Nifty, Sensex, struggling to rally – Monday closing report

Without strong news flows, Nifty will struggle to rally higher


In Friday’s closing report, we had mentioned that it is most likely that the Indian indices may give up some gains. We had also mentioned that if the NSE’s CNX Nifty closes above 8,365, the short-term rally would continue for some more days. After a gap up opening on Monday, the index immediately rose to a new life time high, however, unable to sustain at that level it slid down in to the negative. The index traded in the negative upto 2.00pm after which it managed to rebound in the green territory.

S&P BSE Sensex opened at 27,919 and moved from the new life time high of 28,028 to the low of 27,765 and closed at 27,875 (up 6 points or 0.02%). Nifty opened at 8,338 and hit a high at 8,383. After reaching to the level of 8,304 the index closed at 8,344 (up 7 points or 0.09%). NSE recorded a volume of 90.81 crore shares. INDIA VIX fell 1.27% to close at 13.9300.

The much-awaited cabinet reshuffle ended with four ministers being allotted cabinet rank, whereas three taking charge as Ministers of State (independent charge) and remaining 14 took oath as MoS. The Modi cabinet now has 66 ministers.

The government will unveil industrial production data for September 2014 on Wednesday.

BEML (6.98%) was among the top two gainers in the ‘A’ group on the BSE. Buying interest in railway stocks was boosted with the appointment of Suresh Prabhu as the new Railways Minister. Market anticipates that he will carry reforms and bring investments into the sector.

Engineers India (12.32%) was the top loser in ‘A’ group on the BSE. It posted weak September 2014 quarter result after-market hours on Friday. It posted a net profit of Rs58.78 crore for the September 2014 quarter as compared to Rs111.86 crore for the September 2013 quarter. Revenue fell from Rs465.18 crore to Rs390.64 crore for the relevant quarter.

Strong second quarter result posted by Taro (subsidiary of Sun Pharma) helped Sun Pharma (2.09%) to be among the top two gainers in the Sensex 30 pack. It also hit its 52-week high today.

ONGC (3.59%) was the top loser in the Sensex 30 stock. Directorate General of Hydrocarbons has approved commerciality of the oil and gas discoveries in the northern area of state-owned ONGC's prolific KG-D5 block in Bay of Bengal.
US indices closed Friday flat.

The Bureau of Labor Statistics report showed the US created 214,000 jobs in October, nudging the unemployment rate down a notch to 5.8%, as many companies added workers to gear up for the holiday season. The economy has now added 200,000 workers or more for nine straight months, a feat last accomplished in 1994.

Except for Jakarta Composite (0.44%) and Nikkei 225 (0.59%) all the other Asian indices closed in the green today. Shanghai Composite (2.30%) was the top gainer.

China's consumer price inflation remained at a near five-year low last month, easing concerns of deflation risks. But the wholesale sector stayed entrenched in a deflationary spiral with the producer price index falling by a worse-than-expected 2.2% on year, data released by National Bureau of Statistics of China today showed.

China's exports jumped 11.6% in October 2014 from a year earlier, according to Chinese customs data released on Saturday. China's imports rose 4.6% in October 2014.

European indices were trading in the green. US indices too were trading little higher.


End of the QE experiment and volatility of markets

The problem with any experiment is that they cannot not only fail, but they can create far more harm than what they set out to prove. The market volatility of the last three weeks may be a taste of what is to come


Last week the Japanese Central Bank increased its quantitative easing (QE) program. Markets around the world jumped to new highs like a well-trained dog. This week the European Central Bank strongly hinted that it too would be easing. It did not specifically say how or when, but the suggestion was sufficient to raise market expectations for at least a day. The assumption, which may or may not be correct, is that the markets see the central bank action as stimulus that will help grow economies. While it is true that these programs do grow assets, their real effect on global growth seems to be far less.


Perhaps, the main and immediate result of the Japanese action was to devalue the yen. It fell 2% against the US dollar. Thanks to almost continuous QE, the yen has fallen 32% since 2011. In theory, this has two positive implications for Japan. It raises inflation in Japan by making imports, especially energy, more expensive. Second, it increases exports. But, the theory does not always work so well in practice. Much of inflation created by devaluing the yen comes from making Japan’s main import, energy, more expensive. This hurts the consumer the most and it is the consumer who is supposed to create the demand necessary for more inflation and growth. Secondly, during the years of the strong yen, many Japanese companies placed their manufacturing overseas. So, while the weak yen flatters Japan Inc.’s balance sheet, it does not necessarily create more exports.


