Viola! The rally materializes but some easing is expected

Those who bought last week should book profits on the very first day of the week as there is a possibility that we might see a dip (till mid-week)

S&P Nifty close: 5068

Market Trend


Short Term: Up                      Medium Term: Down                                    Long Term: Down


The Nifty opened sharply lower as expected and marginally breached the low of 4,788 points (as envisaged last week) where the shorts got trapped. The Nifty briefly dipped below the R2 level of the week from where a counter attack by the bulls saw the Nifty recover smartly to engulf the entire last week’s candle, thus forming an “engulfing bullish line” pattern. This implies that a temporary bottom lasting for at least a couple of weeks more is in place The volumes were however almost the same as last week implying that this rise is also corrective in nature even though it could survive for a few weeks more. This week the Nifty closed almost at the high of the week, gaining a whopping 227 points (+4.68%).


The sectoral indices which outperformed were CNX PSU Bank (+7.76%), CNX Infra (+7.71%), CNX Realty (+7.26%), CNX Finance (+6.27%), CNX Media (+6.06%), CNX Auto (+5.50%) and CNX Energy (+4.92%) while the gross underperformers were CNX FMCG (+1.90%), CNX IT (+1.23%) and CNX Pharma (+0.92%). The weekly histogram MACD gained further last week but continues to be below the median line implying that rallies should be treated as corrective in nature.


Here are some key levels to watch out for this week


As long as the S&P Nifty stays above 4,974 points (pivot) the bulls need not worry. They should use 4,932 as a stop loss on longs.

 Support levels in declines are pegged at 4,864 and 4,660 points.

Resistance levels on the upside are pegged at 5,178 and 5,288 points.


Some Observations

  1. The Nifty will face stiff resistance in the 5,135-5,185 area which has to be taken out in close for the bulls to be shaken.
  2. 5,098, 5,200 and 5,301 are resistance levels in this rise.
  3. It’s a high probability that the current rise will be in three waves.



Those who bought last week as was advised by us should book profits on the very first day of the week as there is a possibility that we might see a dip (till mid-week). If this decline comes close to last Friday’s low or around the above-mentioned support level one can think of venturing long for another small rise as this overall recovery could last till the third weekend of this month. However the crucial resistance area during this time frame is pegged between 5,185-5,275 points where one should be looking for exiting opportunities only.


(Vidur Pendharkar works as a consultant technical analyst & chief strategist at


Public sector banks - 1: With government keeping the control, who will put in the capital?

The government wants to hold 51% is PSBs and is inflexible about it. It will soon find out the flip side to this, when asked to put in capital to either maintain this stake or force banks to give up growth

The criticality of operational flexibility and functional autonomy for public sector banks (PSBs) in the context of market driven economy, and competitive challenges engendered by growing internationalisation is dealt with incisively in the “Report of the Committee on Banking Sector Reforms 1998” headed by M Narasimham, a former governor of the Reserve bank of India (RBI) and a distinguished economist. (Incidentally an earlier committee called “Committee on Financial System [CFS] 1991” was also headed by M.Narasimham and hence the report of 1998 is often referred to as Narasimham II).

Narasimham II stated that, “No discussion of the structural issues would be complete without referring to the future of organizational pattern of our public sector banks. This is also closely related to the issue of autonomy in their functioning” (para 5.22, Chapter V –underlining added) which is relevant to recapitalization of banks. The committee pointed out that the banks would need at regular intervals capital infusion to leverage on to capture expanding business opportunities and to meet Basel committee stipulations, which the central government’s budget might not be able to provide because of multifarious demands on its resources. Narasimham II therefore concluded that PSBs would have to raise capital from the market which would be beneficial in other respects as well. To quote, “Accessing the market would engender a discipline of its own in terms of performance which would enhance shareholder and enterprise value.” [op.cit.5.29] Holding the view that government’s dominant ownership would not be conducive to raising equity from the market, it recommended dilution of government holding to 33%.

The successive governments—one led by the NDA and the other two led by UPA I&II, however, have assured the Parliament that  the government stake would not be allowed to go down below 51%, which in effect could mean ‘denationalisation’. The implication of this policy assurance is that the government would have to bear increasing burden of capital infusion into PSBs to meet capital adequacy stipulation even as it is constrained by other fiscal considerations. If the government finds this difficult to fulfill, the banks would have to reconcile themselves to stunted growth of business and operations. Sensing this looming prospects, the RBI in its ‘Report on Trend and Progress of Banking in India 2009-10’ cautioned that 11 out of 21 PSBs were very close to the floor of 51% shareholding and that, “this raised the important issue of recapitalization in order to ensure continued credit creation by PSBs if the statutory floor of 51% for government shareholding had to be maintained’ (op.cit. Paragraph 4.65, Chapter IV). The impact of sticking with the inflexible policy of holding a minimum of 51% of shares in all the PSBs will soon unravel itself.

