Nifty and Sensex may dip before the next upmove: Tuesday closing report

NSE Nifty may come down to 6,160, before moving higher

In a sideways session, a contrast to yesterday’s, Nifty and Sensex seesawed through Tuesday. The markets opened strong and managed to stay in the green for almost the entire period. Sometime after mid-day, the markets dipped into the red, only for a short time. Bulls hungrily bought the dip and pushed the market higher again. After that, it was back to what happened in the morning—a choppy sideways move.


The Sensex opened at 20,870 and hit a high of 20,934 soon after. Then it trended down to a low of 20,828 before rebounding to end the day at 20,890 (up 40.08 points or 0.19%). Similarly, the Nifty opened at 6,197, hit a high of 6,212, then trended down to the intra-day low of 6,180 before closing at 6,203. (up 14 points or 0.23%).


Except for pharma, FMCG, media and public sector enterprises, all sectoral indices were in the green.


Of the 50 stocks on the Nifty, 24 ended in the green, implying that the strength is not broad-based. The top five gainers were Hindalco (4.33%); Jindal Steel (4.00%); PNB (3.93%); JP Associates (3.11%) and State Bank of India (3.04%). The top five losers were BPCL (-2.11%); Sesa Sterlite (-1.78%); Power Grid (-1.40%); HDFC Bank (-1.28%) and Tata Steel (-1.22%).


Of the 1,229 stocks on the NSE, 591 rose, 573 fell while 65 remained unchanged.


According to CLSA, an investment firm, fixed investment to GDP has declined over the years, indicating that fewer enterprises are investing back into the economy, in terms of manufacturing and capital expansion. This is not a very promising sign. At the same time, the government announced no plans to remove short term capital gains tax on FIIs, because of their desperation for foreign capital to shore up current account deficit.

Except for Taiwan, Korea and India, all Asian markets were trending down. All markets in Europe were in the red as well.


Meanwhile in the United States, the markets reacted late in the session with a sharp sell-off after Carl Icahn, activist investor, said that the markets would drop sharply soon. He said that price gains had outpaced the underlying improvement in the global economy. Earlier, S&P went above 1,800, a psychological milestone while Dow Jones passed 16,000 for the first time. The US futures were seen trading down during early trade.


SEBI suspends Bubna Stock Broking's certificate for three months

Bubna Stock Broking, now known as Sunbright Stock Broking, traded in 27.46 lakh shares and had contributed in a significant way in raising share price of GR Industries during January 2004 to 28 February 2005, SEBI said

Market regulator Securities and Exchange Board of India (SEBI) has suspended certificate of registration of Bubna Stock Broking Services Ltd (now known as Sunbright Stock Broking Ltd) for three months.


SEBI said its investigation in the scrip of GR Industries and Finance Ltd during 1 January 2004 to 28 February 2005 revealed that four stock brokers, Shyamlal Sultania, Ashok Kumar Kayan, M Bhiwaniwala & Co and Bubna Stock Broking had traded substantially in the shares of the company. Their cumulative trades accounted for 83.30% of the total traded volumes in the scrip at Calcutta Stock Exchange (CSE) during the investigation period.


Bubna Stock Broking traded in 27.46 lakh shares of the company and had contributed in a significant way in raising share price of GR Industries, during the period under investigation, SEBI said.


Rajeev Kumar Agarwal, whole time member of SEBI, in his order said, "I have considered the submission made by the noticee (Bubna Stock Broking) with regard to past actions taken against it. The enforcement action against the noticee in the earlier cases also indicates that the noticee has committed repeated default. I note that the prohibited activities and types of contraventions as found by the designated authority in this matter definitely have potential to disturb the market integrity and disturb the fair, equitable and efficient functioning of securities market. ...considering the facts and circumstances of this case and taking into account the interests of the investors, suspension of certificate of registration of the noticee for three months will be commensurate with the contraventions found in this matter."


SBI Dual Advantage Fund will disappoint. Stay away

Hybrid schemes in the past have delivered an inconsistent performance and offer no advantage for investors. Being closed-ended makes it worse

SBI Mutual Fund plans to launch a series of close ended hybrid schemes with tenures ranging from one year to five years. The exact duration of each series under the scheme shall be decided at the time of launch of the respective series. The scheme—SBI Dual Advantage Fund Series–(XX)—would invest over 65% in debt and money market instruments and the remaining part of the portfolio would be invested in units of equity oriented mutual funds and gold exchange traded schemes. Despite the high risk associated with the metal, many fund houses include gold as an asset class in such hybrid schemes.

In this scheme, the allocation to gold can go up to a maximum of 35% of the portfolio. The performance of the scheme would be dependent on the market-timing skills of the fund manager to actively move in and out of equities, bonds and gold. Predicting the movement of gold and interest rates are challenging tasks, even for the best of professionals. This will mean that the fund will most likely do a poor job of moving in and out of gold and debt products. That apart, how will an investor decide how much to put into such schemes when he already has money invested in equities, bank fixed deposits and gold separately?

In an article published a few months back (Read: Hybrid Gold Schemes: No Golden Touch), we analysed the performance of hybrid schemes investing in gold. Performance of these schemes has not been great over the past one year. Inflation has gone up by over 9% over the past year, but gold, which has always been considered a hedge against inflation, has declined in value. The recent sharp correction in the price of gold has not only come as a shock to many investors, it has also questioned many beliefs surrounding the asset. Out of the 24-odd schemes, as many as six schemes had an allocation of more than 25% to gold. All the six schemes have delivered a negative return over the past six-month period and were the worst performers among all the schemes. Just seven schemes have a track record of more than three years. But although gold has risen sharply compared to equity indices in this period, the returns of these schemes have ranged between 6% and 7%.

Similar schemes from SBI Mutual Fund have put up a mixed performance over the past one-year, three-year and five-year periods. Such inconsistent performance is one of the reasons hybrid schemes serve no additional value to investors. Below is the performance of the schemes:

Rajeev Radhakrishnan is the designated fund manager for the debt part of the portfolio. He has a total experience of 10 years in funds management with around 8 years in Fixed Income funds management and dealing. Richard D’souza, will be managing the equity portion of the portfolio. He has over 19 years of work experience in equities as a portfolio manager.


Other details of the scheme

Benchmark: Crisil MIP Blended Fund Index

Minimum Amount for Application in the NFO: Rs. 5,000/- and in multiples of Re. 1/- thereafter

Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i) and (6)(a): Upto 2.25%

Additional expenses under regulation 52(6A)(c): Upto 0.20%

Additional expenses for gross new inflows from specified cities: Upto 0.30%

Exit load: NA as close-ended scheme


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