Crash course

Markets were weak last Monday as expected and we had another crash on Thursday, which was expiry day. Thereafter, there was no recovery and the markets closed with big losses for the week. The SENSEX lost 619.71 points or 2.93 per cent to close at 20,513.85 points. The NIFTY lost 177.25 points or 2.83 per cent at 6,089.50 points.

Some softening in inflation

The BSE100, BSE200 and BSE500 lost similar at 2.77 per cent, 2.68 per cent and 2.63 per cent. The BSEMIDCAP lost 2.28 per cent while the BSESMALLCAP lost 2.81 per cent. There were no sectoral gainers but the ones, which lost the least, were BSE FMCG down a mere 0.07 per cent and BSEIT down 0.56 per cent.

BSE REALTY led the losers down 7.31 per cent. The real bloodbath was in BSE BANKEX down 6.72 per cent. Other losers included BSE METAL down 4.71 per cent and BSE REALTY down 1.46 per cent.

Oil
In individual stocks, the biggest gainers were the oil refining companies led by IOC up 7.92 per cent. BPCL followed at 6.02 per cent and Hind Petro at 5.12 per cent. BHEL was up 4.69 per cent. The losers were led Yes Bank down 11.43 per cent. Others included Jet Airways down 10.96 per cent, Canara Bank down 10.71 per cent and Maruti Suzuki down 7.78 per cent.

Rate
The RBI governor caught almost everyone by surprise when he hiked repo rates by 25 basis points last week to 8 per cent. This was even though inflation on account of softer prices of food led by fruits and vegetables lowered consumer and wholesale inflation in December. RBI also fixed MSF (Marginal Standing Facility) at 9 per cent and henceforth the six weekly review meet would be held every two months with the next meeting on April 1.

Cut
The US FED has tapered further and cut bond buying from 75 billion to 65 billion. This was earlier 85 billion. It appears this would be the norm going forward with a 10 billion cut every month. The Dow Jones Index lost 205 points or 1.13 per cent to close at 15,698 points.

News on the economic front was bad with the GDP numbers for the financial year 2012-13 being revised downwards from 5 per cent to 4.5 per cent. Core sector growth for December 2013 has slowed from 7.5 per cent a year ago to 2.1 per cent. The figure for the first nine months of the financial year is 2.5 per cent against 6.8 per cent a year ago.

Burden
These numbers do not augur well and with elections due in about a quarter, any meaningful improvement is a minimum two quarters away. The government has spent 95 per cent of the budget in the first nine months. LPG cylinders cap has been raised from 9 to 12 and added to the subsidy burden. In context of the cylinder cap going up, one wonders why the price increase in the oil marketing companies as the subsidy outgo would go up. It is probably because the government would be doing a stake sale of IOC shares to ONGC and OIL India.

Rupee
January futures expired at 6,073, a loss of 205 points or 3.26 per cent. Though the currency closed virtually unchanged for the week it was very volatile and appears to be under pressure. With FIIs in some sort of a selling mode things could get worse. FIIs were net sellers of Rs 3,200 crore for the week and marginal sellers of just over Rs 200 crore in January.

Domestic institutions were sellers of Rs 82 crore in the week and Rs 2,700 crore in the month. The rupee weakened and lost Rs 0.03 or 0.02 per cent to close at Rs 62.68. Though the net change is negligible, the volatility seems to have increased substantially. There was visible weakness in the week gone by and if FIIs continue to sell in the coming week, the rupee could be under pressure.

Recovery
Markets are likely to recover some lost ground in the earlier part of the week but would be under pressure in the latter half. On a net basis we may remain flat in the week. Key levels for the SENSEX are 20,275 and 20,910 while they are 6,015 and 6,225 for the NIFTY. The support for the SENSEX is at 20,450 points, then at 20,326 points, then at 20,272 points and finally at 20,045 points.

It has resistance at 20,574 points, then at 20,698 points, then at 20,827 points and finally at 20,990 points. The NIFTY has support at 6,071 points, then at 6,025 points, then at 5,970 points and finally at 5,875 points. It has resistance at 6, 102 points, then at 6,135 points, then at 6,195 points and finally at 6,256 points. One needs to be cautious in the week ahead.

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 https://ak57.in

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