The inevitable correction came and in just four trading days the midcap and smallcap space look battered and bruised. The BSESENSEX lost 2.39% and NIFTY was down 2.36%. BSEMIDCAP lost significantly more at 4.24% and BSESMALLCAP was down 4.29%. As mentioned the price erosion was much more in the midcap and smallcap space.

Global markets too were weak and the trigger was the plausible outcome of US elections. While there can be only one winner in this election, the real loser would be America. The people of United States of America are unfortunately divided on who should be the next President and post the election a lot of time would be needed to heal the friction generated during the election. Anyway we would in all probability know the next president in about 48-72 hours from now.

There was a lot of news flow last week. The GST Council has announced rates for GST. There would be four rates at 5%, 12%, 18% and 28%. Half the items in the basket of consumer index would be at 0% so that inflation could be kept under check. The 28% rate would also have a cess for luxury goods and sin goods. The rate for gold has not been announced and would be done later in the month.

The Cyrus Mistry-Ratan Tata saga is likely to be a prolonged matter with the Indian Hotels directors approving the chairmanship of Cyrus Mistry. Three of Tata group companies would be meeting for quarterly results this week. The spat is becoming uglier and is sending wrong signals to investors.

Two non-bailable warrants have been issued against Vijay Mallya. One cannot be sure whether he has any intentions of retuning to India to settle matters or not.

The government sold shares of Larsen & Toubro through negotiated deals on Friday. These shares were held by SUUTI. The shares were sold at the floor price of Rs 1,415.66.

Reliance Industries along with its partners has been fined $ 1.55 billion in the ONGC gas case. Without doubt RIL would have to appeal against the same. For the time being the share price could be under pressure as the company is facing issues on many fronts whether it be gas or telecom.

Shares of PNB Housing and Varun Beverages would list on Monday and Tuesday respectively. While the former commands a premium, the latter struggled to get subscribed and had lack of support other than QIB’s. The listing of Varun would determine who was right (QIB’s) and who wrong (HNI & Retail).

Markets have fallen for five straight sessions since ‘Muhurat’ trading began for Samvat 2073. A technical bounce is in the offing. It will be just a technical bounce not the end of the correction. Use the same for reducing exposure and not adding fresh long positions. Trade cautiously in a week where volatility would increase with the presidential elections.

Trading for Samvat 2073 began on a positive note on Sunday. It was a short one hour session and halfway the pressure was evident. The BSESENSEX which was up 154 points ended in the negative, down 11 points. NIFTY closed down13 points. Nothing significant except the fact that last Samvat there was a gain of 124 points on the SENSEX.

Samvat 2072 saw BSESENSEX gain 8.54% while NIFTY gained 10.98%. The star performers were BSEMIDCAP up 25.44% while BSESMALLCAP was up 21.78%. The continuous rise in midcap and smallcap sectors is becoming worrisome as the valuations here have gone berserk. One needs to exercise caution as these shares have a tendency to fall quite sharply.

October series expired on a quiet note with NIFTY surrendering almost all of the gains of the previous week. NIFTY futures expired at 8,615.25 points, a gain of a mere 24 points or 0.28%.

Two issues had opened and closed in the primary market last week. While the issue from PNB Housing Finance did exceedingly well and was subscribed 29.55 times. The company had raised Rs 3,000 crs from a fresh issue in the price band of Rs 750-775. The QIB portion was subscribed 37.33 times, HNI 86.17 times and Retail 1.35 times. There were a total of 7.67 lac applications, indicating the extent of involvement.

The other issue was from Varun Beverages which was subscribed just by QIB’s. The overall issue was subscribed 1.86 times with QIB portion subscribed 4.94 times. The other portions were undersubscribed with HNI 0.42, Retail 0.82 and Employee 0.05 times. The number of applications was 2.59 lac applications. Clearly investors were not enthused with the business model and certainly not the valuations. At the end of the day it’s a franchisee and bottler for a carbonated beverages company.

There is a comparison being made between Manpasand Beverages and Varun Beverages. I believe this is a futile exercise and is being done to salvage pride. While the former is a brand and is into fruit juice, the latter is a bottler or a franchisee and is primarily into carbonated soft drinks. The territory he operates is in North and Central India where the second half of the calendar year results in losses.

Results are a mixed bag and not much to cheer about. Axis Bank is in the process of clearing its bad loans and is trying to clean the balance sheet. The stock has been under pressure and lost 7.6% during the week. The stock is down almost a fourth from its high of Rs 638 made on 7th September. Firstly the losses were on account of pressure when the government was looking to sell stake in ‘SUUTI’ and now on account of the bad loans.

Markets have lost momentum and regaining the same is going to be a tough time as we have a truncated week this time around. It would be a four day week with Monday being a holiday.

US elections are scheduled for Tuesday the 8th of November and there markets are likely to become range bound pre-elections. With hardly any cues for the market locally other than results and globally, a sideways movement is most likely. There is heightened escalation on the Western Front between India and Pakistan. While India has taken an aggressive stand and is retaliating LOC cease fire violations, there could be some further action on that front.

In summary it makes sense to allow the holiday mood to subside and let markets return to a normal mood in some time. The mood and momentum would need time before normalcy is restored. Let’s wait for that 7-10 days before re-entering the markets.