Short but not sweet

Congress president Rahul Gandhi (c) at a roadshow in Jabalpur. Madhya Pradesh goes to the polls on November 28. Pic/AFP

It was a terrible week for the markets and thank God it was short, mere four days. Trading began on a positive note and markets gained on Monday, before the holiday on Tuesday. Wednesday onwards it was a free fall and markets fell sharply with BSESENSEX losing 1,850.15 points or 5.38 per cent to end at 34,376.99 points. NIFTY lost 614 points or 5.95 per cent to end at 10,316.45 points. Broader markets saw the BSE100, BSE200 and BSE500 lose 5.72 per cent, 5.63 per cent and 5.52 per cent respectively. BSEMIDCAP lost 5.42 per cent while BSESMALLCAP lost 4.27 per cent.

Top loser
There were no sectoral gainers this time around and the top sectoral loser was BSEOIL&GAS which lost 22.33 per cent. The major losers in this sector were the oil marketing companies with BPCL and HPCL losing almost a third of their value during the week. ONGC and GAIL too suffered losses and Reliance lost Rs 208 or close to 20 per cent to close at Rs 1,050.

Dow Jones was virtually flat losing a mere 11.26 points or 0.04 per cent to close at 26,447.05 points. The Indian Rupee was under pressure and lost Rs 1.29 or 1.75 per cent to close at Rs 73.77 to the US Dollar.

Street sentiment
Friday saw Reserve Bank of India (RBI) keep interest rates unchanged and this was contrary to what most people on the street thought. Consensus indicated a rate hike of 25 basis points but was held unchanged with a 5-1 vote in favour of unchanged rates. Markets tanked even after this surprise announcement because of what it understood about NBFCs. Deputy Governor was highlighting the mismatch between short term borrowings with long term lending and the impact it had on ILFS while markets misunderstood the same and just hammered the entire NBFC sector.

Brokerage cut
Government reduced excise duty on petroleum products and has asked the OMCs to bear a rupee of the Rs 2.50 price cut. While the market should have taken it positively and appreciated that finally something is being done on this front, they thought this is going back on the oil sector reforms. Stocks from the OMC pack lost about a fourth to a third in value in just a mere two days. Downgrades in earnings have been announced and many brokerages believe there could be more cuts in prices which would have to be absorbed by the OMCs.

Elections loom
Election dates have been announced for elections to five states starting from November 12 to December 7. Chhattisgarh would have a two-phase poll on November 12 and 20. Madhya Pradesh and Mizoram would go to polls on November 28 and Telangana and Rajasthan would have polls on December 7. Counting and results would be declared on Tuesday, December 11. While opinion polls would start emerging, markets would form a view closer to polling and observe how the campaign proceeds. One is not sure whether the present opposition would be able to present a united front against the ruling BJP.

Steep fall
The fall in the markets over the last month has been quite steep with BSESENSEX losing 4,000 points and NIFTY losing 1,270 points. While this has helped valuations which were richly valued to become more realistic, pain persists. Lot of margin calls for leveraged investors that have seen sustained selling in the market place. Markets need to consolidate at current levels before any turnaround is to happen.

Awaiting results
In primary market news, the issue from Aavas Financers Limited would list on Monday followed by the one from Garden Reach Ship Builders and Engineers Limited. Both issues are expected to list below their issue price. In the case of Aavas Financers, it would be interesting to see who the seller on day one is, as the retail and HNI participation was a mere 0.26 and 0.25 of the issue. The bulk of the subscription was by QIBs who had subscribed their portion 2.77 times. The overall issue was just about subscribed at 0.97 times. At the same time with such huge oversubscription in anchor portion where the demand was almost 14 times the anchor portion or four times the entire issue, there should be huge institutional support at the open itself. Who wins and who loses, would be known by the time trading ends on Monday.

In flux
The current meltdown has claimed its first victim in the form of Dinesh Engineers Limited which had tapped the capital markets with its primary issue of 1 crore shares in a price band of Rs 183-185. The issue was open from Friday, September 28 to Wednesday, October 3. The issue did not receive a single bid from QIBs and saw subscription of 0.30 and 0.10 from HNIs and retail respectively. The overall issue was subscribed 0.08 times and was withdrawn blaming poor market conditions. One wonders what the need was to open the issue in these conditions. It could easily have done so with June audited results and opened a fortnight later.

Markets are in a state of flux currently and while there appears a case for investing, it needs to be specifically understood that investment should be for the medium term only. One should not invest with making a quick buck, because that may simply not happen. Buy select stocks and invest on dips.

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.

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