Use falls in rates to buy, otherwise stay on the sidelines

The markets were down about 300 points on the BSESENSEX at the end of Tuesday and gave an opportunity to promoters to buy their own shares

Markets continued their volatility and after the first two days of trading last week, looked as if they would close negative. The markets were down about 300 points on the BSESENSEX at the end of Tuesday and gave an opportunity to promoters to buy their own shares. The BSESENSEX at the end of the week was up having gained 216.41 points or 0.61 per cent to close at 35,443.67 points. NIFTY was up 71.45 points or 0.66 per cent up at 10,767.65 points. The broader markets saw the BSE100, BSE200 and BSE500 gain 0.77 per cent, 0.78 per cent and 0.65 per cent respectively.

Power
The top sectoral gainer was BSEHEACARE up 3.57 per cent followed by BSEMETAL 2.51 per cent and BSEOIL&GAS 2.08 per cent. The top sectoral loser was BSEPOWER down 1.77 per cent followed by BSECAPGOODS 1.04 per cent and BSEBANKEX 0.64 per cent. The top individual gainer was Sun Pharma up 8.58 per cent followed by Aurobindo Pharma 6.47 per cent, Cipla 6.25 per cent and Lupin 5.92 per cent. The top loser was Power Grid down 3.73 per cent followed by Bank of Baroda 3.66 per cent and HDFC Bank 2.93 per cent.

Dow Jones gained 681.32 points or 2.69 per cent to close at 25,316.53 points. The Indian Rupee lost 44 paisa or 0.65 per cent to close at Rs 67.50 to the US Dollar.

Hike
RBI had its monetary policy review meet and hiked interest rates on expected lines. Repo rate was increased by 25 basis points to 6.25 per cent. This hike is after four and a half years where rates have been kept unchanged. The last revision was in the January 2014 meeting. The hike was unanimous with all the members of the committee recommending the price hike. The street expects that this was the first of many more such hikes and in this financial year there could be another two to three hikes in the remaining part of the year.

Segment
The BSESENSEX and NIFTY are 2.82 per cent and 3.75 per cent away from their highs registered in January. In contrast, the BSEMIDCAP is 14.35 per cent away while BSESMALLCAP is 19.52 per cent away.

This clearly shows the price damage in this segment and the fact that there is a long way to go before this segment regains its lost glory. The market is concerned about the mid and small-cap sectors. The realignment of schemes which mutual funds are in the process of doing could be one of the major reasons for the correction which happened in the early art of the week. The newly introduced 'ASM' (Advanced Surveillance Mechanism) where 100 per cent margin must be paid when transacting in shares under the list are affecting stock prices.

The list of such stocks consists of highly volatile stocks, which have had largely movement which cannot be attributed to any one factor, without any accompanying news flow.

Difficult
The realignment of mutual fund schemes as per the new norms of defining large-cap, mid-cap and small-cap as per SEBI is on and provided a buying opportunity on Tuesday when there was a sell off witnessed last week.

The alignment is underway but nowhere near completion and we are likely to see some more sell-offs during the week and in June. While this would provide buying opportunities, it would also make life difficult for the mutual funds and their NAV's. Promoters used the sharp dip to add to their holdings in many of the companies.

Realignment
Markets in the coming week would continue to be choppy and volatile. While some amount of realignment has been done in the schemes, a lot more is to follow. It would therefore be prudent to expect some more sell-offs to happen in the coming couple of weeks as realignment gets completed. Investors should use such falls to buy into the market or stay on the sidelines.

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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