Calls for caution

The markets opened on a positive note on the first day of the previous week. But, they soon lost ground on every subsequent day and the BSESENSEX closed with a loss of 538.10 points or 3.20 per cent. The NSENIFTY lost 157.95 points or 3.11 per cent. The broader markets saw the BSE500, BSE200 and BSE100 lose 3.02 per cent, 3.06 per cent and 3.18 per cent respectively. The BSEMIDCAP and BSESMALLCAP lost a little less than the broader indices with losses of 2.49 per cent and 2.93 per cent.

The sectoral indices saw losses across the board - the big losers being BSEIT down 4.38 per cent, BSEMETAL down 4.31 per cent and BSEREALTY down 4.07 per cent. The individual losers were across the board with IRB Infra losing 18.29 per cent, IVRCL Infra losing 10.97 per cent, State Bank of India losing 7.12 per cent, Hero Motocorp down 6.97 per cent. IT major Infosys lost 5.28 per cent while TCS lost 5.65 per cent. BHEL was an isolated gainer up 3.29 per cent.

The Finance Bill 2012-13 was passed in Parliament and clarity on ‘GAAR' was finally given. The controversial act that was blamed for the market weakness was rolled back and would now be applicable from April 1, 2013. Even more significant was the fact that there would be no retrospective effect or application of the same. Though clarity was finally there, markets did not recover and fell for the third consecutive week. It is interesting to note that this was the single biggest weekly point fall in the current year 2012.

Sellers
FIIs were net sellers to the extent of Rs 818 crore while Domestic Institutions were net sellers of a mere Rs 7 crore. The IIP numbers for the month of March 12 were a disappointment and contracted 3.5 per cent. Inflation numbers would be announced on Monday and it appears that there would not be much hope on this front as well. The Indian Rupee depreciated and has made a new low during the previous week. It closed at Rs 53.64. Global markets were weak and concerns about Europe and how the economy would pan out were key factors. Crude oil has sort of stagnated while gold and silver are under pressure. The week gone by saw the listing of TBZ Limited, the jewellery manufacturer from Mumbai. The issue was priced at the lower end of the price band of Rs 120. The share had a disastrous start, losing over 7 per cent on listing day and recovered in the last two days and is now marginally below the issue price.

Issues
The issue from Plastene India Limited opened during the previous week and closes on Monday, May 14. The price band is Rs 81-84. After remaining open for three days, the issue is subscribed a mere 26 per cent. There is zero response from QIBs and retail portion is subscribed a mere 3 per cent. The entire support has come from HNIs who have subscribed their portion 1.65 times. The book is being built at the lower end of the price band of Rs 81. The issue is expensive and has a PE ratio of 22.03 times at the lower end and 22.84 times at the upper end. The EPS is calculated on the basis of results for the ten-month period ended January 2012 annualised on a fully diluted basis. Looking at the valuations and the sharp deterioration in earnings compared to Fiscal 2011, one needs to avoid the issue. The net profit was Rs 21 crore in fiscal 2011, which has reduced to Rs 11 crore in 10 months ended January 2012.

Banking results have shown stress in the industry and business. The rise in Non-Performing Asset (NPA) and restructured assets is a cause for worry. This is a cause for worry and the depreciating rupee makes matters worse. The government is in no hurry to take steps to curtail the fiscal deficit and rationalisation of fuel prices is on the back burner for over six months now. First, it was elections. Then it was, the budget session. The fact and reality is that our oil marketing companies are bleeding badly and need to be supported.

Sensex
The markets are extremely oversold and look like there would be a bounce from here. The BSESENSEX has support 16,202 points, then at 16,036 points, then at 15,871 points and finally at 15,664 points. There is resistance at 16,415 points, then at 16,629 points, then at 16,746 points and finally at 16,944 points. The NSENIFTY has support at 4,897 points, then at 4,848 points, then at 4,827 points and finally at 4,755 points. The resistance is at 4,968 points, then at 5,038 points, then at 5,067 points and finally at 5,122 points. An extremely volatile week ahead, hence trade cautiously and avoid trading on the short side.

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.inu00a0Disclaimer: 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 and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.u00a0