Wait for the right stock and the right prices, warn financial gurus

PM Narendra Modi with Emeritus Senior Minister, Goh Chok Tong after unveiling a plaque marking the immersion site of Mahatma Gandhi's Ashes, at Clifford Pier in Singapore. Pic/PTI

It was a volatile week on expected lines, but the kind of short covering one saw on Thursday, which was expiry day was unexpected. BSESENSEX gained a massive 416 points on expiry day while NIFTY gained 122 points. If one looks at it in another way if expiry day movement had not happened markets would have ended in negative territory on a weekly basis.

Smart recovery
BSESENSEX gained 302.39 points or 0.86 per cent to close at 35,227.26 points. NIFTY gained 91.05 points or 0.85 per cent to close at 10,696.20 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.61 per cent, 0.51 per cent and 0.36 per cent respectively. BSEMIDCAP and BSESMALLCAP were both losers and lost 0.33 per cent and 1.02 per cent respectively.

The top sectoral gainer was BSEOIL&GAS up 2.82 per cent followed by BSEAUTO 1.80 per cent and BSEBANKEX 0.81 per cent. The top loser was BSECONDUR down 2.61 per cent followed by BSEIT 1.68 per cent and BSETECH 1.55 per cent. In individual stocks the top gainer was BPCL up 6.96 per cent followed by GAIL 6.32 per cent and Coal India 6.15 per cent. The top loser was Aurobindo Pharma down 11.04 per cent followed by Bharti Infratel 5.45 per cent and TCS 3.61 per cent after the stock went ex-bonus. The Indian Rupee staged a smart recovery and gained 72 p or 1.07 per cent to close the week at Rs 67.06 to the US Dollar. Dow Jones lost 117.88 points or 0.48 per cent to close at 24,635.21 points.

Trio test
Last week, I had written about three companies becoming test cases. The first was ICICI Bank. SEBI had written to the company. The board has ordered a probe into the issue and coincidentally Chanda Kochhar is on leave, which the board maintains is her annual leave. The second case was of Fortis Hospitals, where the new board has invited fresh bids for the sale. The third was Binani Cement where the consortium of lenders has recommended that the company accept the bid from Ultratech Cement. It appears that there have been a lot of delaying tactics here. We can only hope for justice.

Lower growth
May futures expired on Thursday, May 31 and it was a one-sided affair for the bulls that day. The BSESENSEX gained 416 points and NIFTY gained 122 points on expiry day and left the bears wondering what hit them. The shorts were indeed squeezed badly and made the markets vulnerable because of this. The series expired with gains of 118.35 points or 1.10 per cent to expire at 10,736.15 points. Results season is over and the growth in sales is lower than anticipated. This means that the expectations of growth have not been met for almost four years now. This also therefore presupposes that markets are richly valued and certainly need to correct.

Fund direction
SEBI has through a circular, directed mutual funds to realign their schemes in terms of market capitalisation where the top 100 stocks by market cap would be classified as large cap stocks. The next category of midcap would be from 101-250, while small-cap would be from 251 onwards. A large cap fund would have to invest 80 per cent of its corpus in stocks from the top 100, while a midcap fund would have to invest 65 per cent from its category. Similarly, a large and midcap fund would have to invest 35 per cent each into large and midcap funds. The realignment is currently on and schemes are expected to complete this process by the end of June 30.

The opportunities
While in the case of large cap holdings there is hardly any concern the problem can be seen in small cap which begin with a market cap of below 8,600 crore, based on the top 1000 ranking for the period June to December 2017. This realignment would offer ample buying opportunities for the smart investor. Referring to the mutual funds scheme, this would benefit the retail investor as the scheme would be self-explanatory and it will now be possible to compare different schemes from different funds. Volatility would continue to dominate the market which currently seems without a trend. The realignment process of mutual funds especially in the small cap segment would give buying opportunities. Wait patiently for the right stock and the right price over the next two to three weeks.

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.