Markets

Public sector banks’ dirty linen repels the bulls away

The domestic equity market crawled up during the week gone by, but gave up the gains by the close of the week, inspite of positive global sentiments, principally due to home-grown PSU banking mess at the Punjab National Bank.

Generally such mess comes out during bottoming cycle, which PSU banks are passing through. Worst seems to have been discounted in the PSU banks, but positive triggers are awaited.

The combined net profit of 1,395 companies, which have declared their results for Q3FY18, rose by 10.6% (YoY), the combined net sales went up 14.6 % (YoY), which was the fastest growth in last 13 quarters.

Bull markets generally make a top when the numbers are great and bear market forms a bottom when the numbers are ugly. Indeed the market seems to have discounted the fact that good numbers are due to a low-base effect, but will India Inc deliver such growth numbers going ahead?

The market currently doesn’t thinks so and hence the price correction seems to be deepening.

Events of the Week
Lessons from Ben Graham were refreshed when Warren Buffet acquired shares in beleaguered pharma sector by acquiring for the first time Teva, an Israeli pharma company. This acquisition is a pointer to all value investors, that it is time to lap up pharma companies.

All major Indian firms too have reported a decline in profits. Sun Pharma reported a 75 per cent drop in profits after adjustments. It’s time to accumulate good pharma companies in your portfolio.

Trump’s ‘America First’ and Modi’s ‘Make in India’ policies are spearheading both the countries to create local growth and employment. The Indian government has increased import duty on sugar to 100 per cent from 50 per cent, initiated steps to attract back home, all the futures trading that were happening in the Singapore Stock Exchange. Although these steps are inward looking but these should help the country generate employment the most important agenda of the government.

Technical Outlook
After a period of high volatility, the market is consolidating and adjusting to the new reality. The oscillators have turned deep oversold and, therefore, are ripe for a bounce.

Ideally a double bottom test should give courage to the market to rebound from oversold levels.

In the near term, the market is expected to test the bottom from where a rebound is expected. Buy with stops should be adopted by the traders once the market tests bottom.

Expectation from the week

The Indian banking system is keenly awaiting the outcome of biggest steel defaulter account, Essar Steel, whose deadline for submission of bids are over and the result is keenly awaited.

Reserve or the liquidation amount was Rs 22,000 crore and total debts stood at Rs 78,000 crore. If aggressive bidding emerges, then the gloom surrounding PSU banks would subside.

The biggest worry for global equities is the expectation of rising interest rates; Indian bonds are also falling in line with global clues. Stabilisation of bond market is key to equity revival; otherwise the bears will pounce the stock market. It is better to play safe and stick to only quality stocks.

Nifty50 closed the week at 10,452 marginally down by 0.02 per cent.

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