THE market continued to gain and was up for the first three days of the week. There was profit taking and correction in the remaining two days, but not enough to make the market turn negative. The BSE Sensex gained 314.74 points, or 0.88 per cent, to close at 36,009.84. The Nifty gained 67.60 points, or 0.63 per cent, to close at 10,794.95. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.58 per cent, 0.63 per cent and 0.47 per cent, respectively. The BSE Mid-cap gained 0.19 per cent and Small-cap gained 0.05 per cent.
The Dow Jones gained 562.79 points, or 2.40 per cent, to close at 23,995.95. The US government continues to remain shut over the budget issues with the Democrats unwilling to toe the line of Donald Trump. The insistence that he be allowed to spend money to build the wall with Mexico is the major bone of contention.
One wonders whether Trump is right in what he says when the longest surviving wall was brought down with the unification of West and East Germany way back in 1989. The wall between East and West in Berlin was 96 km long but 27 km separated East and West Berlin. In the 21st century having another wall being made between the US and Mexico sounds preposterous and the cost is estimated to be $30 billion.
Bandhan Bank announced its merger with Gruh Finance to meet the dilution norms required as per RBI directive. Accroding to the ratio of the merger, 568 shares of Gruh Finance would get 1,000 shares of Bandhan Bank. Shares of both companies have fallen since the announcement which came on Monday, January 7. Bandhan Bank shares were trading at Rs 528.65 on Friday, January 4 and at Rs 501.10 on Monday before the announcement came post market closing. The share price fell further to Rs 450 during the week before closing at Rs 454.15, a loss of Rs 74.50, or 14.09 per cent. Shares of Gruh Finance fell more from Rs 318.50 to Rs 241.65. The low was Rs 228.40. The loss was Rs 76.85 or 24.13 per cent.
Investors wanting to be shareholders of the merged entity have an arbitrage opportunity where they can buy shares of Gruh Finance and get Bandhan Bank post-merger at a price of Rs 425 against the market price of Rs 454.15, because of the ratio currently. This happens if one were to buy 5.68 shares of Gruh Finance he would get 10 shares of Bandhan Bank post-merger.
The government proposed, and both houses of Parliament passed a bill that allows a reservation of 10 per cent quota for the poorer section irrespective of caste or religion in educational institutions and government jobs.
This would help the upper caste and get votes for the ruling BJP from the upper caste voters who felt nothing was done for them. With the passing of this bill in record time, the stage has been set for the general elections of April-May 2019.
Results were declared by the two IT giants, TCS and Infosys on Thursday and Friday, respectively. There are positive signs from these results and augur well for the IT sector. Infosys has had issues with the recent acquisitions and these have put the company on a back foot, but the other businesses have done well, and the company upped its guidance. Further, Infosys has announced a buyback of shares at Rs 800 totalling Rs 8,260 crore. The price of Rs 800 is at a premium to the closing price of Rs 684 by Rs 116 or 16.95 per cent.
The market is in a trading zone, but the mood is still bearish, and people want to short every rise. It is this tendency which is ensuring that the market continues to rise, and short covering is the major part of every rally. This week will see the market keeps moving up in a zig-zag manner and react as individual companies declare results. Use sharp rallies to sell and dips to buy as in the previous week. Resolution of issues in the US will help market further.
(The author is founder, Kejriwal Research and Investment Services)