Mercury rising but Market Barometer falling

Market opened the week lower, discounting record losses reported by PSU banks but bounced a little mid week on bargaining hunting and again succumbed to profit booking by the close of the week.

Rising dollar also unnerved equities and commodities markets globally. Dollar has given a powerful breakout above 67/- on fears of USFED can raise the interest rate as early as June however such repercussions could be serious for the
equities market.

The results were a mixed bag of positive and negative surprises. PNB reported Rs 5370 Crs Q4 loss, the biggest in the banking history, purportedly cleaning all the past messes. Syndicate Bank reported Q4 Loss of Rs 2160 Crs, Bharat Forge Q4 PAT was down by 19%, on the other side Piramal Enterprises Q4 PAT increased by 88%, Motherson Sumi PAT up 18%, Edelweiss Q4 PAT up by 26%, Lupin Q4  PAT up 48%.

PSU banks had worst numbers, but stock prices surprisingly stood resilient indicating that the worst is more or less discounted. These are ideal times of contra investing wherein Bankruptcy Code and Professionalization of the Bank Board would act as positive triggers for growth and return of profitability in the Banks in next few quarters. Tweaking of Mauritius treaty and now SEBI tightening P-Notes will go usher in an era of higher integrity in the capital markets.                  

Key events of the week: 
State Bank of India has finally initiated the merger process of five of its Associate Banks to consolidate and restructure the capital and reduce costs of duplication.
This will mark the beginning of restructuring of PSU Banks is India something similar to Nationalization process undertaken few decades ago. Idea Ltd has joined the tariff war by reducing the data tariff by 50% potentially straining the profitability further in the sector.

State election result indicates that the Modi magic is still on and the government will wrestle the support of regional powers to sail through the key bills in the parliament.

Technical Outlook: 
The market to continue its downward drift. During the week market had formed shooting star and Bearish Engulfing patterns both indicating short term bearish. Series of extremely short term lower tops are formed indicating continuation of the corrective pattern.

Nifty50 needs time to correct the entire rise from 6825 to 7991 which unfolded itself in 36 trading days. The current correction has just lasted for 16 days. Counting 38% retracement of the entire rise the market is expected to find strong support at 7500 Nifty50 levels wherein traders can initiate long positional trades.

Expectations for the week: 
Previous week we had mentioned “the undercurrent is expected to be weak for some more time” Indeed the weakness can now further accentuate in metals and commodity centric stocks as the Dollar rise will cause fall in the prices of primary commodities.

Dollar has begun its upward march which can potentially cap the upward journey of the stocks. Parag Milk IPO debuted at 15% premium to the issue price which was quite handsome considering the fact that company had received only 1.8times oversubscription.

Such kind of valuation if sustained for some more time can rerate the entire dairy industry wherein other listed peers will also catch up with the valuation. Investors should continue to accumulate good quality shares while traders wanting to go long may wait on the sidelines for some more time. Nifty 50 ended the week down by 0.84% and closed at 7749.70.

-Jimeet Modi, 
SAMCO Securities

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