Modi mania and the markets

Modi mania and the markets

The new Finance Minister is set to be the man of the moment as all eyes are on Delhi. Trade, rise and fall of stocks will all be influenced by the happenings there, as NaMo takes charge as Prime Minister

‘Narendra Modi sweets' in high demand at R 120 per kg in Kolkata. PICS/AFP

The markets were celebrating last week after the BJP-led NDA had a clear majority. The face of politics in India will undergo a change in the coming days. Amongst the first things PM-designate Narendra Modi did is invite all the leaders of South Asian Association for Regional Cooperation (SAARC) to the swearing in ceremony today.

Political ploy
Nothing in India happens without pulls and counter pulls and this was no exception. However, knowing the functioning of the PM-to-be, there were no comments, clarifications and change in stand. The Pakistani PM, Nawaz Sharif, is arriving and it is seen as a serious intention to ease relations between the two estranged neighbours.

Pakistan released 151 Indian fishermen ahead of Nawaz Sharif's visit to India

Moving on to the markets there was widespread jubilation as the midcap and smallcap registered their best weekly gains in a long long time. The BSEMIDCAP gained 11.62 per cent while the BSESMALLCAP gained 15.75 per cent.

The BSESENSEX gained 571.61 points or 2.37 per cent to close at 24,693.35 points while the Nifty gained 164.10 points or 2.28 per cent to close at 7,367.10 points. The broader markets like the BSE100, BSE200 and BSE500 gained much more at 3.31 per cent, 3.99 per cent and 4.77 per cent respectively.

Gains and losses
In sectoral indices about half a dozen of them clocked double digit gains led by BSEREALTY up 23.13 per cent, BSEPOWER up 17.29 per cent, BSEPSU up 13.65 per cent and BSEMETAL up 13.11 per cent. One would have expected there not be any losers in such a market but the usual IT, Pharma and FMCG were losers. They were led by BSEFMCG and BSEHEALTHCARE which were both down by an identical 2.42 per cent and BSEIT down 2.34 per cent.

In individual stocks the biggest gainer was Canara Bank up 29.73 per cent followed by Union bank up 24.95 per cent. Other big gainers included Sesa Sterlite up 24.61 per cent, PFC up 23.48 per cent, REC up 20.60 per cent and NTPC up 21 per cent. India's largest bank state run SBI registered gains of 14.13 per cent after its NPA's showed signs of improvement.

We are seeing signs of euphoria and the same would continue as the cabinet announcement is made. The market is set to see huge gains and reactions to the next FM and what his approach to markets is likely to influence the ups and downs of the figures at Dalal Street.

New highs
FIIs returned to their buying ways and made purchases of R 1,623 crores while domestic institutions were sellers of R 971 crores. The India Rupee continued to be strong and closed at R 58.52, a gain of Rs 0.27 or 0.46 per cent. The Dow Jones closed at 16,606.27 points a gain of 114.96 points or 0.69 per cent.

In good news for the Indian housewife and gold savers, Reserve Bank of India (RBI) did away with the 80:20 rule where 20 per cent of the gold bought by jewellers had to be exported. This had resulted in there being a premium on physical gold.

The abolition of this step saw gold prices fall sharply to around |R 27,250, their lowest levels since August 2013. Readers should remember that the current duty on gold import is 10 per cent and is expected to be brought down in the coming days as such rates have made gold smuggling rampant.

The IT, Healthcare and FMCG sectors are the three sectors which continue to be under pressure. These sectors are considered as defensive and are over-owned. Secondly, they are export earners with FMCG being largely a domestic player; hence an appreciating rupee is detrimental to the performance of these companies.

In such a scenario it is but natural that the benchmark indices present a mixed picture with two third of the stocks at new highs or moving towards them while the remaining seems to be on a downward move over the last couple of months.

Bull streak
May series futures expire on Thursday and it has been a month for the bulls all through. The current level of the Nifty which is at 7,367.10 points is up by 526.30 points or 7.69 per cent higher than the April futures. Looking at the current scenario there would be no pressure on the bulls to roll over while the bears still holding on would like to roll over.

The markets are being driven by hope and expectation and the current fodder is the continuous buying by FIIs. Going forward the drivers would change to action and commitment of the government. Changes are visible and if our intelligent bureaucracy is made to respond, things can be very different. The key sector to look forward is the PSU sector which contributes by way of taxes and dividends.

In the last year, the outgoing FM had milked these companies and forced them to pay hefty dividends. While as a shareholder one is not complaining, the approach seems wrong. I believe this government taking the Gujarat model forward where not a single share in any PSU owned by the Gujarat government was divested, similar trend would emerge at the centre as well.

All eyes would be on the swearing in of the PM today and the cabinet along with him. While the frenzy and euphoria seem to be entering the market, it is well advised to be cautious and invest in only quality stocks. Resist the temptation to make a quick buck.

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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