Falling govt revenues can bring the rising stock market to abrupt halt!

The domestic equity market continued to trade choppy possibly due to year-end blues. The market has turned hyper-responsive to news and events. A focus on bankruptcy and debt resolutions was the key highlights of the week.

Reliance Communications surprised the market by a wide margin. The stock zoomed past anybody’s expectations. This is the habit of the market to take everyone by surprise, when none is expected.

Courtesy the sword of IBC, at last Reliance Communication has relented and voluntarily arrived at a resolution. Year 2018 will see lot of debt resolutions, which will be positive for the public sector banks.


Calendar 2017 had been exceptionally good in terms of massive domestic liquidity to the tune of Rs 90,000 crore that flowed into the financial markets. In contrast, FPIs withdrew Rs 44,000 crore from the market. GST collection has been faltering continuously month after month from a peak of Rs 94,063 crore in July to Rs 80,808 crore in November. This has strained government finances, which led it to increase their borrowing limits by an additional Rs 50,000 crore over the next three months.
If GST collections do not increase, govt’s ability to spend will be constrained, which will not augur well for the stock market.

Events of the Week
Hard work of RBI and the government has started to show results, under IBC, as NCLT candidates have started to receive bids, results though are not encouraging. On an average, buyers are offering only 25 per cent to the lenders. That means banks will have to permanently forgo approximately 75 per cent of their advanced amounts, which is huge and they had only provided to the extent of 50 per cent in their books. The rest will have to be provided for this financial year.
Aion-JSW Steel are offering 25 per cent to the lenders for Monnet Ispat; Dalmia Bharat Cements offered 20 per cent to Murli Industries’ lenders.

Technical Outlook
The market is slowly inching higher towards the upper channel. The break of downward falling corrective pattern indicates that the upward movement has resumed. Low volatility means the upward movement will gain momentum once the consolidation phase gets over. Traders should go long keeping stop losses at 10,375 on the Nifty 50.

Expectations for the Week
The market is expected to trade with an upward bias. Year 2018 will begin with a budget expectation rally. Stock-specific movement shall be the way forward. The frontline indices will witness low volatility, but will rise steadily till the budget.

Year 2018 will also witness a big IPOs rush, especially from PSU banks in the form of QIPs or FPOs. Sectors to watch out for would be agriculture, cement and realty catering to low-cost housing, Public sector banks, dairy, power and ports sectors can witness heightened activities in the pre-budget rally.

Investors should continue to invest via SIP in frontline stocks till the Budget, so that the cost is averaged out over the next four weeks. The Nifty50 closed the week at 10,530, up 0.36 per cent.

Wish you all a Happy New Year.