Higher open interest, new series may add to volatility
Expectations from the budget have risen looking at the gains of the last week
The market was on a roll last week and gained on all the four days. Thursday was a holiday on account of Republic Day.
The Sensex gained 847.96 points, or 3.14 per cent, to close the week at 27,882.42 points. The Nifty gained 291.90 points, or 3.505 to close at 8,641.25 points. The rally was strong and across the board. There were no sectoral losers. The January series expired on a positive note, gaining 499.15 points, or 6.16 per cent to close at 8,602.75 points. During the week, the market crossed the levels it had closed on November 8. These levels were 27,591.14 points on the BSE and 8,543.55 points on the NSE.
The strong rally has caught many by surprise, including me, and has bettered expectations by far — not sure how many times a pre-budget rally has been converted into a post-budget rally as well. Let’s hope, this time, it does and we have the right environment for the same.
The Union budget would be presented on Wednesday. This With elections to be held immediately after the budget, it is expected to be populist. But if populism comes by crushing industry or taxing producers, the market would not like it.
The market expects that the budget would lower tax rates and raise the slabs. Going forward it makes sense to be tax- compliant as the cost of tax avoidance increases sharply. It is also expected that STT rates on trading and derivatives would be increased and those on delivery-based trade reduced to encourage deliveries and therefore investment into the market.
In the primary market, the government sponsored CPSE-ETF would list in the week ahead. This follow on fund offer had received excellent response from retail investors. The issue was oversubscribed and it appears that except retail and pension funds, no other categories were allotted shares.
The offer for sale from the BSE received excellent response. It received a record 11.95 lakh applications. This was higher than the 10.90 lakh applications received by L&T Infotech last year. Clearly, retail interest is back. The BSE issue is expected to list towards the end of the week.
L&T Infotech, meanwhile, has won a multibillion, multiyear contract for analytics from the central board of direct taxes. It would be paid on performance; on providing leads from various types of information about people’s income and expenses linked to their returns.
There is speculation whe-ther BSE shares would trade on the BSE. If one goes back in time when the NSE began trading there were no companies listed on the NSE. It traded in the ‘permitted-to-trade category’, which meant that it was trading with no onus of obligations to the exchange. It paid no listing fees and was not obliged to be regulated, answerable or mandated to provide information. Sometime ago when MCX-SX began it too had a large number of scrips listed under the permitted-to-trade segment. I believe, the same would happen in the case of BSE where it would list on the NSE and also trade in the permitted-to-trade segment on the BSE. This is convention and any changes to this is known or expected.
The government divested its part stake through an offer for sale of shares in MOIL. The retail issue was subscribed over five times. The floor price was Rs 365 and a discount of 5 per cent was offered to retail investors. The share closed at Rs 371.10 on Friday. The government raised about Rs 486 crore through the divestment of 10 per cent or 133.18 lakh shares. The clearing price for non-retail was Rs 365, while for retail it was Rs 377.55 on the BSE. This means that successful applicants have surrendered 3.43 per cent of the 5 per cent discount offered to them.
Dow Jones finally closed above the 20,000-mark at 20,093.78 points. Donald Trump who has just completed his first week in office has stirred a hornet’s nest. He has curbed immigration and visas from Muslim countries and asked Mexico to pay for the cost of building a wall. One would be sure that news emanating from the superpower would keep global markets on their edge.
The week ahead would be supervolatile and there is the budget to encounter mid-week. Expectations from the budget have risen looking at the gains of the last week. Trade cautiously, as with higher open interest and a new series on hand, the market could see sharp two sided moves.

The author is founder, Kejriwal Research and Investment Services
Columnist: 
Arun Kejriwal
Tags: