Markets keep on creating records. Indices recorded new peaks for four consecutively weeks. On June 2, 2017, BSE-30 share benchmark Index closed at 31,273 and NSE Nifty-50 Index at 9.653 points. Even though it is a Bull market, there lies several bear traps. Investors are advised to be wise while treading the markets.
Let us examine a few bear traps. Aries Agro Ltd (BSE Code: 532935) has shown its EPS wrongly in the annual financial statements. We never know whether it is intentional or accidental. Though it announced a corrected figure later, the damage that it caused already could not be reversible. SEBI has to take this kind of things seriously and promoters be made responsible to offset the losses. Then Goldstone Infratech Ltd. It is a classic case of bear trap. Prior to the news of RS 10,000 crore land scam in which the company is allegedly the kingpin, the share had been flaunted like anything. The same scrip is on a falling spree. It has been continuously breaching the lower circuit for a week. RCom story is another type. Suddenly this Anil Ambani group company became a defaulter. The banks apparently concealed the matter till last minute. RCom’s total debt is around Rs 45,000 crore. Following the shocking news, the scrip lost its value in just four days. In the meantime, RBI has imposed curbs on Dena Bank’s operations. Similarly, the financial position of Shilpi Cable Technologies Ltd and Videocon Industries Ltd is precarious. Though the infrastructure shares are gaining momentum with expectations of easing debt burden, this uptrend may sustain not many days. A consistent rise is expected only after six months. However, companies like GVK, GMR, GTL, Lanco, JP Infra will take many years to recover. Even then they can only reduce the debt burden to an affordable level, but not be in a position to distribute profits to investors.
MBL Infra share had to face distraught in the market place for defaulting just Rs 7 crore to RBL Bank. As a result, the other creditors too pushed the company to the wall. It owes altogether Rs 1,635 crore to all institutions. Currently MBL is getting protection from creditors under the Insolvency and Bankruptcy Code. It may take at least six to nine months to get out of this helplessness state. The investors who bought this scrip may have to wait for some more time before they reduce the effective price by taking fresh positions.
With the South-West monsoons touched Kerala coast on May 31 itself, farming community is busy preparing the fields for sowing crops. Total area being cultivated in this Kharif season is put at 72.75 lakh hectares which is higher than the 66.48 lakh hectares sown last year. Because of the increased acreage under cultivation of cereals, pulses and oil seeds, the food inflation will decline significantly this year. However, the RBI in its credit policy review meeting to be held on Wednesday, June 7 may not lower the key Policy Rates. It will continue the existing 6.25% Rate that was announced during April 2017 review.
Passenger vehicle sales registered 9% Y-on-Y growth in May 2017, continuing the earlier uptrend. As the Government of India proposes that all vehicles to be made from 2030 shall be electric-powered only, coming decade will be a golden era for the auto components companies and their shares.
IRDA has expressed objections for the HDFC-Max merger plan, since the insurance company Max Life merged into Max Financial Services Ltd. As per the act, it is possible for an insurance company, here HDFC Life, to merge with another 100% insurance company only but not with a non-insurance company though the insurance is a part of it. Since IRDA not approved the merger in the proposed form, the promoters of Max Group have to adopt a new strategy. There are two likely alternatives. One is to separate Max Life division from the MFSL as an independent entity and then merge it with HDFC Life. As per the second plan, firstly HDFC Life will get listed and later would buy out Max Life business from MFSL. What ever it will be, investors may get benefited. But how much time it takes is a million-dollar question.
Beware of bear traps in the bull run!