Markets continued to be on a roll and registered big gains. The BSESENSEX gained 919.19 points or 2.59% to close at 35,511.58 points. NIFTY gained 213.45 points or 1.96% to close at 10,894.70 points. BSEMIKDCAP went into some sort of correction and lost 2.09% while BSESMALLCAP lost even more at 2.76%. This divergence between the broader market and the midcap and small-cap could be taken as some sort of warning signal and should be kept in the back of the mind.
ONGC has acquired HPCL from the government of India and in the process helped cross the divestment target for the year. This is for the first time ever that the target has not only been met but also exceeded. ONGC acquired HPCL at a cost of Rs 36,915 crs. The per share price works out to Rs 476.97 which is a premium of over 14.5% to the closing price of Rs 416.55 on BSE at the close of trading on Friday. With this deal, the government has raised over Rs 98,000 crs by way of divestment proceeds and crossed its target of Rs 72,000 crs. The deal would be EPS accretive for ONGC.
The primary markets saw two issues close for subscription during the week. The first was Newgen Software Technologies Limited which was subscribed 8.25 times with QIB portion subscribed 15.62 times, HNI 5.52 times and Retail portion 5.18 times. The second issue was Amber Enterprises India Limited which was subscribed 165.41 times. The QIB portion was subscribed 175 times, HNI 519 times and retail portion 11.64 times. The cost of funding for the leveraged HNI would be closer to the Rs 425 mark at the base interest of 5%. Those who have paid higher interest rates would pay more accordingly with the cost rising to about Rs 460 at the higher level. The extent of liquidity is certainly a point of concern.
Results particularly from the BFSI space seem to be encouraging so far. It may be mentioned here that the benchmark indices are loaded in favour of the BFSI space and a third of the same comes from this space. The trend is positive and would see further results as the reporting season unfolds. The steady rupee over the last fifteen quarters and improving performance has seen FII’s pouring money into the country in the current month with flows of 1.4 billion dollars already. They also believe that the current budget to be announced on 1st February would have all the ingredients needed to continue on the growth path and ensure that various segments of the electorate are looked after.
The week ahead sees January futures expire on Thursday the 25th of January. Incidentally the week would end a day earlier with Friday being a holiday for Republic Day celebrations. The bulls have an upper hand with NIFTY ahead by 416.80 points or 3.83%. The current value of NIFTY is 10,894.70 points against 10,477.90 points. With a mere 4 days to go and over 400 points as a buffer, it seems a foregone conclusion that bulls would win this series.
There is a lot of talk about changes being introduced to the Long-term Capital Gains Tax in the budget 2018-2019. I too strongly believe in the same and while many of my friends have been saying that there could be a sell-off if the same happens, I disagree. In the previous budget Anti-GAAR provisions were introduced with effect from 1st April 2017. Under this if assuming that there are changes introduced to the LTCG act and people resort to selling on 1st February and thereafter, under the Anti-Gaar measure they would be taxed on the February transactions as if the budget was from 1st February and not 1st April 2018.
I also believe that like the dividend which has been capped at 10 lacs and taxed thereafter, there would be a ceiling introduced in LTCG as well. Also, the period is likely to be increased from the present one year to maybe two and also three years. For gains booked earlier, there could be some tax slabs. However, to encourage investment and savings through mutual funds, they would be exempt from tax under this act.
The excess liquidity is a challenge and needs to be properly channelled if it has to be properly used. Currently the kind of response one sees to SME issues in terms of oversubscription makes one’s heart skip many a beat. It is crazy to say the least.
Markets will be choppy with expiry on Thursday the 25th of January. Friday is a holiday for the markets on account of India’s Republic Day. Trade cautiously.
