Yes, we’ve had volatility in the markets after November 8. But we must admit that, even as brokerages are busy trimming GDP forecasts by a 100 or more basis points, the stock market has reacted very mildly to the note-bandi.

Bears who expected a big crash may be feeling the heat, as the Sensex is down by just 3.1 per cent (from November 8 to December 8). The usually jumpy BSE Midcap Index is down by 3.3 per cent and the BSE Smallcap Index by 5.6 per cent.

Gainers cushion indices

The mild reaction seems attributable to two things. One of course is that furious FII selling ($ 2.8 billion in November) has been met by the equal and opposite force of buying by domestic institutions, since November 8.

Does this show that domestic institutions are sure of a quick earnings recovery from demonetisation? Maybe. Or they may be keen to show their solidarity with the government. Of the various types of DIIs, MFs did have reason to buy, as the inflows into equity MFs even in the eventful month of November, remained strong at over Rs 9,079 crore. That’s not much lower than Rs 9,394 crore in October.

Second, while one set of sectors – realty, FMCGs, durables, autos – has been punished, another set has been marked up. Net-net, gainers and losers have sort of balanced out each other in the Sensex and Nifty. The big sector losers (with BSE indices as proxy) in the past month are Realty (down 13.5 per cent), Consumer durables (down 10.5 per cent), autos (minus 8.1 per cent) and FMCGs (5.6 per cent). In fact some pullback from lows is visible in the last two. Metals (up 4 per cent), oil and gas, power and healthcare have all gained (about 2 per cent each).

Active investors would know that sizeable sector rotation has been underway in the markets- from consumer to capital goods stocks and from the private sector to PSUs. The past week saw the markets hunting for and marking up expected ‘gainers’ from higher Central spending. Commodity PSUs continued to lead the pack, with Nalco (up 20 per cent), NMDC (up 10 per cent) making sizeable gains. Apart from a leg up from rising commodity prices, the firms are expected to see an offer for sale by the government.

The under-the- radar Balmer Lawrie & Co was fired up by an unexpected 3:1 bonus offer, though the bonus really shouldn’t really matter to long-term investors.

No cut? Okay

In its benevolent mood, the market even took a kind view of RBI deciding to hold rates in its policy review this week, even as everyone had been factoring in a 25-50 basis point cut. Given the visible damage to consumer demand across sectors, experts were confidently projecting that a rate reduction would be administered to prop up credit and demand. But the new monetary policy committee decided not to oblige.

After slipping a bit on the day of the policy, the indices have surged on the two subsequent trading sessions. The explanation given for this strange positivity was that - if RBI didn’t cut rates, it showed the economy was not in such a bad shape after demonetisation!

The rate jolt did nothing to dampen the ardour for banking stocks either. Though the BSE Bankex took a knock on December 7, ended the week higher by 1.4 per cent. Relief about RBI not extending the compulsory extra CRR requirement for banks, boosted these stocks. The removal of excess CRR means that banks get to park the excess deposit flows they get (from December 9) into g-secs or market stabilisation bonds to pocket a neat spread. But the jury’s still out on how their core operations have been affected by this single minded focus on note replacement.

Sun rises

The stock market sure is a mercenary animal. Even as the State of Tamil Nadu was sunk in gloom after the sudden passing of its Chief Minister J Jayalalitha, the stocks of two media firms from the state did very well on the bourses – Sun TV Network and Raj TV.

The Sun TV stock which closed last Friday at Rs 435 had jumped to Rs 517 by this Friday, a near 19 per cent gain. The stock of Raj TV had also notched up a similar jump from Rs 58 to Rs 75. Expectations seemed to be that, with the passing of the popular CM, Jaya TV’s bouquet of channels would lose some of their TRPs to rival television media in the region.

For Sun TV, which is closely associated with the rival political party, there’s also the expectation of a more ‘friendly’ regulatory regime. The Sun TV stock has had this tendency to react sharply to political events (more than to fundamentals) in the past too. The stock had spiked up sharply to Rs 435 levels in the run-up to the TN Assembly elections in May, only to sink back after AIADMK won a second term.

Retains bounce

If you thought investors in the Sheela Foam IPO would have a bumpy time on listing, the IPO has made a surprisingly strong debut. The company, which sells the Sleepwell range of branded mattresses closed at Rs 1032 on listing day, against the offer price of Rs 730. Yes, the asking PE for the offer at 27 times estimated FY17 earnings was lower than that for other consumer discretionary plays. But with sales and profit growth at a moderate 10 per cent CAGR in the last four years, the stock isn’t exactly cheap.

Maybe the sudden fancy for Sheela Foam has something to do with the fact that the double whammy of demonetization and GST may hasten a market shift from unbranded/unorganised consumer products to branded ones. The mattress market in India is dominated by the unorganised sector – it accounts for two-thirds of the sales. Sleepwell is a leading player in the organised market with a 20-23 per cent market share.

Overall, if there’s a lesson from recent market behaviour it is that these aren’t good times to be a bear. There are negative events galore, but the market seems determined to brush them off.

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