Markets were on a roll last week and registered sharp gains in tune with the rest of the world. They were virtually flat on Tuesday with Monday being a holiday and rose sharply on the remaining three days including expiry day. BSESENSEX gained 1,751.51 points or 5.71% to close at 32,424.10 points while NIFTY rose 541.05 points or 5.99% to close at 9,580.30 points. The broader indices saw BSE100, BSE200 and BSE500 rise 5.88%, 5.67% and 5.54% respectively. BSEMIDCAP rose 5.09% while BSESMALLCAP rose 3.50%. The top sectoral gainer was BSEBANKEX which was up a massive 11.18%. The banking and financial services sector was beaten down and was under tremendous pressure considering the lockdown and virtual closure of all commercial activity. Further people in the market had shorted these counters and as stock prices rose it led to massive short covering as well.

The Indian Rupee gained 33 paisa or 0.43% to close at Rs 75.62 to the US Dollar. Dow Jones had another week of gains and was up 917.95 points or 3.75% to close at 25,383.11 points.

May futures saw the bulls making a strong comeback in the last three days and recovering as much as 450 points. It wasn’t enough to pull the series back and May futures expired with losses of 369.80 points or 3.75% down at 9,490.10 points.

The promoters of Adani Power intent to delist the shares of the company and have proposed to discuss the same at the bard meeting on 3rd June. The book value of the share is just under Rs 41 and the closing price on Friday was Rs 36.40. This counter could be in action even after the board meeting based on the price recommended.

Markets are very interestingly poised and we have witnessed a rare chart formation on the monthly indices. There has been an inside month to an inside month. Let me explain. The high and low in March on the BSESENSEX was 39,083 and 25,638 respectively and the month closed at 29,468 points. In April the high was at 33,887 points which was lower than the March high and the low of the month was 27,500 which was higher than the March low. The month closed at 33,717 points. In May the high was at 32,845 which was lower than April high and the low was 29,968 which was higher than April low. The month closed at 32,424 points. What this formation indicates is that if there is a movement which crosses the previous months high or low and sustains, there would be a breakdown or breakout which could be sharp and very volatile. Unfortunately, it does not indicate at this stage in which direction that would happen.

The same has happened in NIFTY as well with the monthly numbers as follows. March the high low was 11,433 and 7,511 with the close at 8,597. In April the high low was 9,889 and 8,055 with the close being 9,859 points. In May the high low was 9,598 and 8,806 with the close being 9,580 points. The crucial levels for us therefore become 32,850 on BSESENSEX for a breakout and 29,950 for a breakdown. Similarly, on NIFTY, the breakout level comes at 9,600 while the breakdown level is at 8,800 points. As the pattern indicates, the range is becoming narrower but intraday volatility is increasing.

On the covid-19 front the number of people affected globally has increased to 62.63 lac people with 3.73 lac deaths and 28.46 lac people having recovered so far. In India, the number of people affected has increased to 1,90,600 with 5,408 deaths and over91,800 people having recovered. Compared to the previous week, the world has seen 7.61 lac new patients, 27,000 deaths and 5.44 lac patients recovered. In India, the number of new patients has increased by 48,700 while deaths have gone up by 1,539. Patients recovered has moved up by 37,400. Very clearly the recovery rate has registered significant growth globally and more so in India. In India, the worst affected state continues to be Maharashtra with over 67,655 patients, just about 2,286 deaths and 29,329 people having recovered. The financial capital of India Mumbai, could also be called the covid-19 Capital with just under 39,700 cases, 1,279 deaths and 16,791 patients having recovered.

The central government has announced a new set of guidelines for the next stage of lockdown with many relaxations for the country as a whole except containment zones and a few select leading cities where the affected people are very large. States have to take a call on relaxations in their respective areas.

Trading in renunciation of Reliance rights issue ended on Friday on the bourses. The range of the price was from Rs 152 on the opening day to Rs 258.30 during the seven days that the same was permitted. The closing price was Rs 222 for the rights renunciation and Rs 1,465 for the share, implying a difference of Rs 208 between share and rights price. The effective premium on the renunciation has reduced this week to Rs 14 against Rs 50 in the previous week. The rights issue closed on Wednesday the 3rd of June and it would be interesting to see how many of the small shareholders of Reliance in the 1-500 shares held, actually mange to subscribe to their rights issue.

