Correction is on, expect support at 17,400

The market trend is down; it will probably move sideways with a downward bias

Markets were volatile throughout the day. They started off on a strong note, but soon pared gains and took a dive. Trading was range-bound for the rest of the day. The trend was downwards. 

The BSE Sensex ended the day 62 points down (0.35%) at 17,527 points; the Nifty ended 13 points down (0.25%) at 5,249.

Most Asian stocks declined on Wednesday amid concerns that a rally that had taken the MSCI Asia Pacific Index to a 10-week high yesterday had overvalued earnings prospects. Key benchmark indices in China, Taiwan, Indonesia, Hong Kong, Japan, South Korea and Singapore were down by 0.44% to 1.11%. China’s central bank said that it would try to keep the growth momentum steady and prevent any financial risk. Stating that the current economic condition was “extremely complicated”, the bank said that it would maintain ample banking liquidity. 

Japan’s export orders were at a six-year high, which is a sign of recovery in the manufacturing market in China. The index for new export orders, a leading indicator of Japanese exports, rose to 55.7 from 55.2 in the previous month, hitting the highest level since May 2004.

European stocks were skidding, as steady oil prices boosted energy stocks, eclipsing a dip in heavyweight mining shares. The key benchmark indices in France, Germany and the UK were all down. All US indices were in the red after poor payroll data, although the US consumer index indicated a healthy consumer confidence in March. The Conference Board's confidence index rose to 52.5, exceeding the median forecast.

Closer home, the government will raise petrol prices by 1.1% from Thursday in major cities that will migrate to Euro IV complaint fuel to help oil firms to recover the investment made for plant up-gradation. Diesel prices in leading cities including Mumbai would be hiked by Rs 0.26 a litre, while in Delhi it will rise by more than Rs2 because of taxes.

Indian exports are expected to rise by 15%-20% in the next year, said the trade minister. Foreign institutional investors was net purchasers of Rs579 crore and domestic institutional investors bought stocks worth Rs100 crore yesterday. The rupee was higher in afternoon trading.

Among stocks, Alok Industries (down 0.22%) will spend Rs300 crore in capacity expansion in 2010-11. The company, which produces polyester yarn, plans to double yarn capacity to 1,200 tonnes a day. Godrej Properties (up 2.6%) has entered into agreements to transfer 49% stake in unit Godrej Sea View Properties to HDFC PMS for Rs55 crore. L&T (down 0.8%) has secured orders aggregating Rs1,126 crore from various customers like Sterlite Industries India, Hindalco Industries, Tata Steel, Delhi Jal Board and Uttar Pradesh Jal Nigam Limited. IT stocks extended recent losses triggered by a recent rally of the rupee against the dollar. India's largest software services exporter by sales Tata Consultancy Services (TCS) fell 2.4%, extending the preceding three days' losses. Ahluwalia Contracts (India) was up 4.3% after the company won orders worth Rs425 crore for civil and structural construction.

The market trend is down. It will probably move sideways with a downward bias and find support at 17,400.

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    A positive March quarter is positive for stocks

    The market has risen in the March quarter. Based on past patterns, what should we expect? Here is a study of the historical behaviour of the markets over the past 25 years

    After witnessing a few jitters in the month of January, stock markets have rebounded well to end the March quarter on a positive note. The Sensex ended the March quarter with a marginal rise over the December quarter of last year. How does this performance augur for the June quarter and even the rest of the year?

    Moneylife took a look at the historical data, searching for some clues in the market patterns. We started from the year 1986. Over these years, the Sensex has ended the March quarter in positive territory 13 times (excluding this year).

    Out of these 13 occasions, the market has continued its upward momentum into the June quarter as many as nine times. That translates into a high 70% probability of the June quarter ending in positive territory. Indeed, the bulls have been on a roll for the past seven consecutive weeks and are not slowing down. However, it means that valuations have run up substantially now. The market is now trading at a high P/E of 19 based on the expected March quarter results.

    The June quarter trend over the last eight years shows an interesting pattern. Since 2002, the Sensex has ended the June quarter in the opposite direction every year. Last year, it ended positive. Will the alternating trend continue?  