It must be said to the credit of the Government of India, ministry of finance that following the Budget speech by the then finance minister, it came out with detailed directions on 22 February 2005 on the issue of grant of autonomy to PSBs which is known as “Managerial Autonomy for the Public sector Banks”. This document spelt out the clear demarcation between “the roles of owners, the board of directors and the executive management”. It went on to state that the “The objective is to ensure that banks function on sound principles of corporate governance. The key issue is to design a framework in which government will exercise its ownership rights without transgressing into the management functions of the PSBs”. For the stronger banks, autonomy is granted in 12 different areas while others have freedom in eight areas of operations in addition to the existing ones. PSBs could not have asked for more but in the recent past, how this autonomy has come to be chipped away is dealt with in later paragraphs.
In 2005 the government owned 100% shares only in four out of the 19 nationalised banks. At present in all the nationalised banks, and IDBI Bank and State Bank of India i.e. PSBs, the government has less than 100% holding; in almost 14 of them the private shareholding exceeds 30%. The 2005 document on Managerial Autonomy showed sensitivity of the government to the changing pattern of ownership; it is worthwhile quoting from this document: “The existence of private shareholders in the PSBs imposes a responsibility on the government, as the majority shareholder, to enhance shareholder value and protect minority shareholders’ rights. The government will create an environment conducive for PSBs to raise additional funds from the market for meeting the Basel II requirements and to respond effectively to emerging competitive pressure”.

The private shareholders are allowed to elect one director for each 16% of the holding. In practice, the PSBs are able to persuade the institutional shareholders who represent the bulk of private shareholding to vote for the candidates indicated by them.  Not infrequently the government informally advises the PSBs the names of candidates whom they want to show favour; this sometimes compromises the independence of such a “shareholder director” as he/she would remain obliged to the government rather than to the private shareholders or even to the bank. Incidentally, it may be mentioned that the PSBs have so far not faced shareholder activism questioning the preferential treatment of public sector borrowers; some of such conventions might be difficult to defend as commercial decisions. The recent legal challenge initiated by The Children’s Investment Fund management [TCI], with just 2% shareholding against Coal India should be a warning to PSBs, more so to the government “against transgressing into the management functions” (please see quote in paragraph four above).

(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)


Car sales in May hampered due to rising cost of ownership

Recent increase in petrol prices, coupled with a hike in excise duty and vehicle prices as well as stiff interest rates have increased the cost of ownership, especially for petrol-run vehicles


Car sales during May grew at the slowest pace in seven months reporting 2.8% growth as high interest rates and petrol prices continue to hit the market, reports PTI.

According to figures released by industry body Society of Indian Automobile Manufacturers (SIAM), domestic car sales in May stood at 1.63 lakh units as against 1.58 lakh units in the same month last year. “This is the slowest growth since October last year when car sales witnessed a decline of 23.8%,” SIAM director general Vishnu Mathur told reporters in the capital.

“The softening of interest rates, which was expected to happen has not materialised and continues to be high. Moreover, high petrol prices have also affected sales and the overall sentiment in the market is very negative,” he added.

Increase in prices of vehicles following the excise duty hike in the Budget has also had a major impact, Mr Mathur said, adding that even diesel vehicles which used to have a lot of demand had tapered off. The recent increase in petrol prices, coupled with hike in vehicle prices and stiff interest rates have increased the cost of ownership, especially for petrol-run vehicles.

“In the premium and executive segment, which are generally considered to be price insensitive, the demand for diesel vehicles has slowed down,” Mr Mathur said.

At such a time, he added, “If the government goes ahead and decides to tax diesel vehicles more, the overall demand will suffer all the more”.

Motilal Oswal Securities, in a research note said, “Slowdown earlier visible in passenger cars (2.2% FY12 growth in domestic cars) is now clearly evident in two-wheeler volumes as well, with growth rate moderating to about 10% over the last four months (Vs 17% in eight months of FY12). However, utility vehicles (UVs) and light commercial vehicles (LCVs) continue to record strong volume growth. Although volume outlook in the short-term is impacted by macro headwinds, we believe long-term volume outlook remains positive driven by strong economic growth, softening in interest rates, new product launches and exports potential.”

During May, in the passenger car segment, market leader Maruti Suzuki’s sales dipped by 5.9% to 72,309 units. However, rival Hyundai Motor India's sales increased by 3% to 31,939 units. Tata Motors, India’s largest vehicle maker witnessed 6.7% increase in car sales at 17,371 units.

In May, total sales of vehicles across categories registered an increase of 10.5% to 15.13 lakh units as against 13.7 lakh units in the same month last year. Total two-wheeler sales last month increased by 11.4% to 11.92 lakh units from 10.7 lakh units in May 2011.

According to the SIAM data, motorcycle sales in the country grew 7.2% during May to 8.9 lakh units from 8.3 lakh units in the same month last year. In this segment, market leader Hero MotoCorp posted 10.7% jump in sales to 5.0 lakh units in May. However, rival Bajaj Auto's sales went down by 5.3% to 2.1 lakh units during the month.

Honda Motorcycle & Scooter India (HMSI) posted a 45.5% increase in sales to 88,334 units, while TVS Motor moved 47,175 units, 14.5% less than the corresponding month of the previous year.

The scooter segment’s overall sales grew 34.4% to 2.4 lakh units from 1.7 lakh units.

HMSI’s scooter sales grew by 65.5% to 1.24 lakh units in May, while Hero MotoCorp sold 36,312 units, up 24%. TVS Motor's sales saw decline of 2.4% during the month to 34,936 units.

Commercial vehicles sales grew by 9.1% to 62,025 units during the month, from 56,841 units in the year-ago period, SIAM said.

Medium and heavy commercial vehicle sales declined 10.6% to 22,227 units during the month compared to 24,858 units in May last year.

According to SIAM, light commercial vehicle sales grew 24.4% to 39,798 units in May 2012 from 31,983 units in same month a year ago.

In the three-wheeler category, sales fell by 3.3% to 37,184 units from 35,988 units in the same month last year.


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