Expected cut in rates not happening
The markets were positive led by a strong upsurge on last Monday. RBI kept all rates unchanged and surprised by reducing SLR by a 100 basis points to 23 per cent. Though the markets had expected a cut in rates, it's not happening. It was absorbed by powerful inflows from FIIs who have continued to be big buyers. The BSE SENSEX gained 359.81 points or 2.09 per cent to close at 17,557.74 points. The NSE NIFTY gained 104.70 points or 2.01 per cent to close at 5,320.40 points. The broader indices gained a little less than the benchmark indices with the BSE500, BSE200 and BSE100 gaining 1.39 per cent, 1.51 per cent and 1.61 per cent. The BSE MIDCAP and BSE SMALLCAP were very small gainers with gains of 0.45 per cent and 0.06 per cent respectively.
In the sectoral indices, BSE AUTO gained 3.86 per cent, BSE IT up 3.56 per cent and BSE METAL gained 3.12 per cent. On the losing side was BSE REALTY down 0.25 per cent. In individual stocks Sterlite gained 8.77 per cent, IGL (Indraprashtra Gas) gained 8.32 per cent, REC (Rural Electric) gained 6.96 per cent, Hind Unilever gained 6.54 per cent and Hindalco gained 5.23 per cent. On the losing side was Bharti Airtel down 13.73 per cent after poor results, Pipavav Defence down 8.07 per cent, SBI down 5.88 per cent and IRB Infra down 5.18 per cent.
Shares of India Bulls as a group were under pressure after Canada based Veritas gave out a report on the group and raised issues about corporate governance. Complaints have been filed by the group against Veritas and their business model is being questioned. SBI produced a good set of numbers as far as net profit is concerned but there was a marked deterioration in non-performing assets. Net profit for the quarter ended June 2012 was Rs 3,752 crore against 1,583 crore for the quarter ended June 2011. Gross NPAs were at 4.99 per cent against 3.52 per cent, a year ago. This sharp increase saw the share being hammered and lost Rs 84 on Friday and Rs 118 for the week. The current slowdown in the country and globally is taking its toll on the quality of assets in the banking sector and rising NPAs are certainly a cause for concern.
FIIs have been big buyers in the week and bought stock worth Rs 2,971 crore, while domestic institutions sold stock worth Rs 1,006 crore. The Indian rupee gained over the previous week and closed at Rs 55.28. The biggest driver of the Indian market has been the liquidity and with FIIs pumping in close to Rs 3,000 crore it would be difficult to imagine the markets losing ground. For this week liquidity and the trend of FIIs would be a key factor for the markets. IIP numbers announced for June were disappointing and, very clearly, the slowdown witnessed over the last few quarters seem unending and unlikely to reverse in the near future. The monsoon continues to play truant and is affecting the food situation in the country.
There was an unfortunate incident of violence in Mumbai on Saturday and this could have repercussions if not nipped in the bud from turning communal. There is a midweek holiday on Wednesday when India celebrates its Independence Day. The Prime Minister would address the nation from the Red Fort and would certainly announce some measures that the Govt. intends to take to address problems facing the country. The monsoon session of Parliament has begun and to expect any positive measures concerning reduction of fiscal deficit should be ruled out. However if something is done it should be a bonus.
The week ahead has a positive bias only on account of the positive inflows. The holiday on Wednesday would break the momentum of trading and the week could overall be quite flat. The BSE SENSEX has support at 17,489 points, then at 17,369 points, then at 17,315 points, then at 17,109 points and finally at 16,924 points. It has resistance at 17,608 points, then at 17,751 points, then at 17,890 points, then at and finally at 18,040 points and finally at 18,165 points. The NSE NIFTY has support at 5,299 points, then at 5,262 points, then at 5,216 points, then at 5,178 points and finally at 5,146 points. It has resistance at 5,335 points, then at 5,375 points, then at 5,417 points, then at 5,458 points and finally at 5,493 points. The SENSEX would remain positive as long as the level remains above 17,350 points and would turn bearish below 17,100 points. Similar levels for the NIFTY would be 5,210 points and 5,130 points respectively. With two trading sessions of two days each interspersed with a holiday, it would affect the trading momentum. Trade cautiously.
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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