The week ahead would be crucial and it makes sense to remain on the side-lines until clarity emerges about the breakdown/breakout as mentioned earlier. One needs to be rest assured that once the event occurs there would be substantial movement in the direction in which the event has occurred. Wait for the trigger before taking any meaningful positions in the market.

The week gone by began on a very ominous note and BSESENSEX lost almost 1,000 points on Monday itself. The remaining days of the week were spent in trying to recover from there and it was an uphill struggle with markets making some recovery but not enough to close in positive territory. BSESENSEX lost 425.14 points or 1.37% to close at 30,672.59 points while NIFTY lost 97.60 points or 1.07% to close at 9,039.25 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.13%, 1.17% and 1.21% respectively. BSEMIDCAP was down 2% while BSESMALLCAP lost 1.54%.

The Indian Rupee was under pressure and lost Rs 0.39 or 0.52% to close at Rs 75.95 to the US Dollar. Dow Jones ended the week with gains of 779.74 points or 3.29% to close at 24,465.16 points.

Super cyclone Amphan hit Orissa and West Bengal and then went into Bangladesh leaving a path of destruction behind it. The state of West Bengal already coping with the pandemic Covid-19 is now struggling with a new calamity, the worst cyclone in last 21 years.

RBI’s monetary policy committee in its bi-monthly review meet cut repo and reverse repo rates by 40 basis points to 4% and 3.35% respectively. There is plenty of liquidity in the system but banks unwilling to lend looking at the current crisis with business and industry trying to limp back to normal. Its like a catch 22 situation, where unless you lend and take a risk with some bad debts and some delayed payment, there will not be any restoration of normalcy of the economy.

Reliance industries rights issue has opened and so has trading in the rights renunciation of the issue. There is a new development in the same which is being traded in electronic form and the premium is completely different from convention. In normal circumstances, the premium used to be a percentage of the difference between the market price less the rights issue. In this case the premium is higher than the difference. The same is based on future discounting of cost of capital. The rights issue is at Rs 1,257 and the closing price of the share on Friday the 22nd of May was Rs 1,432 implying a difference of Rs 175. The rights renunciation/entitlement is trading between Rs 215-235. Taking a mid-price of Rs 225 it becomes a premium of Rs 50. This is based on the assumption that if one bought the right and applied for the share, he would be entitled to all the rights of a Reliance share and would pay only a fourth of the amount. The balance amount would be paid in two instalments of 25% in 12 months and 50% in 18 months from now. This would effectively mean a saving on cost of capital of 10% interest for an average period of 14 months of Rs 950, amounting to Rs 105.

Coming to covid-19, the number of affected people globally has increased to 55.02 lac people with 3,46,671 deaths and 23.02 lac people recovering. In India, the number of patients has shot up to 1,38,917, while people who have died is at 4,024 people. Those who have recovered is at 57,721. Since writing the previous week, the number of new patients globally has increased by 7.80 lac people, while those dead has gone up by 30,000 and people recovering is up by 4.89 lacs. In India, new patients have increased by 48,000, while deaths have gone up by 1,150 and people recovering has increased by 23,500. The lockdown is being eased in many parts of the country and helping in creating the path to restoration of normalcy.

One area of concern remains Mumbai and Maharashtra which leads the country with the greatest number of patients at over 30,000 in Mumbai and over 50,000 in Maharashtra. The number could go up sharply as more and more people are tested in the sprawling slums of the city which understandably have poor sanitation conditions and do not observe social distancing. The frustration of the administration can be seen where they are unwilling to open Mumbai for air traffic, but want the railways to begin the local trains in Mumbai. The impact of the resumption of local trains at this point can be debated till the cows come home but to no conceivable benefit in the struggle to contain covid-19.

The Maharashtra state government has relented and allowed 50 flights into Mumbai and some more into Pune and Nagpur.

The week ahead will continue to be choppy and volatile with two sided movements. The market has a trading holiday on Monday and is therefore only a four-day week. May futures expire on Thursday the 28th of May and currently bears have the upper hand with the series down 820.65 points or 8.32%. While there can always be some recovery on this, it looks unlikely as the broader uncertainty in India on recovery from covid-19 and the same globally is quite sketchy and patchy. It would take a couple of months before the roadmap is out and things start falling in place. In such circumstances the strategy would be to use rallies to sell and sharp dips to buy, but be very patient.