Random thoughts on Monday morning

Then markets did nothing for the first four trading sessions of the week but what happened on Friday remains a mystery even on Monday morning. FII’s have turned cautious and have reduced their purchases significantly. Secondly though they are still net buyers in equity though small, they are sellers in futures and options. While global markets are making new highs, snap polls called in Japan could add to uncertainty as to how long recession would continue.

The week ahead sees parliament beginning its winter session from Monday. The government does not enjoy a majority in the upper house and therefore it becomes important to see how the opposition and the ruling party behave in passing the bills and general conduct in the house. Besides this the expiry of futures November series happens on Thursday the 27th of November. The current close of NIFTY is higher by 308 points or 3.77%. While the gains look comfortable from the bull’s perspective, one never knows when markets can turn bearish and surrender these gains.

SEBI at its board meeting has made important changes on two broad fronts. The first is on the definition of who is an insider and now associates and employees have been included. Of course a person identified as an insider would automatically include his relatives as defined earlier. Second is that changes have been proposed to the delisting norms where a minimum of 25% percent of shareholders must tender shares and the company should reach shareholding of 90%. While changes are always welcome there are issues which crop up. For example in the first case SEBI says that the onus of proving that the person concerned or the accused did not have sensitive information is on the individual concerned. With SEBI having such wide powers it should be asked to prove the existence of sensitive information and not the accused.

With the clamour for rate cuts increasing and Bond Street seeing a reaction with yields falling, it appears that rate cuts have already happened. There is always a slip between the cup and the lip and one knows how hopes have been dashed in the past. The way I look at it is slightly different, that with rate cuts not having happened for such a long time, a 25 basis points cut is neither here nor there and a 50 basis points cut now is impossible. Seeing the economic data a possible rate cut of 50 basis points seems most likely in February just before the budget which would add impetus to a growth oriented budget.

Valuations are rich and actually quite rich but mood and optimism seem to be overtaking rationality. If I were to try and analyse what happened on Friday in the market most apt would be the ‘FFFF’ theory which is Friday Feel Fine Factor. The mood is changed post day’s trading and then electronic media takes over hammering the fact that markets have done so well. Typically post such a day markets then reverse the next day or the following day in the short term. Our markets need a breather and what better time today or tomorrow. Expiry is four days away and bulls are in complete control as of today.
Enjoy the market mood and soak in the political drama which begins today but trade cautiously.

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