Markets were up at the end of the four days but were looking tired and were unable to make new highs. The tops of the SENSEX on an intraday basis on the four days of the week were 25,644, 25,711, 25,725 and 25,611. The high of Friday was 25,688 showing that the highs were less than a 100 points over five days. The rally was losing steam and momentum and needed to take a breath. The much needed and essential correction finally came on Friday the 13th of June. The markets lost about 1.4% for the day but after adjusting some of the week’s earlier gains closed with losses of 0.66% on the SENSEX and 0.54% on the NIFTY.
The correction was severe and many stocks lost sharply with BSEPSU stocks losing in double digit. The correction was due to the explosive situation in Iraq where ISIS militants are on the rampage and have caused crude oil prices to spike to 115 dollars. The world is likely to take action where USA and Iran may have a joint offensive but that could take some days before it happens.
The situation is currently fluid and saw markets globally weaken. This brought about a sharp selloff in India and hence the much needed correction. Stocks all across the board weakened except IT and pharmaceuticals which have been weak over the last few months. They saw some value buying and actually gained for the week.
Going forward the current dip offers investors an opportunity to buy stocks as FII’s continue to be bullish and have bought shares worth Rs 4,900 crs in the week. Domestic institution’s selling seems to be reducing and they sold shares worth Rs 240 crs. The rupee was under pressure but considering its strength over the lst couple of weeks is not worrisome.
The government needs to recapitalise the PSU banks and needs a large sum of money for the same. SEBI at the same time has said that all listed entities must have a minimum public shareholding of 25% irrespective of the owner/promoter. This comment or stand could only have come with the permission of the new government. Looking at the current scenario it make sense for the government to allow the PSU banks to come out with rights issues and the government abstains from subscribing to these issues. This would serve a dual purpose where the banks would get the capital they need and the public shareholding would automatically increase as the dominant shareholder is not taking up the offer.
One other distinct advantage would be that in FPO’s the share price on whispers of an impending offer get hammered, while in this case the possibility of that happening gets reduced to a great extent as it is only for shareholders.
The budget is roughly four weeks away and meetings with various groups has begun. The trigger for the markets would be the budget and what comes out of it. For the current the important things are that the government has its feet on ground and has started doing basic things to bring back the economy on track. They may be baby steps and may take time to yield results but they are certain steps. The height of the Narmada Dam is to be raised and the decision was taken within one meeting. This issue was hanging fire in the previous UPA government for such a long time that one forgets when the issue was first raised.
The action in the market will continue to be there and PSU stocks would be in limelight. Investors would do well to look at this pack carefully and invest for the medium term. This pack is likely to give results and returns which would outperform the broad market.