domestic institutions were sellers of R 433 crore. The rupee gained 36 paise to close at Rs 61.54.

It’s now almost six weeks since the markets made new lifetime highs post election results to five states. Since then the market has made multiple attempts to break upwards but failed. The net result is that we have been trading in a band and it’s time for the markets to take a call and move out of this band. The markets are likely to give an indication of which way they want to move during this week.

If the above is to hold good the week has begun well with a smart gain yesterday. One hopes that this trend continues, and attempts to break upwards and establish new levels. Key levels for the Sensex would be 20,835 and 21,325 on the Sensex and 6,100 and 6,335 on the Nifty.

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

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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