The week began on a positive note and halfway through the week on Wednesday the BSESENSEX was trading at an intra-day high of 35,605 points, a gain of 871 points for the week. Things reversed and the BSESENSEX closed at 34,779 on Wednesday and lost further ground on Friday. Fortunately Thursday was a holiday. The BSESENSEX lost 417.95 points or 1.20% to close at 34,315.63 points. NIFTY lost 169.85 points or 1.61% to close at 10,303.55 points.
For academic purposes the loss on the BSESENSEX from the intra-week high on Wednesday was 1,290 points while it was 281 points on NIFTY. It sure was a sharp fall and it happened in just about one and half trading days.
The Indian Rupee showed some resilience and gained 24 paisa or 0.33% to close at Rs 73.32. Dow Jones after a choppy week gained 104.35 points or 0.41% to close at 25,444.34 points.
The action this week was centred around NBFC’s 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%. The company denied that there was no such case, but our markets first act and then listen. The damage was done, and the casualty made. 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%. The share now trades below its issue price of Rs 775 when it went public in November 2016. The share as recently as August 2018 was trading in the range of Rs 1350-1400. It has halved from there and the bulk of the fall has happened in just one month when the price has fallen by roughly Rs 500.
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.
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% to 12-13% 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. Going forward, this would also have an impact on the primary market where interest rates for margin funding of primary issues would rise as well as margin. The new ICDR rules issued by SEBI have mandated that HNI’s will now be allowed to apply only for the non QIB portion. This effectively means that a single HNI who was earlier applying for the entire issue can now apply for only half the issue. This means to get the same kind of response in oversubscription you would need double the number of entities in the HNI category.
October series futures expire this Thursday the 25th of October. The current value of NIFTY at 10,303.55 is lower by 674 points or 6.14%. It has been smooth sailing by bears all through the month so far and it never appeared that they were under pressure. While volatility would continue there is no way that they would surrender their hold over the series in the remaining four days.
The last four weeks have been dramatic for the markets and individual stocks and sectors have been inn sharp focus. It all began with Yes Bank and then DHFL and then Infibeam and markets seemed to find one or the other stock which had unwanted attention and led to hammering. The current mood is to punish and while by and large it is the suspect names, some bystanders also get caught.
This also becomes the time to look at portfolio building. I believe if someone has the funds and is looking to create a portfolio over the coming 4 to eight months, this is the right time. Invest between 12-20% of the funds every month in building a portfolio. A portfolio so constructed would have the potential to earn significant returns in 2-3 years’ time.
Use any sharp dips to buy and similarly any sharp rallies to sell. Markets continue to be in consolidation phase.
