Sunday, September 13, 2009

Unanswered Questions Remain!

It is still a big question whether the global economy will return to its glorious past as was in 2006 & 2007. But, stock markets are now quite convinced so and returned to their peak levels of 2007, if not 2008. Many individual stocks have gone even above their life time high levels tested in those years.

Generally, stock markets are the leading indicators and can visualize the future to some extent. However, stock market need not be 100% correct in its every assumption. Even though, there are certain greenshoots visible in the global economy, it is too early to assume that economic life will turn back to its glorious past any time soon.

Hence, it is prudent to be cautious in the future rallies of the stock market. One should take position in equity market only after visualizing the probability of global economy returning to normalcy, the ability of the individual companies to survive unscathed till that time and the earnings of the company once the normalcy returned.

As many would have noticed, Nifty crossed the all-important resistance level of 4730 levels last week comfortably thanks to the surge in giant caps like Reliance, SBI and ICICI Bank. However, broader market did not rally once after this remarkable success was achieved as anticipated by many analysts. In fact, there was a huge profit booking in the smaller stocks even while the giant caps were hitting their new highs for the year 2009.

I expect the same trend to continue in the coming week also. I suggest the traders to exercise caution while picking the smaller stocks which have run up miles since March 2009. 4700 points for Nifty can be taken as a pivot point while taking trading positions in larger stocks.

Wishing a great week ahead!

Saturday, August 22, 2009

Green Shoots and Yellow Weeds

Markets continued to be indecisive and volatile during the last week also. Markets started the week with lot of negativism thanks to poor jobless claims data from US however ended with great optimism thanks to the record rise in homes sales in US and better than expected industrial data from the Western Europe.

As witnessed in the earlier weeks, our market continued to ignore the local happenings and was always looking for the direction from the west. For a change, markets are now looking east also particularly China which evoked great interest in the recent times, thanks to the “China Bubble and the its ripples in Asian markets.

Locally, Adani Power failed to impress with a lackluster debut on the bourses. There was no big premium on listing as expected by its IPO investors. However, it is a reminder for those, who do not want to leave any thing on the table for the IPO investors that such issues may not evoke great interest from the investors in future.

Coming week, NHPC’s listing will be viewed curiously as there are many government company issues lined up for IPO. In case of NHPC also, government has not left much on the table for IPO investors. Still, there are hopes in the market that the company may get listed with a decent premium. Any failure on the premium part may hurt the future IPO plans of government companies.

Going back to global scenario, Obama is expected to raise the projection for the fiscal deficit (US) for the next 10 years from $7.1 trillion to $9.0 trillion. Such projection may lead to the impression that the American government may continue to flood the markets with dollars for many more years to come.

As mentioned earlier, hopes of persistent dollar flooding and visibility of green shoots have been taken well across the board, currencies commodities, gold, oil and stock markets.

Euro strengthened against the US Dollar as the appetite for riskier assets went up due to the new found optimism for a quicker recovery in the global economy.

At the same time, it is notable that the INR failed to join the global rally against dollar and in fact, INR lost against USD in a big way. FIIs withdrawing their investments in India and higher import demand may be the reasons for such Rupee weakness.

Crude Oil was a stunner for the last week. It had a big rally and broke the crucial resistance of $72. Even though many analysts put expectation of higher demand rising from the global recovery as the reason for the surge in oil prices, personally I am not convinced. I feel that the dollars are now flowing towards the commodity markets particularly oil and gold as a new avenue of investment as stock markets are appearing as overvalued.

There are good chances for a big rally in oil and gold in the coming days provided that the economic data continues to be good.

In India, even while the largecap indices were struggling to make new highs, many stocks are started to make merry thanks to the renewed interest from the operators and small traders. Many stocks witnessed dramatic rallies in the last week.

To sum up, green shoots are more visible as of now but there are yellow weeds too. It is the duty of the governments and the central bankers to protect the green shoots and weed out bubbles. If they fail to do so, bubbles would impact the global economies badly.

Wishing you a great week ahead

Saturday, August 15, 2009

Easy Money Policy for an Extended Period

Sudden fall in unemployment numbers in US had raised speculations that Federal Reserve may end its easy money policy sooner. Accordingly, US Dollar started gaining against other major currencies including Indian Rupee. Poor monsoon data and negative FII inflows also put pressure on INR in the beginning of the week.

Gold and other commodities were also seen losing against US Dollar. Bursting of bubble in Chinese markets also added pressure on the metals.

However, Federal Reserve, in its FOMC minutes on Wednesday, said that the easy money policy will be continued for an extended period of time and it would pump in $300 billion dollars (around Rs.15,00,000 lacs) into the market by October 2009. This statement revived positive sentiments in the global markets.

Positive GDP numbers in Germany also added to the bullish sentiments of the markets. Euro gained in a big way against US Dollar. Gold also had a spurt against USD rising to $963. Fall in South African Gold production also helped the Gold prices to firm up against US Dollar.

