The week began on a strong note and saw gains for the first two days and it appeared even on the third day that bulls were back with a bang. Alas! It was not to last, and we saw a sharp reversal on Wednesday itself and the week, which had a holiday on Thursday, ended with losses. The Sensex lost 417.95 points, or 1.20 per cent, to close at 34,315.63 points. The Nifty was down 168.95 points, or 1.61 per cent, at 10,303.55 points.
Wednesday saw huge intra-day movement, with the high on Sensex being 35,605 and the low, 34,727 points. The intra-day swing was 878 points while the net change was a negative 383 points. Similar movements on the Nifty saw an intraday high of 10,710 and a low of 10,436 points, with an intraday movement of 274 points. The net change was a negative 131 points. Losses continued on Friday and it was yet another down week for the market.
The results from the larger companies forming part of the Sensex and Nifty are on expected lines and are showing growth and better performance at the operating level as well. It would be interesting to see when the mid-cap and small-cap companies start declaring results in the November fortnight whether this momentum is sustained or it just buckles under.
The rupee showed some resilience and gained 24 paise, or 0.33 per cent, to close at 73.32 to a dollar. The Dow Jones, after a choppy week, gained 104.35 points, or 0.41 per cent, to close at 25,444.34 points.
In India, action was centred around NBFCs and housing finance companies. The news of builders being under financial stress took its toll on lenders to this sector and one prime example was Indiabull Housing Finance, which saw its shares fall from Rs 931.10 to Rs 654.25, a fall of Rs 276.85, or 29.73 per cent. Yet another casualty in this space was PNB Housing Finance, which fell from Rs 895.55 to Rs 706.60, a loss of Rs 188.95, or 21.10 per cent. The share now trades below its issue price of Rs 775 when it went public in November 2016.
RBI has provided much-needed liquidity to the NBFC segment and made the announcement on Friday in the morning itself. It did help in stabilising things but not enough to bring about buying in the segment.
Yet another event that has gone unnoticed is that interest rates charged for margin funding have been increased substantially with effect from the beginning of this quarter. Rates have gone up from 9-10 per cent to 12-13 per cent and the limits to individual clients have also been drastically pruned. All of this is having a cascading effect on the market and one did see selling by brokers of leveraged positions on Friday.
October futures expires on Thursday and this series has been entirely in favour of the bears so far. The Nifty’s current value at 10,303.55 points is a loss of 674 points, or 6.14 per cent, for the series. While trading into expiry would be volatile, one should expect the bears to have a smooth sailing, and managing to hold on to their upper hand without any hiccups. There could be some short covering in select counters but nothing more than that is expected.
Coming to the broader picture about the market, this looks like a good time to start building a portfolio for oneself. Invest 12-15 per cent of the available corpus every month and one should be done with the portfolio building in the next six-eight months. If new developments emerge the portfolio-building time could be accordingly adjusted or modified.
The last four weeks have been quite bad for the market and have shaken up the entire system. Event after event has hit at the very core. ILFS default, Dewan Housing, Yes Bank, Infibeam, NBFC issue, housing finance companies, builder loan defaults and margin funding. These have hit at the underbelly and knocked the market out cold. Leveraged positions have unwound significantly and open positions are now relatively low. Post this expiry, we should be starting to see the market consolidate and try to recover lost ground slowly but surely.
Use panic, if any, this week, particularly on the expiry day, to build your portfolio. Avoid trading and look to buy on dips. Any strong rallies in individual stocks could be used as an exit point as the market has to spend some time in the consolidation phase. Invest in coming months for a longer-term horizon.
(The author is founder, Kejriwal Research and Investment Services)