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What Will SEBI Do Now?

| 5/16/2013 9:05 PM Thursday

The market has a mind of its own. No matter what logic one presents for or against a particular factor, if the market decides to overlook it and lean on something else to seek direction, it will. The market action over the last week is a classic example of what I mean. On one hand where the ‘cobraposts’ and higher trade deficits were pulling it down, lower inflation numbers helped it recover almost all that was eroded in market capitalisation. It is all a matter of sentiment, and right now, the market seems to be in no mood to relent to the negatives surrounding it. On May 15, it zoomed up in style, with the Sensex scaling its highest level in the past 28 months.

Overall, inflation is down to 4.89 per cent while core inflation has dropped to 2.8 per cent. According to reports, an across the board drop in the costs of food, fuel and manufactured goods has resulted in the easing of inflation. Food inflation is down to 6.1 per cent, its lowest level since January 2012, while fuel inflation came in lower at 8.8 per cent, shrugging off rising diesel prices.

Why this bullishness? To translate a well-known Hindi adage “The world survives on expectations”. From now on, expectations will start building up. Talks of a cut in interest rates will gather steam until the RBI meets in the month of June. With this will come in calculations of how lower interest costs will translate into a better operating environment for corporate India, and the markets as usual will ride on this positivity.

All this sounds pretty good, at least for now, but it is important to take stock of more serious matters that could impact the market. We have always been at the forefront in sounding alarm bells that come in handy in times of distress. At this point, there is an imminent fear looming over the markets. The closing date (June 30, 2013) for companies to bring down their promoter shareholding to less than 75 per cent is approaching and many companies have tried to make this date. While this may sound like a good move, it does not look so as it pans out. The deadline is being met in various ways which, according to us, is defeating the intent of the regulation.

When the government initiated the move to ask promoters to bring down their holding to less than 75 per cent, it had in mind the broad basing of the markets by bringing in more of floating stock. Has it really happened so? We don’t think so. The Cover Story for this issue will tell in you depth what I mean. To sum up in a line, we are of the opinion that the real broad-basing of the markets has not happened though companies have technically adhered to the rule. As has been mentioned correctly, the letter is there, but the spirit is missing.

Technology has played a very critical role in the developments of the markets. This is particularly true of financial markets. Over the past 10-15 years, the way the financial markets function and transact has gone through a sea change. Ganesh Shastry, Founder Director, CapStrat Consulting and our Guest Editor for this issue, has elaborately laid out how technology has changed the nature of the capital markets today. As a part of this special feature, we have also put together some interesting interactions with technology vendors and users. I am sure it will add a lot to how our readers understand the working of the modern-day financial markets.

One very interesting but less talked-about topics today is the movement of crude prices. There was a time when even a slight movement in crude prices on the higher side could send jitters down the market’s spine. Currently, the prices of this commodity have set into a band which looks more or less a permanent feature at least for some time in the future. The whys and wherefores of this have been put forth in our Special Report on crude.

As usual, we bring to you two stock picks to add value to your portfolio. The Choice Scrip this fortnight is an off-highway tyre manufacturer Balkrishna Industries and the Low Priced Scrip is Central Bank of India. Both these companies have their own fundamental strengths and can go a long way in adding that alpha to your portfolio. The issue rounds up with our usual sections including Hot Chips and Gossip, along with our expert panel answering your queries relating to financial planning and taxation.

Do write in to us on comment@dsij.in to let us know what you thought of the issue. We would be more than happy to take note of your suggestions in order to improve our offering.

 

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