Cover shorts in further dips as the bears near short-term exhaustion

The bears are in control, but they may find it uneconomical to sell further at lower levels, as a result of which we could see the selling pressure ebb 

S&P Nifty close: 4845.65



Market trend
SHORT term: Down        MEDIUM term: Down        LONG term: Sideways


The Nifty opened marginally better last week, but relentless selling by the bears as well as capitulation by the bulls saw the Nifty crash 227 points (-4.48%). The breach of the low of the 'high wave line' pattern (which denotes 'equilibrium' between the bulls and bears) also resulted in some panic. The volumes were significantly lower and volatility high. The sectoral Indices which led the decline were BSE Reality (-7.36%),  BSE Bankex (-7.51%) and BSE IT (-5.33%), whereas the ones that outperformed were BSE FMCG (-0.25%) and BSE Oil&Gas (-3.11%).

The histogram MACD continues to be below the median line as the trend is down. We saw the Nifty dip below the 200wema and close marginally above it during the week, raising some hopes of a recovery. We saw the S&P Nifty hit the 61.8% retracement (4,842 points) of the rise from 3,918-6,335 points, and lows of 4,675-4,786, that should also act as a crucial support. We can see in the weekly chart (above) that the trendline (in green) pegged at around 4,650 points will also provide support. Therefore, there is strong support pegged slightly lower from where at least a contra-trend rise could begin.

Here are some key levels to watch out for this week.

  • As long as the S&P Nifty remains below 4,925 points (pivot) the bears hold the advantage.
  •  Support levels are pegged at 4,717 and 4,588 points.
  • If the S&P Nifty holds above the 4,925 points level in close, it could recover to 5,053 or 5,260 points.

Some observations
Despite the bears having an upper hand they should be cautious at lower levels, especially if the Nifty dips to sub 4,900 points level. The reason are that,

1. Eight weeks (Fibonacci number) have been completed from the recent low of 5,195 points.

2. There is support from the lows of 4,786, 4,675, and in a pessimistic scenario 4,538 points.

High volatility will continue this week as the bulls try to stem the rot around the supports.

Strategy
As was mentioned in the previous week, volatility remained high and the Nifty dipped below the 4,900 points mark, thus bringing it close to the support levels mentioned. The bears are in control but may now find it uneconomical to sell further at lower levels, as a result of which we could see the selling pressure ebb. Those short should cover their positions and only the adventurous ones can do some bottom fishing close to the supports, as the risk/reward ratio would then favour a bounce.

(Vidur Pendharkar is a consultant technical analyst and chief strategist at www.trend4casting.com.)

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SEBI to review consent settlement procedure

SEBI is considering changing consent orders in such a way so that they can be taken as a warning from the regulator and also a ‘name and shame’ directive for entities alleged to have indulged in market irregularities

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) is mulling changes in the way it settles probes against listed companies and various market entities through a consent procedure—an out-of-court-like settlement—as it has found the prevailing system to be lacking in uniformity, reports PTI.

In the consent settlement that is in vogue since 2007, the entity facing probe is subjected to certain fees and restrictions without admission or denial of alleged irregularities and SEBI thereafter drops its charges and the investigations.

An internal study by SEBI has, however, found that different yardsticks might have been applied in different consent cases and there is no consistency and any clear-cut uniformity in the way such cases are handled, sources said.

Subsequently, SEBI has decided to consider a revamp of its consent settlement procedure and is currently working on the required regulatory framework for the same, sources said.

SEBI has also come across cases being settled with entities from same group on more than one occasion, although a consent order is broadly considered as a warning to the related party for not repeating similar offences.

The current regulations also give some discretionary powers to SEBI officials settling the probe and the regulator would now look at bringing in detailed and exhausting rules to be followed uniformly by all its officials while settling the probe under consent procedure.

The regulator’s internal study found that there was a perception about the consent orders being mostly subjective and not adequately transparent in nature and these procedures providing an escape route to alleged offenders.

SEBI would consider changing consent orders in such a way, so that they can be taken as a warning from the regulator and also a ‘name and shame’ directive for entities alleged to have indulged in market irregularities, sources said.

The regulator would look at bringing in more clarity on how such orders should be framed, as also at what time and in which cases consent orders should be passed, sources added.

SEBI introduced consent settlement system in April 2007 with a view to cut down on its costs, time and efforts in taking up the enforcement actions. So far, the regulator has passed more than 1,000 consent orders, which includes those passed against three companies of Anil Ambani group.

Earlier in June, SEBI settled a probe against Reliance Securities for a settlement charge of Rs25 lakh and other settlement terms.

In January, two other Anil Ambani group firms Reliance Infra and RNRL (Reliance Natural Resources) had reached a settlement with SEBI after paying consent charges of a record Rs50 crore and some other restrictions.

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CII pitches for raising investment limit by PEs, VCs to 25%

The CII report suggests that SEBI -registered PE and VC funds should be allowed to invest the permitted one-third of fund capital through both primary and secondary purchase of equity shares or equity linked instruments

New Delhi: Private equity (PE) and venture capital (VC) funds should be allowed to invest 25% of the capital of the target companies, up from the existing limit of 15%, without having to resort to an open offer, reports PTI quoting the Confederation of Indian Industries (CII).

“Private equity and venture capital funds engage in substantial minority investments in private and public listed companies. Yet, they are constrained in terms of not being permitted to purchase secondary shares and are limited to acquire stakes only up to 15%” CII said in a statement.

The CII report suggests that (SEBI) Securities and Exchange Board of India-registered PE and VC funds should be allowed to invest the permitted one-third of fund capital through both primary and secondary purchase of equity shares or equity linked instruments.

Further, it said, such investments should be construed as complying with prevailing capital market regulations, including open offer requirements.

The investments by these institutions are of medium to long-term nature, aimed at not purely investing but also nurturing the companies in terms of provision of management and operational support, it said.

With $9.5 billion investments in India, PEs and VCs have created an impact in terms of helping companies achieve stellar performance.

The profits after tax of PE backed firms have registered a growth of 35% as against 21% registered by other listed companies.

CII said that given the growth needs of the Indian economy, it is pivotal that PE and VC governance is re-conceptualised towards a favourable regulatory environment that would promote investment.

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