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May 17, 2005

 

UBS indicted by SEBI - how much damage to the markets ?
 

The SEBI move to indict UBS securities in the May 17 2004 ( black monday ) crash - the biggest in Indian equity markets history has let the cat among the pigeons. While the markets were due for a corrective fall from our point of view ( we had recommended a "sell" on the broader markets in the pre market SMS alert ), the SEBI move accelerated the fall. As usual, the brokers, analysts and market watchers are at it again - second guessing the magnitude of the fall. We try and test our luck on the same
 

  1. Traders and investors need to realise that UBS itself has agreed to comply with the SEBI order/s. Even though under protest and amidst clarifications, UBS has been far from belligerent. That lays to rest any feeling that SEBI's move may raise the hackles of other FII's.
  2. The traded volumes in the cash markets did not point towards any sign of panic. The f&o segment did show a jump in volumes which is expected on an important trading session.
  3. This is interesting - the f&o data points towards an increase in long positions and a squaring up bias amongst the short sellers. Nifty calls increased by Rs 25 Crs to Rs 927 Crs. On the other hand, the Nifty puts were down by Rs. 166 Crs to Rs 1132 crs. Stock calls increased by Rs 47 Crs to Rs 1163 Crs, whereas the stock puts went up by Rs 23 Crs to Rs 490 Crs. The Nifty PCR ( put call ratio ) eased from 1.42 : 1 to settle at 1.40 : 1. That is a big relief for now. That implies that should this trend continue, the short covering will actually cushion the falls.
  4. Take the chartical approach - the retracement pattern theory suggests the first stop at the 1966 levels, which is the immediate support ( minor ). Should this level be violated, we expect the 1934 levels to be the next big support ( major ). Barring other unforeseen circumstances, we do not foresee the current trigger to drag markets any lower.
  5. Taking the index composite approach - of the heavily weighted counters in the indices, ITC and Infosys are firm, ONGC & Wipro are sideways / downward bias, is firm,  Reliance Inds and Hind Lever are somewhat weak. These counters put together comprise a major chunk of the total weightage on the indices and so far, this bouquet of stocks do not appear to be poised for a major meltdown.


If the index composite stocks are not excessively weak, why should the market indices be ???

Your call of action - ships are safest in the harbour, but that's not what they were built for !! Need we say more ?

Have a profitable day.
 
Vijay L Bhambwani
Ceo :- Bsplindia.com

The author is a Mumbai  based investment consultant and invites feedback at Vijay@BSPLindia.com and  ( 022 ) 23438482 / 23400345.

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SEBI disclosure -  The author has no positions in  the stocks mentioned above.

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