Too much, too early

Published: Dec 03, 2012, 07:00 IST | Arun Kejriwal |

The markets are upbeat on the basis of expectations of reforms instead of actual reforms, and so investors need to tread carefully

It was a four-day week (as markets were shut for Guru Nanak Jayanti) and the markets were in a completely different and unexpected mood. I could certainly not see the move which came and therefore expected a fairly quiet week. However, what happened was completely opposite. I feel that the markets have woken up from a slumber. Not only did the benchmark indices register their highest levels for the year but are also now trading at levels last seen in April 2011. Clearly one could say that markets are upbeat and the moodexuberant.

Illustration/Amit Bandre

The BSESENSEX gained 833.33 points or 4.5 per cent to close at 19,339.90 points. The NIFTY gained 253.25 points or 4.5 per cent to close at 5,879.85 points. The broader indices BSE500, BSE200 and BSE100 gained a similar 4.48 per cent, 4.52 per cent and 4.60 per cent respectively. The BSEMIDCAP gained 4.62 per cent while the BSESMALLCAP gained 3.10 per cent. All sectoral indices were gainers in this big move with BSEREALTY gaining 6.92 per cent. The other gainers included BSEBANKEX (up 5.87 per cent), BSEMETAL (up 5.65 per cent) and BSECAP (up 4.23 per cent). BSEAUTO was the smallest gainer (up 2.42 per cent). The other poor gainer was BSEPSU (up 2.48 per cent).

In individual stocks, there were quite a few big gainers with Sterlite gaining 12.67 per cent, Bharti Airtel gaining 10.40 per cent and IRB Infra gaining 10.58 per cent. Other gainers included Sesa Goa (up 9.86 per cent), LIC Housing Finance (up 8.27 per cent), BPCL (up 8.16 per cent), HDFC (up 8.10 per cent) and ICICI Bank (up 7.22 per cent). There were hardly any losers but Hindustan Copper, which in the previous week had done a stake sale through the OFS (offer for sale) at a floor price of R155, lost 28.09 per cent to close at R153.20. This price is now roughly 2.5 per cent below the average priceat which shares of Hindustan Copper were allotted to investors.

No logic
The markets have become bullish on expectations that the government has already managed to get the support required for pushing the issue of FDI in multi-brand retail through both houses of Parliament. The market also believes that once this is through, much needed reforms in other areas would also be taken up. The upbeat mood sure defies logic and appears to be a little ahead of time.

The week gone by saw futures for November expiring on Thursday at a level of 5,825 which was a gain of 120 points or 2.1 per cent compared to the previous month’s expiry. It may be said on a lighter note that along with the expiry of the November futures, basic understanding of the fundamentals of the market also expired. There is no way one could become so bullish with the GDP numbers for the quarter July-September coming in at 5.3 per cent, which is only slightly better than what people had expected. At the same time looking at the numbers of the first half, one could say that we are headed for the worst GDP growth in the last 10 years and that certainly is not good news. US markets were flat for the week and other global markets did not show the kind of exuberance we saw in India.

FIIs turned big buyers during the week and they bought shares worth R5,000 crore. The total for the entire month was about R11,000 crore. Domestic institutions continued to be sellers with sales of R2,100 crore for the week and R3,200 crore for the month. The Indian Rupee gained R1.28 or 2.3 per cent against the dollar to close at 54.26.

Global effects
There are expectations that with possible resolutions for the fiscal cliff being discussed in the US, everything will be taken care of. Similar optimism abounds in Greece and these were two positive triggers for the week which led the market rally. The week ahead would be driven largely by happenings in the Parliament and the way the government handles the debate on FDI in retail. The markets would be on tenterhooks and there could be sharp movements based on the outcome of parliament. It makes better sense to watch developments before committing one self.

It appears that the week is likely to begin with some correction to the sharp 4.5 per cent gain in the benchmark indices and then move up based on happenings in Parliament. The BSESENSEX has support at 19,226 points, then at 19,040 points, then at 18,969 points and finally at 18,775 points. It has resistance at 19,412 points, then at 19,599 points, then at 19,721 points and finally at 19,897 points. The NSENIFTY has support at 5,843 points, then at 5,785 points, then at 5,707 points and finally at 5,643 points. It has resistance at 5,900 points, then at 5,968 points, then at 6,023 points and finally at 6,093 points. 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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