The seat belt sign is on
Caution advised as current tumultuous phase shows no sign of abating
Markets began the week on a positive note and gained on the first three days of the week. There was correction and profit taking on the remaining two days. BSESENSEX gained 314.74 points or 0.88 per cent to close at 36,009.84 points. NIFTY gained 67.60 points or 0.63 per cent to close at 10,794.95 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.58 per cent, 0.63 per cent and 0.47 per cent respectively. BSEMIDCAP gained 0.19 per cent and BSESMALLCAP gained 0.05 per cent.
The top sectoral gainer was BSEFMCG which was up 2.12 per cent followed by BSECONDUR 1.72 per cent and BSEHEALTHCARE 1.42 per cent. The top sectoral loser was BSEOIL&GAS down 2.40 per cent followed by BSEMETAL 0.95 per cent and BSECAP GOOD 0.82 per cent. In individual stocks, the top gainer was Axis Bank up 7.61 per cent followed by Aurobindo Pharma 6.21 per cent, Tata Motors 5.59 per cent and ITC 5.22 per cent. The top loser was Bharat Petro down 6.37 per cent followed by Hind Petro 6.13 per cent and GAIL 4.06 per cent.
The Indian Rupee lost 77 paisa or 1.10 per cent to close at R70.49. Dow Jones gained 562.79 points or 2.40 per cent to close at 23,995.95 points. The US government continues to remain shut over the budget issues with the Democrats unwilling to toe Donald Trump's line. The insistence that he be allowed to spend money to build the wall between US and Mexico is a major bone of contention. One wonders whether Trump is right in what he says when the longest surviving wall was brought down with the unification of West and East Germany way back in 1989. Having another wall between US and Mexico sounds preposterous in the 21st century. The cost is estimated to be 30 billion dollars.
Bandhan Bank announced the merger of Gruh Finance with itself to meet the dilution norms required as per RBI directive. The ratio of the merger is 568 shares of Gruh Finance would get 1,000 shares of Bandhan Bank. Shares of both companies have fallen since the announcement which came on Monday, January 7. Bandhan Bank shares were trading at R528.65 on Friday, January 4 and at R501.10 on Monday before the announcement came, post market closing. The share price fell further to R450 during the week before closing at R454.15, a loss of R74.50 or 14.09 per cent. Shares of Gruh Finance fell more from R318.50 to R241.65. The low was R228.40. The loss was R76.85 or 24.13 per cent. Investors wanting to be shareholders of the merged entity have an arbitrage opportunity where they can buy shares of Gruh Finance and get Bandhan Bank post-merger at a price of R425 against the market price of R454.15, because of the ratio currently. If one were to buy 5.68 shares of Gruh Finance, one would get 10 shares of Bandhan Bank post-merger.
Both Houses of Parliament passed a bill that allows a reservation of 10 per cent quota for the poorer section irrespective of caste or religion. This would help the upper castes and get votes for the ruling BJP from the upper caste voters. The stage has been set for general elections of April-May 2019. In UP, SP and BSP have come together to fight the elections on a common platform. Of the 80 seats in UP, each party would fight 38 seats, leaving two for other parties and the two other seats for Sonia and Rahul Gandhi. At the same time they have also stated that they would have no alliance with Congress in any other part of the country.
Markets in the coming week are likely to be choppy as one has witnessed over the previous few weeks. The tendency to short the markets on every rally ensures that there is short covering which takes place after some buying. The strategy should be to sell by booking profits into sharp rallies and using dips or corrections to buy. Looking at the penchant to short, markets will not peak very soon.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. 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.
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