Markets managed gains in the last week but seem to have become extremely vulnerable. The BSESENSEX gained 132.77 points or 0.50% to close at 26,759.23 points. NIFTY gained 58 points or 0.71% to close at 8,243.80 points.

Against this rise, sample the fall from Friday’s intraday high of 27,009. The fall from the high to the close was 250 points which is almost double of the weekly gains. One single day extreme volatility was witnessed and technical signals have issued alerts. Another way of looking at the same thing is that the fall was so much more than what the market struggled to gain over four days. On the NIFTY the high on Friday was 8,306.85 points. The fall was 63 points against the weekly gain of 58 points, a variation of 1.1 times.

IT stocks bore the brunt of the selling and registered huge losses. The big concern currently is lack of triggers and markets gaining for absolutely no attributable reason whatsoever. Volumes are thin and institutional activity fairly low. In such a scenario it makes trading difficult and dangerous.

Elections have been notified in five states. They begin with Punjab and Goa going to the polls on 4th of February. These are followed by a five phase poll which begins in Uttar Pradesh on the 11th of February and ends on 8th of March. In between Uttrakhand would go to polls on 15th of February and Manipur on the 4th of March. Counting would be held on Saturday the 11th of March. The elections are being held in the backdrop of demonetisation and would be seen as a referendum on the 32 month old BJP led NDA government.

The Union Budget is to be presented on the 1st of February. There would be no separate Railway Budget and it would be a part of the Union Budget. Both houses of Parliament would convene on 231st of January and would be addressed by the President. The opposition is currently opposed to the budget being presented before the elections. The shifting of the budget is an exercise which has been going on for over two months. While there is an appeal pending before the election commission it appears unlikely that anything would come out of it.

The US is again debating H1-B visas. They want jobs to be given to locals and the cost to be incurred by hiring a local against the offshore person would increase costs from 60,000 dollars to 100,000. This would impact the margins of software companies significantly in the short run. With TCS due to announce results on Thursday the 12th of January and followed by Infosys on Friday the 13th, one hopes there would be clarity on the issue and the sector.

Markets are looking vulnerable and results for the quarter would decide further course of action that they take. Stay on the sidelines and use rallies to sell while sharp dips would be opportunities to buy. We are in what one could say is a drift mode or directionless mode.

The last week of calendar year 2016 was dramatic. The week began with the after effects of PM speaking about capital market not contributing enough to the exchequer. The remaining days saw a smart corrective rally, followed by expiry short covering that saw finally the benchmark indices closing in positive territory for the year. Had it not been for this last week rally 2016 would have seen the BSESENSEX and NIFTY close in negative territory.

The BSESENSEX gained 585.76 points or 2.25% to close at 26,626.46 points. NIFTY gained 200.05 points or 2.51% to close at 8,185.80 points. The BSESENSEX gained 508.92 points or 1.91% for the year at 26,626.46 points. NIFTY gained 239.45 points or 2.93% at 8,185.80 points. Amongst SENSEX stocks the top gainer was Tata Steel and the China meltdown in the first week of January 2015 was on account of commodities and the China slowdown. The best performing among sectoral indices was BSEMETAL up 26.82% on a yearly basis whilst the worst performer was BSEHEALTHCARE down 14.79%. The pharma companies were at the receiving end as far as US FDA was concerned and large and even midcap companies were under the scanner.

The December series futures expired on a strong note. The series expired at 8,103.60 points, a series gain of 158.10 points or 1.73% at 8,103.60 points.

The government has signed a DTAA (double taxation avoidance agreement) with Singapore. This is the third in the series after similar agreements with Mauritius and Cayman Islands. The government has agreed to grandfather investments till 31st March 2019. From 1st April 2019 all capital gains would be taxed at 505 of what they are in India. This would be a very positive step as a large amount of investments flows into India from Singapore which is considered a straight forward country. There could be a knee jerk reaction in the short term but this is positive from a long term perspective.

The PM addressed the nation after the 50 day period of depositing demonetised notes expired. While people expected that he would announce some new measures it was all about thanking the people and bearing the pain. Some measures for housing loans, assistance to pregnant women and fixed interest to senior citizens were announced.

Interest subsidy of 4% for loans of up to 9 lacs and 3% for loans up to Rs 12 lacs were announced for purchase of a home or additions/repairs to an existing home. This loan could be from a bank. Housing company or an NBFC. Similarly senior citizens could invest upto Rs 7.5 lacs in a fixed deposit which would bear a fixed rate of interest of 8% for ten years. The person could withdraw the interest on a monthly basis which means the interest component of 7.5 lacs of Rs 5,000 could be a source of income for the citizen.

Political drama in UP was at its high. Mulayam Singh Yadav sacked the Chief Minister of UP and his son from the party and the very next day took him back. The third day the national convention of the party appointed the ousted and reinstated son as the party president. What better way of stage manging drama and handing over the baton to the son. Hope some other parties who are trying to hand over charge learn from this. The UP drama would be in the news for quite some time as it was a bloodless coup of sorts with all rebellion put at rest for the time being. The new supremo has been anointed.

Some of the sectors I like are the housing sector which includes housing finance companies and NBFC’s. The second sector is healthcare and finally consumer discretionary and non-discretionary. More about these sectors in detail next week.

The year ahead would be a tough one for the markets at least in the initial stage. I believe we would lose ground from the opening level and there would be recovery thereafter. This recovery would see the benchmark indices ending in the positive for the markets.