What a dramatic week just went by. It shook the market and then on Friday evening we had the Finance Minister soothing the nerves with balm. The true test would be the week ahead when one sees the response of her announcement from FPI's for whom it was primarily meant. The announcements are not yet over with more to follow in the week ahead and the subsequent week. It appears the housing sector would be a key beneficiary of announcements in the coming week.
BSESENSEX lost 649.17 points or 1.74 per cent in the previous week to close at 36,701.16 points. What is of even greater significance is the fact that the low of the day on Friday was 600 points lower at 36,102.35 points. NIFTY lost 218.45 points or 1.98 per cent to close at 10,829.35 points. The low on Friday was 10,637.15 points, a recovery intra day of 194 points. The broader indices saw BSE100, BSE200 and BSE500 lose 2.01 per cent, 2.03 per cent and 2.12 per cent respectively. BSEMIDCAP was down 2.14 per cent while BSESMALLCAP lost 3.17 per cent.
The Indian Rupee continued to be under pressure and lost 51 paisa or 0.72 per cent at Rs 71.66 to the US Dollar. Dow Jones continued its wild swings and was down 257.11 points or 0.72 per cent at 25,628.90 points. President Donald Trump seems to be losing his cool in this one upmanship war with his Chinese counterpart. He has now asked American companies to stop using Chinese locations for their business, not realising that a large part of so-called American goods are actually manufactured in China. China has imposed further increase of duties on 75 billion of US exports to China. One hopes at the G-7 meeting being held in France over the weekend some sense dawns on Trump or it could be yet another terrible week for global markets.
In the last seven weeks since the Budget was presented, markets have lost 10 per cent on an intra-day basis and over 8 per cent on a closing basis. FPI's have withdrawn close to 3 billion dollars of money in the same period. The sore point has been addressed and some more also announced for them during the course of last week.
First, SEBI announced further simplification of registration for FPI's. Secondly, it gave them a tax holiday of 10 years if they registered and did business from Gift City in Ahmedabad. To make things even sweeter for them, while the Finance Minister rolled back the surcharge imposed on them in the Budget, she also extended the same benefit from trading in derivatives which was earlier treated as business income.
Besides covering the FPI's, the Finance Minister also announced measures for a number of sectors. These included the auto sector where additional depreciation has been provided for purchase made in the period ending between now and March 31, 2020. This deprecation is being doubled from the present 15 per cent to 30 per cent. Further, the freeze on government departments for replacing old cars would be lifted. As far as BS-IV vehicles are concerned, the Minister made it clear that they would be allowed to remain registered as long as the validity of the registration is issued when purchased.
A number of measures which would help in ease of business were also announced which concerned the IT department, refund of GST pending, SME and MSME and also that banks would pass the benefit of any rate cuts in totality. She announced that another so called 'package' would be announced mid-week in the coming week and the third and final one sometime next week.
It would be fair to assume that with such a carrot dangling; market men would dare not short any rally which sets in motion beginning on Monday morning. It would be important to see how much of the billion of sales is bought back. If FPIs buy even half of that amount in the coming weeks, markets would regain almost the entire lost ground as confidence would have been boosted and the rupee would also have gained.
The two primary issues which listed during the week gone by did not have a very successful debut. Shares of Spandana Sphoorty Financial Ltd which had issued shares at Rs 856 ended the week with losses of 39.60 or 4.63 per cent to close at Rs 816.40. The other issue from EPC contractor Sterling & Wilson Solar Ltd which had issued shares at Rs 780 saw its price fall to Rs 625.15, a loss of Rs 154.85 or 19.85 per cent.
The former Finance Minister and Home Minister P. Chidambaram was arrested last week after his anticipatory bail application was turned down. The spectacle created on national television with his chief lawyers being present at his residence and the press conference at AICC headquarters was unbecoming of such a tall leader and senior advocate of the Supreme Court. The outcome of this arrest is going to be long and sordid.
Speaking of former finance ministers, yet another former Finance Minister, Arun Jaitley, passed away on Saturday. He was ailing for some time.
Markets should see strong upward movement when they open for trading on Monday morning. This should also be followed by short covering. I believe that market men would wait for the second set of announcements expected mid-week before taking any decision to sell into the ensuing rally. Enjoy the rally as it unfolds as this would be happening after a long time. The only joker in the pack could be Donald Trump.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal.)