The markets began well, RBI governor was positive as far as his comments on the economy were concerned and he made an excellent move by cutting SLR by 50 basis points and saying that GDP of 5.5% is achievable.
The geopolitical situation turned worse with USA attacking ISIS in Iraq. We already had a conflict on in Gaza and the Ukraine issue seems to be never ending. While global markets fell, the Dow Jones closed positive and gained 60 points or 0.36% to close at 16,553 points.
Prime Minister Narendra Modi will address the nation for the first time from the ramparts of Red Fort on the occasion of India’s Independence Day on Friday the 15th of August. The nation would like to know what’s on Modi’s mind and his speech would be heard globally as well. The man who has won a clear mandate after 30 years has a mandate to rule and deliver.
Markets seem to be stuck in abroad range and are unable to decide which way they will move. As long as the level of 24,900 on the SENSEX and 7,425 on NIFTY holds, the downside is capped. On the upside we need to make a new high to break out and the level of 26,300 on the SENSEX and 7,840 on NIFTY become crucial.
The Syndicate bank issue is a problem which confronts the PSU banking space and the current NPA or stressed assets is due to poor procedures being followed and the involvement of bribes. Post the arrest of Bhushan Steel Vice Chairman the share was hammered last week and fell over 44% to close at Rs 219.35. The fact that a consortium of banks have lent this company Rs 40,000 crs is a scam by itself and there is no way this money can ever be recovered. This company’s turnover on a consolidated basis was just about Rs 9,700 crs which means its sales is a mere 25% of loan. Yet another way of looking at it is that the company needed Rs 4 of loan to generate Rs1 of sales. It has spent about 1,400 crs as interest. Paying this kind of interest and such poor topline is indeed damaging for the company and may never recover from the setback of this arrest. The way some of these companies have looted the PSU banks and the government points to a systematic manner of usurping public funds. One hopes that this event of Syndicate Bank forces the government to even look at the selection of Managing Directors and Executive Directors in banks. Case in point is Deccan Chronicle. Kingfisher Airlines and Suraj Diamonds to name a few. There are many more scams which will come to light sooner than later.
While politicians give farmers loan waivers at the time of elections to win votes, the connivance with industry ensures perennial support of all kinds. A few corporates siphon out money running into thousands of crores and cause huge loss of taxpayer’s money. It appears just nobody is responsible or accountable for this money and misuse. One sincerely prays that this is the beginning of cleaning of the system and one would also look into the selection and appointment of ED’s and MD’s of these banks.
The market looks tired but is unlikely to crash as there is follow up buying from both FII’s and domestic institutions. Use dips to invest and enter the market.
Independence Day address to nation to keep market guessing
Performance of Newly Listed Shares as on 8th August 2014
| Name | Date of listing | Issue Price | closing price | closing price | % gain loss | change over | ||
|
|
over week | lssue price | |||||
| Power Grid (FPO) | 19th December | 90.00 | 132.05 | 129.75 | 2.56 | 46.72 | ||
| Engineers India (FPO) | 28th February | 150.00 | 273.55 | 278.20 | -3.10 | 82.37 | ||
| Wonderla Holidays Ltd | 9th May | 125.00 | 230.90 | 216.50 | 11.52 | 84.72 |
RBI governor may spring a surprise
Markets which were looking tired and thus corrected quite sharply. They lost 2.47% on the SENSEX and 2.41% on the NIFTY. The momentum took a hit on global cues with world markets reacting as well. The Dow Jones which has also been trading around its lifetime highs took a severe beating and lost 2.75% for the week and in the process turned negative for the year to date so far. The closing value of the Dow Jones was 16,493 points.
July futures expired at 7,721 again of 228 points or 3.04% for the month. While expiry day saw some amount of selling pressure, the bulls were always in command and held sway through the month. August series began on a weak note and saw the markets fall on the very first day of the series.
FII’s have turned sellers last week and sold shares worth Rs 2,750 crs. They were net buyers in the month of July of Rs 9,350 crs and in the first seven months of the calendar year have bought shares worth Rs 71,960 crs. Domestic institutions which had been sellers have turned buyers of equity in the week of Rs 3,700 crs while in the month of July they were buyers of Rs 5,050 crs. In the first seven months they were net sellers of Rs 1,800 crs.
The insurance bill which was talked about in the budget presented to Parliament on the 10th of July has been introduced in the Rajya Sabha. This bill was first introduced in 2008-2009 by the Congress and has been hanging fire since then. How the Congress reacts to this will be interesting considering that elections to state assemblies are to be held in the next few months including Maharashtra which has Mumbai as the financial capital. The Congress sure is in a catch 22 situation and will have to come up with some brilliant strategy to even score brownie points. The final trump card that the NDA government can always play is a joint session of both houses where they have a majority and the bill would sail through.
An interesting duel is being played on the WTO front where the world wants duties to be lowered so that the rich and middle class of India can import hundreds of thousands of products. India has protested and said that both issues of customs duties and food security be discussed and finalised simultaneously. India needs to provide food security to a large population and the cap of 10% of food grain production is just not enough to meet its requirements and would thus cross or violate the WTO norms. By taking a strong stand on this issue we saw a worried US secretary of state making an unscheduled or unplanned visit to India to discuss various issues (primarily WTO). We as Indians should be proud of the stand taken and politicians should rise above petty politics to applaud the stand taken.
RBI meets on Tuesday to review the credit policy. As things stand the consensus is that things would remain unchanged but the slant would be dovish and probably hint towards softening of rates going forward. The monsoon seems to be playing out quite well and July rains have considerably allayed the fears of El-Nino. While the monsoon may remain below normal, the drought like situation feared earlier is certainly not there. This coupled with the fact that core industry growth at 7.3% is the highest in nine months augurs well for IIP numbers when they are released later in the day.
All in all consolidation to continue in the earlier part of the week before the markets resume their upward journey towards the latter half of the week. The process can be accentuated and preponed if Raghuram Rajan the RBI governor so decides.
Use dips to enter the market.
