Business

Market to stay volatile but with an upward bias

BY ARUN KEJRIWAL /Kaumimarg.com | May 12, 2019 07:51 PM
Market to stay volatile but with an upward bias



Markets were on a correction mode and lost in all five trading sessions during the week. They have now lost for eight straight sessions and appear to have completed their correction for the time being. BSESENSEX was down 1,500.27 points or 3.85 per cent at 37,462.99 points while NIFTY lost 433.35 points or 3.70 per cent to close at 11,278.90 points.

The broader indices like BSE100, BSE200 and BSE500 lost 3.61 per cent, 3.56 per cent and 3.49 per cent respectively. Ita¿s been a long time since one saw three heavyweight stocks lose over 11 per cent in a single week. Tata Motors lost 11.22 per cent, Reliance Industries 11.09 per cent and Tata Steel 11.01 per cent.

Coming to the correction, which in eight trading sessions has wiped out almost 50 per cent of the gains made over two months, it seems to be done. The rally began from February 19 which saw BSESENSEX make a low of 35,287.16 points. From there it rose 4,200.29 points to make a lifetime high of 39,487.45 points on April 18.

From there, after remaining sideways for some time, the fall began on April 30. The 50 per cent correction to this rise would be at 37,388 and we are currently about 75 points higher. In intra-day trade, the low was 37,370 points which means the level was reached.

Similarly, on NIFTY, the rally began at 10,585.65 points, gained 1,270.50 points to touch 11.856.15 points. The 50 per cent fall would be to 11,221.26 while the intra-day low on Friday was 11,251.05. The closing was 11,278.90 points and if these levels hold, could coincide with the correction.

Dow Jones too has been losing ground and was down 567.58 points or 2.12 per cent to close at 25,942.37 points. Dow rose on Friday and gained 114 points or 0.44 per cent.

What led to this correction is more significant. The first is that we had rallied quite strongly in two months without a correction. Secondly, there were reservations on whether the ruling BJP/NDA may or may not be able to form the next government. Thirdly, President Trump imposed duties of 25 per cent against 10 per cent on $ 200 billion of Chinese imports with effect from midnight on Friday, May 10. All these factors rocked the market and helped complete the necessary technical correction.

The sixth round of voting was for 59 seats on Sunday, May 12. The seventh and final round of voting will be held next Sunday, May 19.

Yogi Deveshwar, Chairman Emeritus of ITC passed away at the age of 72 years. He was credited with changing the tobacco and cigarettes company to a large conglomerate having diversified portfolio of paper, hotels and FMCG products. Today, less than half of its revenues comes from tobacco-related products and the broader portfolio generates to the bottom-line.

What does the week ahead hold for the markets? It will continue to be volatile and choppy with two sided movements, however this time with an upward bias. Exit polls would be available only on next Sunday evening next week and that would not impact trading this week. The strategy would be to look at corporate results and invest in companies which have shown growth with improved efficiencies.

There are quite a few examples of such companies. One glaring example would be PNB Housing Finance which post results gained sharply on Friday. Further the parent, PNB Bank, has sold stake at a premium of 20 per cent plus to an investor. The stake sale price was Rs 850. Look for many such ideas in the market place. It should be remembered that value can only be found at times of stress or pain.

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