Despite all the QE provided by the Bank of Japan, the reality is that growth during the second quarter actually fell by -7.1%. The probability of a rebound in the third quarter is not great. We will know more on November 17th when the preliminary numbers are available.


Devaluing the yen has also impacted on Japan’s trading partners. The Chinese renminbi has a fallen against the US dollar but strengthened against the yen. This certainly does not help the slowing growth in China. After years of stimulus, the present growth is 7.3% down from 7.5% and projected to slow further. Bad loans are rising at the state owned banks. Housing prices continue to fall and 70% of the coal miners are in the red.


A slowdown in China is hardly good news for most of her main trading partners, which include many emerging markets. Falling growth coupled with a very strong US dollar is the worst news for emerging markets since the ‘taper tantrum’ last year. We now have a new buzzword to describe the present situation. It used to be the fragile five, including Brazil, India, Indonesia, South Africa and Turkey. But now, Russia has been added to what is now the suspect six.


These countries generally share current account deficits (CAD) and inflation above 6%. India is probably the best off, but Brazil and especially Russia will have real problems. In a low demand deflationary world with falling oil, gold and commodity prices, those countries that rely heavily on these exports are facing everything from a slow down to a meltdown.


Like Japan, the European Central Bank’s actions and threats have not helped. The European economy continues to slow and deflation continues to spread. The fear that central bank stimulus will create inflation has disappeared. What has not appeared is the realisation that central banks cannot create growth. Not yet.


But that is the reality. Easy monetary policy either is pushing on a string or seriously wrong. Where it has been successful in creating unsupportable asset bubbles is where the real danger lies. As the Financial Times’ John Authers pointed out, is that “an all-time high for the US stock market is a dangerously exposed bet that central banks can shift not only the markets – everyone knows they can do that – but also the global economy.”


The problem with experiments, any experiment, is that they cannot not only fail, but they can create far more harm than what they set out to prove. The market volatility of the last three weeks may only be a taste of what is to come.


(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and speaks four languages.)


Soon easier, faster delisting norms for companies

The new norms -- to help companies save cost and time with a faster process and also check any manipulation in share price associated with a longer time-frame-- will be put up for approval at SEBI's board meeting next week


To make delisting easier and faster, market regulator Securities and Exchange Board of India (SEBI) will soon announce a new set of regulations wherein time required to complete such an exercise may be more than halved from a minimum of 137 days at present.

The changes are being made after taking into account suggestions made by the industry and other stakeholders, including market entities and investors.

The new norms -- to help companies save cost and time with a faster process and also check any manipulation in share price associated with a longer time-frame-- will be put up for approval at SEBI's next board meeting.

According to sources, the board of SEBI is likely to meet next week. It will also discuss new insider trading norms and listing regulations.

As per the proposed delisting norms, the whole exercise could be completed in more than half of 137 days currently required for completion of the process. At times, the process takes more than a year.

Besides, a company has to make a public announcement regarding the delisting process soon after the board meeting and letter of offer has to be dispatched within a week. The delisting offer would be for a period of four-five days.

Under the new regulatory regime, a company has to make payment or return the shares within a month as against the current practice which takes about three months.

The new rules on the matter come against the backdrop of concerns raised by various entities about existing delisting process which at times is also seen as time-consuming.

The delisting offer will be considered successful if the holding of the promoter (or acquirer) reaches 90% post offer.

Current rules require the acquirer to either reach higher of 90% of the total issued share capital or acquire at least 50% of the offer size.

SEBI may also do away with the requirement for shareholder's nod and bourses' approval for the delisting process.

The offer price could be determined on a 'fixed-price' basis or a two-step process through which the promoter could make a counter offer.

The current delisting regulations were put in place in 2009 and it facilitates removal of the securities of a listed company from a stock exchange with promoters buying out shares held by minority shareholders.

The changes in SEBI's delisting norms are being considered to harmonise them with other regulations, including the new Companies Act and other regulations of SEBI itself such as takeover and buyback norms.


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