D-Street week ahead: One more leg of corrective fall to begin soon




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      ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES The domestic equity market repeated the previous sequence by tanking on the news of North Korea missile launches, but this time it was a bomb. Due to such headwinds, however, one good thing that has emerged is that now there will be no surprise element for any emergency, if any, that may arise.

      However, the resilience of our market post the mid-week fall also indicates that this correction is of sideways nature, but may take some more time to complete the sequence. At best, one downfall is expected.

      Eicher Motor’s proposed plan to acquire superbike maker Ducati reminds of the hay days of 2006-08 when Tata Steel acquired Corus and Hindalco acquired Novelis to accelerate their growth aspirations, but with time passing by, all those proved otherwise. Similar could be the fate of Eicher Motor wherein the debt-equity ratio would increase from zero to 2:1 and the operating efficiency will dramatically fall in the near term. The acquisition could be risky for long-term shareholders, but first let’s see the details of the deal as and when it happens.

      The PMO has cracked the whip on the bureaucrats to release funds to the contractors to the tune of Rs 70,000 crore, approximately, which was locked up in arbitration litigation, after taking bank guarantees from them. This will act as necessary lubricant to further accelerate the government’s infrastructure building agenda. In the era of GST, the government will emerge as the biggest spender and companies driving revenues there from will outperform the general market.

      Events of the Week

      The Cabinet rejig will go a long way in achieving rapid economic growth for the country. The defence ministry’s sharpened focus on Make in India could shortly release orders worth approximately Rs 1 lakh crore for defence procurements, which will be a boon for the long parched sector. Induction of new faces into the Cabinet indicates that ‘only merit matters’ with this government.

      Technical Outlook

      The market is witnessing reduced volatility and narrow price action indicating the phase of ongoing correction. Midcap and Smallcap indices have reversed gains after reaching their previous highs, but the Nifty50 and Bank Nifty are still way below their respective highs, thus showing marked divergences.

      This shows that the market is still in the correction zone and the rise should be used to exit long positions. All rallies should be taken with a pinch of salt before initiating long positions. At best, longs should be avoided for now for trading purposes.

      Expectations for the Week

      The market has been trading in a narrow range, indicating that a sideways correction is under way. Immediately, there are no domestic growth triggers that will give direction to the market. However global clues can impact it in the near term. The havoc played by hurricanes in the US would be a sorry state of affairs but that could open up short-term opportunities in the refining sector in terms of higher margins due to shutdown of refineries in the US. Stock-specific news-based movement will be witnessed till the time the market firmly gets a direction. Many new IPOs are under way with insurance being the flavour of the season. Insurance is a highly underpenetrated sector in India with ratio being just 3.5 per cent whereas the global average is 6.5 per cent.

      There is a huge potential to be captured in India and, therefore, insurance companies must form part of the investors’ long-term portfolio. The market seems to be in a time correction mood, but a sudden kneejerk deep correction could also be expected. Investors should then start buying on such falls and at the same time start systematic purchases at regular intervals of quality bluechip stocks in private banking, consumer durables and consumer staples category on every decline. The Nifty50 closed the week at 9,934, down 0.4 per cent. Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.




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