Industry Speaks

GST Bill hope from Monsoon session

Dated 16th May, 2016

GST Bill hope from Monsoon sessionThe week gone by was extremely choppy and had wild swings through and on intraday as well. The Sensex gained 261.07 points or 1.03 per cent to end the week at 25,489.57 points. Nifty gained 81.45 points or 1.05 per cent to close at 7,814.90 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.07 per cent, 1.13 per cent and 1.24 per cent respectively.

BSEMIDCAP gained 1.74 per cent and BSESMALLCAP gained 1.24 per cent. In sectoral gainers, the top performer was BSEBANKEX up 2.70 per cent followed by BSETECK 1.71 per cent, BSECAPGOODS 1.61 per cent and BSEIT 1.57 per cent. The losers were led by BSEMETAL down 2.21 per cent followed by BSEOIL&GAS 0.72 per cent and BSEPSU 0.41 per cent.

In individual stocks, the top gainer was Axis Bank up 6.35 per cent followed by Power Finance Corporation 5.12 per cent and Bajaj Auto 3.22 per cent. The losers were led by Vedanta down 5.50 per cent followed by BHEL 3.20 per cent and Hind Unilever 2.58 per cent.


Swing times

The Sensex had wild swings on four of the five trading days with net change in excess of 200 points on two days, 300 points on one day and 450 points on another day. The fifth day was flat and the net result of all these gains and losses was just about one per cent at 261 points. This shows the nervousness of markets and how quickly they react to news of which there was no paucity last week.

The contentious Double Taxation Treaty which has caused upheavals in the market time and again has finally been amended. The treaty would impose capital gains in India for investments made from April 1, 2017. Similarly, SEBI has said it would look at KYC norms for P-notes which are another bogey that surprises the markets on and off. If this issue gets resolved even at the cost of reducing investment through this instrument, it would be a long term positive.

Dow Jones lost 205.31 points or 1.16 per cent to close at 17,535.32 points. The Indian rupee lost 22 paisa or 0.33 per cent to close at Rs 66.77 to the US dollar.

Retail or consumer inflation has moved up and immediate expectations of a rate cut have therefore receded. The only possibility is that good rains improve the prospects of the crop and concerted efforts by the government reduce prices and that in turn prompts the RBI governor to cut rates. However this event is now a couple of months away.


Bill check

The second part of the Budget session has ended and there was some legislation which actually took place. The Bankruptcy Bill was enacted while GST was just not taken up. The Finance Minister has stated that they would take up the GST Bill in the Monsoon session and take the same for voting even without the Congress agreeing to pass the bill. The idea is to call the opposition’s bluff of just stalling this legislation.

Some of the PSU banks reported results for the quarter and year that ended March 2016. Losses on account of poor quality of assets seem to have hit most of them quite badly. Provisions have been made but the coverage ratio has dropped quite significantly in view of the rising non-performing assets. While the BSEBANKEX was the top sectoral gainer last week its performance would be under severe stress when markets resume trading today.

In primary market news, the IPO from Parag Milk Foods Limited was subscribed on extending the issue and lowering the price band. The revised price band was Rs 215-227. The share would list in the current week. The two other issues listed last week and saw decent gains.


Issue updates

The issue from Thyrocare Technologies Limited which was issued at R446 listed on Monday. The issue saw the HNI portion subscribed about 225 times and the funding cost was Rs 185-190. While the share debuted at Rs 665 to reflect the funding cost, the share was under immediate pressure and closed the week at Rs 622.70, a gain of Rs 176.70, marginally below the cost of funding. HNI investors through the funding route by and large did not make any money in the issue.

The second issue to list was microfinance lender Ujjivan Financial Services Limited which had issued shares at R210. The leveraged HNI investors cost of funding was R48-49 which has not yet been reached. The share closed at Rs 213.60 on day one and at Rs 251.50, a gain of 19.7 per cent for the week. Leveraged investors lost quite a bit here.

There was frenzy in applying to these two issues through leverage and financers or NBFC’s increased the rate of interest for borrowing. The HNI thought he would still make money considering the premium in the grey market. So ultimately it was agreed on the part of all concerned which did the HNI in. The regulator of course needs to look into the issue of the grey market where premiums are openly discussed in media — electronic or print and details can be got on your handheld phone as well. It’s time for immediate action.

Markets will be volatile and choppy with a downward bias in the coming week. Trade cautiously.

(This article is published in on 16 May 2016)