The market still looks overbought; expect a dip in a day or two

The breakout we mentioned yesterday has taken the market higher. The Nifty was up 0.85% at 5,231 points from yesterday’s close of 5,198.10, while the BSE's 30-share index rose by 1% or 106.90 points at 17,490.08. Of course, selling took over after 1.30pm in the afternoon and the market came down in the end to the same level as the opening.

Despite the fact that the market looks overbought, the short-term trend is still up. Every single market in the Asia Pacific region was in the green except the NZX50.
 
Jakarta was the highest gainer (up 3.25%) followed by KOSPI (up 2.11%) and the Hang Seng was up by 1.72%. Shanghai’s index jumped 1.93% after a continuous slump from 11 March 2010. All this bullishness was followed by an overnight strength in US markets where the Dow was up 44 points, and the Nasdaq was up 16 points.

American markets closed in the green yesterday as the Federal Reserve announced that it was not tweaking interest rates as of now, a move which augurs well for risky assets such as emerging market equities. Until there is a sharp sign of reversal by the Fed and other central banks, the Indian market is going to push ahead, subject to short-term dips. All European markets were up at the time of writing.

Among the Nifty movers, Cipla Ltd was up 5.10% at Rs334, Idea Cellular Ltd was up 3.29% at Rs64.40, Hindalco Industries Ltd was up 2.42% at Rs173.65, and Larsen & Toubro was up 1.84% at Rs1,628.60 after the company announced that it had won an order worth over Rs1,000 crore from ONGC.

Among the major losers in the Nifty, Unitech Ltd shed 2% at Rs73.50, Maruti Suzuki was down 1.63% at Rs1,435, Tata Power was down 1.48% at Rs1,364.15, BPCL was down 1.27% at Rs538.35, and Hindustan Unilever was down 1.24% at Rs223.90. We expect the market to dip in a day or two. Whether that will signal the end of the rally since the Budget, only time will tell. Stocks remain highly overbought.

SEBI’s new idea to limit the timeframe for NFOs to 15 days will create even greater problems for the fund industry. But most importantly, it will undermine SEBI’s own agenda of market development by cutting off smaller towns

Market watchdog Securities and Exchange Board of India (SEBI) has reduced the timeframe to complete a new fund offer (NFO) within 15 days—for both open-ended and close-ended schemes—in a move to speed up the allotment process. However, according to industry sources, the move will have a negative impact on asset management companies (AMCs) as the marketing of NFOs is a cumbersome and time-consuming process.

“SEBI does not give permissions to launch NFOs quickly. It’s a time-consuming process where retail marketing is concerned. It takes four-five days to get the stationery (like the NFO form and prospectus) from the AMC. We have to send thousands of mailers to our clients, out of which we get 30-40 responses. Then our sales executives go and meet them personally. We end up with 15-20 clients,” said a distributor.

After SEBI banned entry load on MFs, distributors have started tightening their purse-strings. Many smaller distributors use book post (a cheaper form of postal delivery for books, documents and printed material) to distribute application forms to their clients, which usually takes three to four days to reach their destinations. While fund houses are currently brainstorming on the new rule and are tightlipped over the issue, distributors are not too elated over the move.

“Asset management companies (AMCs) will have less time on their hands and they can’t spend more on advertisements. The impact will be negative. The bulk of the money comes in the last four days (of the offer), “said a distributor.
“It may be a good move by SEBI, but the regulator should give more time to distribute MFs in smaller towns,” said an IFA.

SEBI has also extended the supported by blocked amount (ASBA) facility for MFs wherein the subscription money will only be debited from the bank accounts of investors once the MF units are allotted. The move doesn’t seem to have much relevance as an NFO is never oversubscribed, unlike an initial public offering.
 

There were reports that the finance ministry might ask state-run banks, which are receiving fresh funds from the government, to exit non-core businesses like insurance

The Indian government on Wednesday said that it has no intention to prevent state-run or public sector banks (PSBs) from entering into non-core businesses like insurance and mutual funds, reports PTI.

"There is no issue at all. We have never asked and there is no thinking in the ministry," financial services secretary R Gopalan said, when asked if the government has issued a circular asking banks to desist from entering into non-core businesses.

There were reports that the finance ministry might ask state-run banks, which are receiving fresh funds from the government, to exit non-core businesses like insurance.

"The banks have to expand in various financial product activities so you cannot prevent them from getting into them," Mr Gopalan said.

There is some space available so there is nothing wrong in entering into those activities, he said.

Mr Gopalan said that the government will take a decision on infusing Rs16,500 crore in capital in public sector banks by the end of next month.

The government is expected to take a view on public sector banks' recapitalisation by April-end.

Last month, the government announced that it would provide Rs16,500 crore financial assistance to the 16 state-owned banks for shoring up their capital base.