November futures expired on a weak note and this series saw a massive loss of 650 points or 7.54%. This was the biggest loss in the calendar year 2016. Friday was the first day of the December series and markets saw a huge rally gaining close to 1.7%. The week ended with the BSESENSEX gaining 166 points or 0.64% to end at 26,316.34 points and NIFTY up 40 points or 0.50% to close at 8,114.30 points.

The 9th November lows on the SENSEX were 25,902.45 and 8,002.25 on the NIFTY. They were retested and broken last week with the levels being 25,717 and 7,916 respectively. The rally from there has been swift and markets have risen about 2.3-2.5% from there. What is significant is we have yet to cross the close of 9th November of 27,252 and 8,432 respectively. Currently these levels look quite far from Friday’s close gone co there would have to be significant news flow to get there.

Markets would look at the central bankers from next week in India and USA. RBI meets on Tuesday the 6th of December for the bi-monthly review where a rate cut is a forgone event. The size of cut would be important where the market is now expecting a cut of 50 basis points against a 25 basis points earlier. The excess liquidity post demonetisation gives RBI the confidence to cut rates deeper. They have also in a move on Saturday asked banks to deposit the cash received with RBI. This effectively means that the CRR has been raised to 100% and banks would earn no interest on the excess cash that they hold. In such a scenario a rate cut of 50 bps looks more or less on the cards.

The markets would certainly welcome a move of this kind. Immediately after RBI, in the following week US Fed meets to decide their policy where they are expected to raise interest rates by 25 bps. One hopes that it finally happens as the uncertainty and impending rate hike is affecting flows globally.

There is an IPO opening on Tuesday the 29th of November from Sheela Foam Limited. The issue which is an offer for sale would be raising Rs 510 crs in a price band of Rs 680-730. The issue closes on Thursday the 1st of December. The company manufactures mattresses under the brand name ‘Sleepwell’ and is the market leader in its segment. It is a well-recognised brand and has good returns and operating efficiencies. India as a market has a very large number of sizes of mattresses unlike the developed markets where it is just four namely single, double, queen and king. Needing to supply mattresses made to order in as quick a time as possible, the company has 11 units in India currently.

Everything about the company seems in order except the fact that current market environment does not seem conducive for an IPO. I may be wrong in my assessment but it would be prudent to wait for the company to list and then commit oneself. Secondly the product it sells is by and large a cash product and the use of cheque or credit card is not prevalent in this sector.

Markets are volatile and are likely to remain so. The pullback has been decent and needs to continue much further for comfort. However that seems unlikely and we are likely to see some more pressure in the latter part of the week. Use any rallies to exit and wait for dips to buy.

Markets were under pressure and lost ground last week. They were down on each of the four days that trading took place. The BSESENSEX lost 668.50 points or 2.49% to close at 26,150.24 points. NIFTY lost 222.20 points or 2.68% to close at 8,074.10 points. The broader market saw BSe100, BSE200 and BSE500 lose 2.79%, 2.94% and 3.10% respectively. BSEMIDCAP lost 3.14% while BSESMALLCAP lost 4.93%. The correction in midcap and smallcap has begun and it would take quite some time before the values recover. There is pain in this segment.

Since the beginning of November, SENSEX is down 6.37%, NIFTY 6.39%, MIDCAP 10.40% and SMALLCAP 13.62%. Values of stocks in the midcap and smallcap have lost anything between 30-50% signifying the pain in these sectors. FII’s in the current month have sold shares worth Rs 2,900 crs and in the last five trading days as much as Rs 7,650 crs.

Gold has fallen below the level of 29,000. One would remember that there was a huge premium on gold of anything between 40%-50% by panic stricken buyers wanting to get rid of 500 and 1000 notes. Their value has depreciated even though the rupee lost significant ground losing 88 paisa or 1.31% to close at Rs 68.13 to the US dollar.

There is a primary market issue which is currently open from Green Signal Bio Pharma Limited. This is an issue with 75% of the issue size reserved for QIB’s and 15% and 10% being the HNI and Retail portion. The issue has been extended a second time and would now close on 22nd November. The first extension which was done was without reducing the price band which is mandatory. The explanation offered was that the banking system was disrupted because of the 8th November demonetisation. Surprise of surprise was that even on that day when the issue was extended retail portion was subscribed over 5 times. The demonetisation effect would be most felt by retail but they had already subscribed the issue. It should not have affected QIB’s. Strange are the ways the regulator works. As of Friday which was the 7th day of subscription the retail portion is subscribed 8.91 times while there is not even a single bid received from QIB’s. It looks difficult that this issue would go through and it would be nothing short of a miracle if it does. A new precedent has been set by the regulator which does not seem justified in any manner whatsoever.

Markets are oversold and a technical pullback is on the cards. This should be used to exit long positions as the pain would be there for quite some time. Quarter two have not given comfort and quarter three post the demonetisation has taken a hit. Downgrades from brokerages are on the cards and should start happening in the next fortnight. Trade with extreme caution as though values may look attractive post the correction they are certainly not cheap.