The stock market has witnessed a roller coaster ride in the year 2018 touching all-time highs and then drowning below to hit bottom rocks. The year was of heavy actions with something or the other happening.
Synopsis of market events:
The BSE smallcap index was at peak during the advent January of 2018. Subsequently, the market moved down after the budget was presented by Finance Minister in February wherein long-term capital gain taxation was imposed. The infamous 14500 crore scam was discovered in Mid-February and this led to the downfall of Punjab National Bank, the second largest public sector bank. Eventually, the shares of the alleged Gitanjali Gems too started falling. There was an alleged rumour in the month of April that the promoters of PC Jewellers were selling the stake and this has got something to do with Vakrangee. This caused heavy selling across both these counters and there was lack of trust of investors in the gems and jewellery sector. During May-June, there were many companies where the issues of corporate governance were raised as the auditors resigned. Manpasand Beverages, Atlanta, etc were few of these counters which plunged and lost a lot of market capital. In July, the rising crude oil and the appreciating US Dollars caused a great deal of damage to the already uncertain Indian Markets.
Recent turbulence in the market:
Until September, rising INR against Dollar caused a major dent into the financial charts of the market. RBI was in action and it canceled Rana Kapoor’s further appointment as the CEO of Yes Bank, which caused the share to tank up to 45% in the same month. The IL&FS insolvency matter which caused the DSP mutual fund to sell the commercial papers of DHFL at discount causing DHFL to dip up to 60%. The Infibeam episode all on the basis of a rumour plunged almost 72% in a single day- the biggest fall of a single stock after Satyam in 2009.
Upper Circuit and lower circuit:
It is the maximum range in which a stock can move on a daily basis. Stock prices can either move up or down and hence circuit breakers are required for movements in both directions. An upward movement over the threshold will cause a stock to enter an upper circuit. Similarly, a downward movement in stock price beyond the threshold will cause a stock to enter a lower circuit.
The objective of circuit breakers is to control the stock markets at times when they move beyond reasonable limits. When a stock enters an upper circuit, it puts an investor who has already invested in the stock at an advantage. On the contrary, a stock movement into a lower circuit places the investor at a disadvantage because it is now difficult to sell off these shares as they have lost a lot of money.
The SEBI has prescribed different circuit rates (may vary from 5% to 40%) for the cash market but the derivative market has no such circuit. As a result of no limit, stocks listed for F&O trade like Dewan Housing, Yes Bank and Infibeam crashed like anything.
Nifty has hit levels below 11,000 and long-term investors must look this opportunity to fill their basket of equity shares. While DHFL and Yes Bank have broken all support levels and denied all fundamental theories, it would be better to stay away from these volatile stocks. E-commerce player Infibeam is expected to bounce back owing to the clarity in the rumours and stocks must be sell-off on any good bounce back to book reduced losses.
It would be exciting to see how the market will react before the 2019 Loksabha elections. Till then, investors can fasten their seat belts.
Author | Kshitij Chitransh