Waiting on the cut-ting edge

Jan 28, 2013, 08:37 IST | Arun Kejriwal

While major firms continue to see stock prices rise and fall, the market is hoping RBI Governor Dr D Subbarao will announce a rate cut

The week gone by had plenty of action and markets gained and lost on alternate days. The BSESENSEX gained 64.49 points or 0.32 per cent to close at 20,103.53 points.

Dr Duvvuri Subbarao, Governor, Reserve Bank of India. Pic/Atul Kamble

The NIFTY gained 10.25 points or 0.17 per cent to close at 6,074.65 points. The broader market closed in the negative with the BSE100, BSE200 and BSE500 losing 0.17 per cent, 0.42 per cent and 0.61 per cent respectively. The BSEMIDCAP and BSESMALLCAP was where the worst losses took place and they lost 2.67 per cent and 3.09 per cent respectively.

The indices which ended with gains were BSECAP up 2.44 per cent, BSEFMCG up 1.41 per cent and BSEIT up 0.13 per cent. The losers were BSEREALTY down 5.49 per cent, BSEPSU down 2.33 per cent, BSEAUTO down 2.01 per cent and BSEMETAL down 1.68 per cent. In individual stocks, Jet Airways gained 6.51 per cent, Larsen & Toubro gained 4.55 per cent, Maruti Suzuki up 3.49 per cent and Bharti Airtel up 3.14 per cent. The losers were led by Tata Motors down 8.24 per cent, Indian Oil down 7.46 per cent, Canara Bank down 5.85 per cent and Hindalco down 5.21 per cent.

HDIL, where the promoter sold 1.2 per cent of its stake to make some pressing payments, was down 31.99 per cent. Arshiya International continued to lose ground after it announced that it was planning to undergo Corporate Debt Restructuring (CDR) and lost 20.70 per cent.

The stock of Arshiya hit 12 consecutive circuit breakers before trading began on Friday. Another heavyweight in the news was Hindustan Unilever which reported results where volume growth was at a mere 5 per cent. To add insult to injury, the company has decided to pay higher royalty to the parent from the present 1.4 per cent of revenues to 3.15 per cent in a phased manner over the next five years.

Good opportunity
Glaxo Smithkline Consumer Healthcare has made a voluntary open offer to buy shares at a price of R3,900 to increase its shareholding to 75 per cent. The offer is extremely attractive and gives small investors a great opportunity to exit their holdings, particularly retail investors who have not yet converted their physical shares into dematerialised form. Close to 5 per cent of the company’s equity is held in physical form. The exit makes sense because converting shares into demat form and then selling is cumbersome while here the company offers a clean exit. Secondly the PE at the offer price is about 33.5 times based on nine months’ annualised results ending September 2012. This is an offer to increase the stake to 75 per cent which does not take the company past delisting level. I believe investors should cash out and wait for the price to correct before re-entering the stock.

Upping stake
FIIs continued to be aggressive buyers and invested R4,700 crore. Their cumulative investments in the current month are already at USD 3 billion against the USD 23 billion in the whole of 2012. Domestic institutions have provisionally sold R2,400 crore while the final figure up to January 23 is a mere R3,000 crore. Very clearly some institutions are not reporting their activity when the provisional figures are issued at end of the day by the exchanges. The Indian Rupee remained range bound and gained a tad 0.07 per cent to reach 53.67 against the US dollar.

Cut, please
The Finance Minister was on his roadshow last week and has assured investors about prudent fiscal measures to be taken to ensure that there is no reason for any concern on the sovereign ratings. Considering these assurances and the steps taken where railway passenger fares were raised for the first time in 10 years and the effort to raise diesel prices and make it market related for bulk consumers leads one to believe that the RBI Governor would oblige with a rate cut this time around. Minimum 25 basis points cut in Repo and CRR is what should certainly happen on Tuesday, January 29. There is also a possibility that the RBI Governor may oblige with a bigger cut which may be immediate or with a lag of some time and announce a 50 basis points cut. Market technicals indicate that a cut is in the offing and should happen.

Week ahead
Post the RBI meeting, Thursday, January 31, would see the expiry of January Futures. The December series expired at the level of 5,870, which means we are up 204 points or 3.47 per cent. The market could see a rise on Tuesday if the governor obliges and this could lead to a sharp rally and frantic short covering. I would place my bets on the RBI obliging this time around and go long on the markets with adequate stop losses.

Crucial levels for the market would be the previous week’s high and lows with the Sensex having support at 19,885 and resistance at 20,164. Similar levels for the NIFTY would be 6,007 and 6,101. The BSESENSEX has support at 19,978 points, then at 19,884 points, then at 19,777 points and finally at 19,658 points.

It has resistance at 20,178 points, then at 20,245 points, then at 20,379 points and finally at 20,495 points. The NSENIFTY has support at 6,032 points, then at 6,007 points, then at 5,966 points and finally at 5,927 points. It has resistance at 6,098 points, then at 6,136 points, then at 6,164 points and finally at 6,208 points. Play long with adequate stop losses this week.

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.  

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