    The bulls have a lot to cheer about—strong corporate performance supported by strong FII inflows from countries with low interest rates may just turn out to be the booster dose for the markets as we head into the next fiscal year. Unless the Sensex gets weighed down by the high valuation and sudden global shocks, it may proceed to turn in a solid performance in the coming year.

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    SEBI gives a breather to brokers; leaves it to exchanges to handle sticky issues

    The market watchdog has extended the deadline for implementation of its ‘dealings between a client and a stock broker’ mandate till 30 June 2010 and will leave it to the stock exchages to handle sticky issues

    Market watchdog Securities and Exchange Board of India (SEBI) has given breathing space for brokers to comply with its earlier circular dated 3 December 2009 which laid down fresh rules on how to deal with clients but the pushed the sticky issues of implemenation to the stock exchanges. The deadline to implement the new rules was set at 31st March, but now brokers can complete the necessary process till 30 June 2010. Although there are no changes in the clarifications issued by SEBI, brokers are happy with the new timeline.

    Yesterday, Moneylife had reported first on how brokers were not able to keep up with the 31 March 2010 deadline for complying with the changes brought about by SEBI (read here).

    The broker community had sought an extension from SEBI to cope with the new rules. “The stock brokers are now directed to ensure the full compliance of the said circular dated 3 December 2009 in respect of all clients—existing and new—latest by 30 June 2010,” states the SEBI circular.

    “If it has given an extension of three months then it’s enough time to get our act together. SEBI has acknowledged that some time needs to be given and I think it is in the right spirit. We would have liked to have certain changes to be made but I think it’s fair,” said Alok Churiwala, MD, Churiwala Securities Ltd.

    However, what SEBI has done is a mere postponement of the issues that brokers would find hard to handle. Moneylife has learnt that SEBI has pushed the issue of implementation to the stock exchanges since it does not want to handle the problems thereof.

    Among the various changes initiated by SEBI are related to the KYC (know your customer) compliance norms. Maintaining KYC documents of existing clients is proving difficult for brokers while those who have online accounts will have a smoother transition. “It is not feasible to take signatures of clients on the form every year,” said a broker.

    According to sources, most of the brokers will have a difficult time complying with the rule even if it is implemented. A client has to sign around 80 times on a KYC form.

    Only brokers who are maintaining online transfer of funds will be able to deal with the new mandate smoothly. Brokers will have a tough time maintaining KYC forms for the older clients. Among the several changes made in the new KYC norms include having a font size of 11. According to sources, this would only make the form bulkier and the client may end up signing the form without reading the fine print.

    “Clients sign where they are asked to sign. It was happening earlier and will continue to happen. It’s not desirable but that’s how it has been. Earlier everything was a part of the same booklet and the client did not know what was compulsory and what was not compulsory. Now clients have a choice,” said Alok Churiwala, MD, Churiwala Securities Ltd.

    “People who are doing the transactions online will be able to make the transition smoother because they don’t have to change the system; others will have to get used to the new model. Whatever extension is given is welcome,” adds Mr Churiwala. 

    One of the changes proposed by SEBI is that funds lying in clients’ accounts have to be squared off at least once in a quarter or month depending on the preference of the client.

    But this is going to cause problems. This is because based on the initial deposit of funds and securities with the broker, clients are given an exposure for trading. “A compulsory settlement of funds and securities on a monthly/quarterly basis would result in the clients’ exposures being nullified. The exposure for trading would not be available to the client till such time that the client is able to replenish the funds and securities with the broker. The movement of funds and securities through paper instruments (cheques & Delivery Instruction Slips respectively) would imply that the client can be locked out from the market for two-three days. This would be the transit time required by the client to receive funds and securities from the broker and submitting it back to the broker for availing further exposure,” said the head of operations of a broking company.

    According to SEBI sources, transferring of clients’ funds back to their accounts on a monthly or quarterly basis cannot be implemented so easily by the brokers and the watchdog is aware of that aspect. After receiving concerns from the brokers’ community, SEBI does not want to retreat from its earlier stand and has settled for an extension of the deadline for three months with exchanges being asked to handle the fallout.

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