The week gone by was devoid of action in the large cap space as all of it has shifted to the smallcap and midcap space. These indices are at lifetime highs and have gone past the levels which were made when the benchmark indices hit lifetime highs a few months ago. What is more important to note is many of these stocks have movement in excess of 25% in a week. The volatility and movement in this space is frightening and most of them are manipulated or driven by vested interests. The biggest casualty in such stocks is the retail investor who gets caught at the top because of greed and seeing such rapid movement. It’s time to be cautious as in such an environment and super-heated space, corrections are always severe.
RBI kept interest rates unchanged on expected lines. However at the post meeting conference, the tome was dovish which indicates that cuts would happen provided inflation does not rise on inadequate monsoon if any.
The situation in China is not too good and there appears to be a definite slowdown. Factories are working between 2 and 3 days a week. The Chinese are big gamblers and love speculating in the stock market. The kind of rise and now fall is reminiscent of the Indian retail investor who buys at overheated markets and sells at the bottom. History has it that markets go nowhere when Parliament is in session unless there is a specific bill which could be of paramount importance. This monsoon session has been no exception and markets have done nothing. The session ends this week and it is to be seen whether the new week sees any progress or the stalemate continues.
There are two ways to bring this kind of irresponsible behaviour to book. First is there should be a principle of “No work no pay” and if the members don’t attend parliament and sit on dharna outside the building, debar them from their daily allowances etc. Second the executive has huge powers and he must take action now. This situation may not improve and the nation cannot afford to wait till 2016-17 when the Rajya Sabha numbers change. Take action and the nation will back you failing which we may start slipping. See China, they are in a bad shape.
Action is focussed on midcap and smallcap space and would continue to be so this week as well. It’s time to be cautious and sanity is advised. The three OMC’s announce results this week with HPCL kicking off on Tuesday the 11th August followed by IOC on Thursday the 13th august and BPCL on Friday the 14th August.These companies are expected to report bumper results on two major counts. One the huge inventory losses suffered when crude prices were falling would get offset as crude prices in the quarter April to June have been quite steady and secondly refining margins have improved. There is a third factor with no subsidies to be funded the interest cost has come down as borrowing have reduced. I believe there could be a flare up in these companies.
Time to be cautious and wait and watch.
