Choppy markets lead to weakness

The markets were once again choppy and the expected weakness was witnessed. The upside gap which was made on the previous Friday was violated on the downside as expected and the low was 19,649 on the Sensex and 5,911 on the Nifty. Markets then regained and recovered to end positive for the week with Friday being a neutral day.

Positive factor: The monsoon has helped increase the underground water level and this should ensure a good Rabi season

The BSESENSEX gained 191.38 points or 0.96 per cent to close at 20,149.85 points. The NIFTY gained 20.20 points or 0.34 per cent to close at 6,029.20 points. The broader indices like the BSE100, BSE200 and BSE500 gained 0.43 per cent, 0.33 per cent and 0.29 per cent respectively. The BSEMIDCAP lost 0.91 per cent while the BSESMALLCAP lost 0.53 per cent. The top gainer in sectoral indices was BSEFMCG which gained 7.10 per cent. Other gainers included BSEOIL&GAS at 4.11 per cent and BSEIT 3.98 per cent. The losers included BSEBANKEX down 6.23 per cent, BSEREALTY down 4.08 per cent and BSEMETAL down 3.47 per cent.

Unilever gains
In individual stocks the biggest gainer was Hindustan Unilever which was up a staggering 14.23 per cent at R 687. The stocks weightage in MSCI and FTSE index which are followed by FIIs would be changed after the open offer in which the promoter shareholding has increased. It also appears that there was short covering which caused the spurt in the share price. Others included TCS up 8.46 per cent, Bharti Airtel up 8.23 per cent and ONGC up 6.75 per cent. The losers included last week's stock Gitanjali Gems down 22.53 per cent, MMTC down 14.23 per cent, LIC Housing 11.24 per cent, ICICI Bank 9.70 per cent, Canara Bank down 9.90 per cent and Axis Bank down 7.67 per cent.

More volatility
Volatility in the markets has increased substantially and the only reason markets go up is when people believe the market is going nowhere and then short it. The ensuing short covering leads to the rally and the recovery. Economic data just doesn't show any signs of improvement and the only positive factor is the monsoon and the progress it has made so far.

The level of rains has helped increase the underground water level and this should ensure a bumper Rabi season which runs from November to April for agriculture. Whether the sharp rally in the FMCG sector is to do with the rural economy or technical reasons, only time will tell.

Banking hit
The banking sector was under fire during the week and private banks led by ICICI and Axis bank bore the brunt along with PSUs like Union Bank and Canara Bank. The quarterly numbers would be a key indicator to gauge the extent of damage to the mid-size corporates and the state of Indian economy. It would also give a picture of the quality of assets and give some lead indicators to gauge any green shoots in the economy. RBI had introduced tough measures in curtailing the falling rupee and managed in the short term to defend the rupee at the sixty level. The rupee gained a tad at Rs 59.35.

FIIs were net sellers of equity during the week of Rs 352 crore and debt of Rs 2,722 crore. The selling in the month so far is R 7,000 crore in the equity segment and Rs 10,950 crore in the debt market.

It appears there is a significant slowdown in selling in the equity segment and one hopes this trend continues. Domestic institutions were sellers of Rs 496 crore in the equity markets for the week and Rs 1,033 crore in the month so far.

RBI meet
A crucial RBI review meet is to be held on July 30 but very clearly the focus or hope would not be on the rate cut, as has been the case for quite some time. The expectation would be that there is no change and no increase in CRR so that excess liquidity gets sucked out. The no rate cut expectation should get built into the market in the coming week.

Week ahead
The week ahead has the July futures series expiring on Thursday, July 25. The series so far has been good with gains of 346.85 points or 6.1 per cent. With bulls in full control they would like to hold on to their gains and press the advantage. One hopes the markets don't give way mid-week.

It will be a difficult week to predict. We seem to be at some sort of an intermediate top but as mentioned earlier any shorts before time could fuel further movement. Key levels for the SENSEX are 19,900 and 20,350 while they are 5,950 and 6,125 for the NIFTY. The support for the SENSEX is at 20,088, then at 19,942 points, then at 19,780 points, and finally at 19,565 points. It has resistance at 20,233 points, then at 20,385 points, then at 20,466 points and finally at 20,673 points. The NIFTY has support at 6,010 points, then at 5,964 points, then at 5,937 points and finally at 5,865 points. It has resistance at 6,057 points, then at 6,093, 6,140, and 6,195 points.

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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