Short, not sweet

Finance Minister Arun Jaitley at BRICS Economic Forum in Panaji, Goa. Pic/PTI

Trading in a truncated week is always difficult, as the momentum is broken. Last week was no exception. With trading holidays on Tuesday and Wednesday, markets were flattish on Monday. Then, all hell broke loose on Thursday, when markets resumed after a two day break and the BSESENSEX lost 440 points. The reason attributed to the fall was that the US Fed would, in all probability, raise interest rates in their next meeting. Irrespective of that, the extent of the fall was unwarranted on this account. The real reason for the fall was that markets had become tired and were searching for that reason to fall. Any reason was good enough, and therefore they fell.

Making a point
The BSESENSEX lost 387.54 points or 1.38 per cent to close at 27,673.60 points. NIFTY lost 114.20 points or 1.31 per cent to close at 8,583.40 points. The broader indices saw the BSE100, BSE200 and BSE500 lose 1.35 per cent, 1.19 per cent and 1.12 per cent respectively. BSEMIDCAP lost 0.91 per cent and BSESMALLCAP lost 0.35 per cent. The action in midcap and smallcap continues to defy logic and valuations at best could be said to be crazy.

The top gainer in indices was BSEOIL&GAS up 0.80 per cent followed by BSEIT 0.72 per cent and BSECAPGOOD0.36 per cent. The top loser was BSEREALTY down 2.59 per cent followed by BSEBANKEX 1.97 per cent and BSEPOWER 1.33 per cent. In individual stocks the top gainer was GAIL up 3.90 per cent followed by Cipla 2.96 per cent and Infosys 1.38 per cent. The losers were led by HDFC down 6.19 per cent followed by Bank of Baroda 5.95 per cent and Bharti Tele 4.47 per cent.

At a glance
Results from the ITC majors TCS and Infosys were declared during the week gone by. TCS had improved margins but revenues fell short of expectation. In the case of Infosys, they met the estimates but the management has guided lower for the remaining part of the year.

Consumer Price Index (CPI) fell for September to 4.31 per cent against 5.05 per cent in August. Similarly, WPI or wholesale price index too fell to 3.57 per cent. CPI is at its lowest level in the last 13 months and markets would want a rate cut (CRR) the next time RBI meets for its policy review in December. This could be a rallying point in the beginning of December or maybe last week of November.

That's good news
In the largest ever FDI deal, the Essar group has finally sold almost in totality its stake in Essar Oil and Port for Rs 86,100 crore which includes debt. The total debt of the group would reduce by half, post the deal and this would involve the Ruia group having sold its crown jewel. An indirect benefit of the deal would be the availability of Russian crude to be processed at the refinery and release of about Rs 50,000 crore of the banking industry blocked funds lent to Ruias. A win-win situation for all. For shareholders of Essar Oil who had tendered shares or not tendered shares at Rs 262 each, there is good news as the deal values the same at substantially higher prices. The difference would be paid by the group to minority shareholders.

Trading in negatives
Markets would be focused on results as they are declared and there would stock specific movement in the week. An overall picture says the momentum of markets has been broken and they would trade with a negative bias. While we would always have those up days, they should be used to sell and reduce the exposure in the market.

The big worry is in the midcap and smallcap space, where one finds that shares are rising 40 per cent to 60 per cent in a week on unprecedented volumes.

While the fall is steeper and more painful, it's only the gullible investor who gets trapped not the price and stock manipulator. One should be wary of such movements and be very cautious of looking at such stocks. Use rallies to exit markets and sit on cash.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.

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.