Euphoria over Osama's death fades

While silver prices fell immediatelyu00a0 after Bin Laden's death, markets are likely to move in both directions this week

Last week began on an ominous note with the death of Osama Bin Laden early Monday morning. This led to silver prices falling worldwide and there were rumours that he was involved in silver speculation. In India the prices of silver have come down from the peak levels by a little over 30 per cent. Last Tuesday, the Reserve Bank of India (RBI) announced its credit policy where it increased the repo rate and reverse repo rate by 50 basis points (bps). The markets took a pounding on these announcements, even though market participants expected a minimum of 25 bps and more than half believed that even 50 bps was likely.
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Playing with guns: Pakistani children play with plastic guns at
Abboattabad where Al-Qaeda chief Osama Bin Laden was killed.
Pics/AFP

What is important from the RBI perspective is that they believe that inflation is likely to come down only in the third quarter of the current financial year which means a further rate hike of anything between 50-75 bps is more or less likely in the coming few months. Softening crude prices saw the markets rally smartly on Friday.
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Points
The BSE Sensex lost 617.15 points or 3.23 per cent to close at 18,518.81 points. The NSE Nifty lost 198.05 points or 3.44 per cent to close at 5551.45 points. The BSE100, BSE200 and BSE500 lost a similar 3.38 per cent, 3.31 per cent and 3.32 per cent respectively. The broader indices like the BSE Midcap lost a similar 3.25 per cent but the BSE Smallcap lost a staggering 4.28 per cent. The BSE Bankex, which triggered the market fall, lost less than the market average losing 3.11 per cent. DB Realty lost 10.82 per cent to close at Rs 86.55.
u00a0The week ahead has the election results of five states due on Friday, May 13. Post election results, petrol and diesel prices are expected to be increased leading to yet another round of rising inflation.u00a0

Performance
On the Initial Public Offering (IPO) front, Muthoot Finance shares listed on Friday and the first day's performance was a mini disaster. An issue that was oversubscribed 24.55 times overall, just managed to close at the issue price with a gain of less than even a rupee. I am not sure whether these over hyped issues are jinxed or are a death trap for investors. The previous such over hyped issue was SKS Microfinance, which had crashed from a high of Rs 1490 in the last quarter of calendar year 2010 to Rs 330 last Friday. The company has reported a loss in the March quarter and these results were announced after market closed for trading.

Price
Power Finance Corporation is launching its Follow on Public Offer (FPO) in a price band of Rs 193-203 with a discount of 5 per cent for retail investors and eligible employees. The closing price of the share on Friday on the BSE was Rs 214.55. The issue looks attractive and with a discount of 5.38 per cent to the closing price and a further 5 per cent discount as retail, offers plenty of safety even if markets fall further.

The issue consists of a fresh offering of 15 per cent of the equity and an offer for sale of 5 per cent by the government making the total issue size Rs 4,660 crore at the upper end of the price band. Based on March 11, at Earnings Per Share (EPS) of Rs 22.82 the share is being offered at 8.95 times earnings. The share is attractively priced and is being offered at a discount compared to its only competitor REC also a government company. I recommend investors take the retail; discount and apply for the shares.

Sellers
Foreign Institutional Investors (FIIs) have been big sellers last week with net sales of Rs 1,422 crore and provisional sales of Rs 655 crore last Friday. Coming to the week beginning from Monday, May 9, it appears once again we are entering the volatile stage. The markets are likely to move in both directions and there would be no trend. The BSE Sensex has support at 18,337 points, then at 18,040 points, then at 17,825 points and finally at 17,792 points. It has resistance at 18,634 points, then at 18,931 points, then at 19,118 points and finally at 19,356 points. The NSE Nifty has support at 5,494 points, then at 5,403 points, then at 5,366 points and finally at 5,233 points. It has resistance at 5,586 points, then at 5,678 points, then at 5,736 points and finally at 5,763 points.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.