National Chronicle

After the storm expect markets to consolidate (Market Watch)



Markets behaved on expected lines last week and bulls continued to drive home their advantage into June futures expiry. BSESENSEX gained 439.54 points or 1.27 per cent to close at 35,171.27 points while NIFTY gained 138.60 points or 1.35 per cent to close at 10,383.00 points. The broader indices saw BSE100, BSE200 and BSE500 gain 1.55 per cent, 1.77 per cent and 1.85 per cent respectively. BSEMIDCAP was up 3.55 per cent while BSESMALLCAP was up 2.88 per cent. The benchmark indices gained on three days and lost on one day with expiry day being virtually flat.

The Indian Rupee gained 52 paisa or 0.68 per cent to close at Rs 75.66 to the US Dollar. Dow Jones lost 855.91 points or 3.31 per cent to close at 25,015.55 points. The bulk of these losses happened on Friday when it lost 730 points. This poor show on Friday was partly on account of the rise in Covid-19 cases in the US. This would certainly have a bearing on markets in Asia and India when they open for trading on Monday morning.

June NIFTY futures expired on a positive note gaining 798.80 points or 8.42 per cent to close at 10,288.90 points. Volatility during the month has been quite high and one believes that the same would reduce going forward. The first quarter of the financial year 2020-2021 would come to an end during the week and this quarter has largely been one of almost total lockdown and disruptions. When reporting season begins closer to midway in July 2020, one would expect most companies to have next to negligible sales and expenses on the lower side. Manufacturing companies would be badly affected while those companies which came under the essential services tag like pharmaceuticals, food companies and many divisions of FMCG companies would be better off comparatively. IT companies were functioning on WFH (work from home) basis and were operating to a fairly high percentage of near normalcy. The sectors badly hit were hospitality, entertainment, travel and tourism and aviation. While flights have resumed, the breakeven factor for them has not yet been achieved and many more flights and more travel need to happen before the same is achieved.

SEBI continues to make life easier for the promoters to raise funds during the pandemic. Yet another relaxation has been given in allowing the increase in promoter holding from the customary 5 per cent per year to 10 per cent in this particular year i.e. 2020-2021. While this step is welcome, the regulator must ensure that in the name of pandemic, company/promoter management do not trample the rights of minority shareholders as was done by Vedanta recently. Even in the case of the mega rights issue of Reliance, a very large number of Reliance shareholders coming in the category of 1-500 shares were unable to exercise the right because of systems and procedures.

Talking of rights issues, Aditya Birla Fashion and Retail Limited has announced its rights issue of Rs 995 crores in the ratio of 9 shares for every 77 shares held at a price of Rs 110 per share. The rights issue would open on Wednesday July 8 and close on Wednesday July 22. The share price of the company closed at Rs 129.25 on Friday at close of trading, losing Rs 3.90 for the week.

The promoters of SW Solar Limited, seem to be under great financial stress. After the high drama of last year when they were unable to fulfil the objects of the issue which included repayment of inter-corporate debt within 90 days of the public issue. They then took an extension of another 300 days to pay in instalments, and are once again unable to pay Rs 500 crore due on June 30, 2020 and are asking for time. In an intimation to the exchange, the company has said that the promoters may default and have informed the exchange accordingly. One wonders whether the regulator is going to haul up the company or just allow the promoter to get away once again in the name of pandemic. This pandemic is becoming a means of arm twisting only minority shareholders rights and they seem to be at the receiving end. Most unfair at the way promoters are getting away with everything rightly or wrongly.

Covid-19 seems to be moving ahead relentlessly and numbers seem to be spiking all over again. Probably this is the second wave of the pandemic. Global number of affected patients have crossed the 10 million or one crore mark and are now at 10.087 million, while people who have died is at 5.01 lakh people with 54.66 lakh people recovering. In India the number has jumped quite sharply to 5.29 lakh affected people. The number of deaths is 16,111 people while 3.10 lakh people have recovered. Compared to last week, the number of people affected globally has increased by 11.65 lakh, with 35,600 deaths and 7.23 lakh people recovering. In India, the number of new cases has increased by 1.18 lakh people, 2,800 deaths and almost 82,000 people recovering. This sharp spike in numbers may be attributed to higher testing, opening up of the economy and also due to many people getting bored of sitting at home and now moving around without any valid reason.

Coming to the markets, the increased volatility of the previous month would take a break and markets would become more range bound. Further they would pause to consolidate at these levels having gained almost 40 per cent from the low of 25,600 in mid-March to now. In all probability they could open softer on Monday morning post the big fall on Friday and then spend the next couple of days moving up and recovering the initial losses. With expiry out of the way, the skewed market positions have normalised to a great extent and markets are more balanced between the bulls and bears now. Expect markets to trade in a broad range of 2.5 per cent on either side of Fridays close during the week. While this is a trading zone, this does not imply the weekly change to be so much as markets seem to be alternating gains and losses.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

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