Disaster day

Mid-week reverse means it is finish with a fizzle, instead of with a flourish

Things began on a positive note and midweek on Wednesday it appeared this would be a big recovery week for the markets. Then, disaster struck. Markets which were up midway on Wednesday, reversed and closed with losses for the day. Thursday was a holiday and the weakness continued into Friday. As a result markets ended the week with substantial losses. BSESENSEX lost 417.95 points or 1.20 per cent to close at 34,315.63 points. NIFTY lost 168.95 points or 1.615 to close at 10,303.55 points.

The swing
Coming to Wednesday, the high on the BSESENSEX was 35,605 and the low 34,727 points. The intra-day swing was 878 points while the net change was negative 383 points. Similar movement on NIFTY saw an intraday high of 10,710 and a low of 10,436 points with an intraday movement of 274 points. The net change was negative 131 points. This fall and change in sentiment could not save the markets even when they reopened after a break on Friday.

Broader look
The broader markets saw the BSE100, BSE200 and BSE500 lose 1.49 per cent, 1.55 per cent and 1.45 per cent respectively. BSEMIDCAP and BSESMALLCAP lost 1.60 per cent and 0.54 per cent respectively. The top sectoral gainer was BSEFMCG up 1.92 per cent followed by BSEHEALTH CARE 0.66 per cent. The top sectoral loser was BSEAUTO down 4.15 per cent followed by BSECONDUR 2.60 per cent and BSEREALTY 2.22 per cent.

Solo stocks
In individual stocks, the top gainer was Bank of Baroda up 6.19 per cent followed by ITC 5.01 per cent and Dr Reddy 3.96 per cent. The top loser was India Bulls Housing down 29.73 per cent followed by Yes Bank 11.76 per cent, Eicher Motor 9.52 per cent and Maruti 7.18 per cent.

The Indian Rupee showed some resilience and gained 24 paisa or 0.33 per cent to close at Rs 73.32. Dow Jones after a choppy week gained 104.35 points or 0.41 per cent to close at 25,444.34 points. RBI has provided much needed liquidity to the NBFC segment and made the announcement first thing in the morning on Friday the 19th of October. It did help in stabilising things but not enough to bring about buying in the segment.

Financial stress
The action was centred around NBFCs and housing finance companies. News of builders being under financial stress took its toll on lenders to this sector and one prime example was India Bull housing which saw its shares fall from Rs 931.10 to Rs 654.25, a fall of Rs 276.85 or 29.73 per cent. Yet another casualty in this space was PNB Housing Finance which fell from Rs 895.55 to Rs 706.60, a loss of Rs 188.95 or 21.10 per cent. The share now trades below its issue price of Rs 775 when it went public in November 2016.

Trading below
Shares of recently listed Aavas Financers Limited which had apparently received bids from anchor investors worth a billion dollars, when the entire issue was about Rs 1,800 crore and remained undersubscribed. It continues to trade below its issue price at Rs 737.80 against the issue price of Rs 821. This is roughly a fortnight after the issue has listed. Anything to do with NBFC or housing finance is currently negative on the streets.

Short covering
October futures expire on Thursday, October 25 and currently this series has been entirely in favour of bears so far. The current value of NIFTY at 10,303.55 points, is a loss of 674 points or 6.14 per cent for the series. While trading into expiry would be volatile, one should expect the bears to have smooth sailing and managing to hold on to their upper hand without any hiccups. There could be some short covering in select counters but nothing more than that is expected.

Uncertainty increases
Yet another event which has gone unnoticed is the fact that interest rates charged for margin funding have been increased substantially with effect from the beginning of this quarter. Rates have gone up from 9-10 per cent to 12-13 per cent and the limits to individual clients have been drastically pruned as well. All of this is having a cascading effect on the markets and one did see selling by brokers on this account of leveraged positions on Friday. While in the medium term this is a good thing as overall positions in the market would reduce, in the current situation it is adding to the uncertainty in the market and the weakness.

Building blocks
The current weakness in the markets would be a good time to begin building of one's portfolio in a slow and gradual manner. One could determine the amount to be invested and spread the deployment of the same over the next 4 to six months. This would give an advantage of prices going forward and the conviction in the markets which it currently lacks. The expiry week will see volatility and Thursday could offer an opportunity to invest , when markets are being rolled over for the expiry. Use sharp dips to buy and any rallies to sell. Refrain from trading and concentrate on portfolio building.

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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