Indian Rupee also turned into positive trend and went below 48 levels. Surprise rise in IIP numbers (India) for the last month also helped INR to strengthen against USD. However, heavy demand for Dollars from the importers checked any major appreciation for Rupee.

Worse than expected US Consumer confidence data released in US on Friday indicated that the recession is far from over and the US Dollar gained against other major currencies accordingly. Gold also fell to $948 levels.

US Dollar may begin the next week with some gains against other major currencies including Indian Rupee. Local currency markets will also look for the trend in the equity markets particularly the FII inflows. For the next week, Rupee may trade between 48 and 49 levels.

There is a major risk of downgrading of Indian Rupee in case our government increases its borrowing programme for the current fiscal year to accommodate the possible drought relief measures.

Gold may face a strong resistance around $963 & $ 980 levels. Breaking the above two levels may take the prices to $1000 levels. In Rupee terms, MCX Gold may face resistance around 15020 and 15200 levels.

Indian stock markets are now cautious about the impact of poor monsoon on the overall GDP. It is expected that there may be an impairment of around 1.00% in the overall GDP for the current year due to poor monsoon. Further, reduced crop production will add to the pressure on the food inflation which is already at a high level.

Overall outlook for a normal monsoon seems to be a distance dream now and the short fall is likely to be over 25%, sounding weakness for rural demand prospects.

Still the broader trend of stock prices has been inline with Dow futures and the net inflows from FIIs, who were once again net sellers in cash market except for Thursday. The gains were broad based and the mid and small cap stocks gained more than the large cap stocks. There was renewed interest from domestic institutions and they gave strong support at every low, absorbing most of the net sales from FIIs and public.

Stock markets are quite happy about the IIP data and there is view that impact of poor monsoon may be nullified by a strong growth in industrial sector. However, personally I would like to see the trend of IIP numbers for some more months to take a firm view on the revival in the industrial sector.

Next week, Indian Stock markets will be looking for direction from its Asian peers and US Dollar movement. As said earlier, Nifty may face resistance around 4610 & 4730 levels and find support around 4520 and 4480 levels. Firm breaking above 4730 levels may indicate a new bull cycle whereas a complete fall below 440 may point towards a steep fall.

Wishes for a happy week ahead.

Monday, August 10, 2009

Keep Swine Flu Away with Basic Precautions

Swine flu in India is spreading like wildfire, taking the toll to six. Officials say there are currently more than 800 cases of the H1N1 flu strain in India. Governments from all around the world are finding ways to combat this deadly disease. So what can you do to protect yourself?

Stay calm and practice these 10 effective prevention tips.

1. Wash your hands frequently

Use the antibacterial soaps to cleanse your hands. Wash them often, at least 15 seconds and rinse with running water.

2. Get enough sleep

Try to get 8 hours of good sleep every night to keep your immune system in top flu-fighting shape.

3. Keep hydrated

Drink 8 to 10 glasses of water each day to flush toxins from your system and maintain good moisture and mucous production in your sinuses.

4. Boost your immune system

Keeping your body strong, nourished, and ready to fight infection is important in flu prevention. So stick with whole grains, colorful vegetables, and vitamin-rich fruits.

5. Keep informed

The government is taking necessary steps to prevent the pandemic and periodically release guidelines to keep the pandemic away. Please make sure to keep up to date on the information and act in a calm manner.

6. Avoid alcohol

Apart from being a mood depressant, alcohol is an immune suppressant that can actually decrease your resistance to viral infections like swine flu. So stay away from alcoholic drinks so that your immune system may be strong.

7. Be physically active

Moderate exercise can support the immune system by increasing circulation and oxygenating the body. For example brisk walking for 30-40 minutes 3-4 times a week will significantly perk up your immunity.

8. Keep away from sick people

Flu virus spreads when particles dispersed into the air through a cough or sneeze reach someone else's nose. So if you have to be around someone who is sick, try to stay a few feet away from them and especially, avoid physical contact.

9. Know when to get help

Consult your doctor if you have a cough and fever and follow their instructions, including taking medicine as prescribed.

10. Avoid crowded areas

Try to avoid unnecessary trips outside. Moreover, avoid touching your eyes, nose or mouth. Germs spread this way.

Sunday, August 9, 2009

Good News and Bad News

Our Equity Market is always sensitive to two important factors.

First one is the dollar inflows to our markets. There is always a strong correlation between the FII flows and our market’s direction. Our market believes that dollar weakness brings more inflows to the emerging markets including India.

There was an improvement in US Unemployment data published last week for the first time since April 2008. Unemployment rate fell to 9.4% from the previous month level of 9.5%. Even though the white house officials warned that the unemployment rate may peak at 10%, markets were convinced for the time being that the end to the American recession is nearer now and accordingly, there was a sharp rally in the US markets.

At the same time, there were fresh apprehensions that the Federal Reserve may exit its easy monetary policy sooner than later by hiking its key interest rates. Hence USD strengthened against other major currencies. Euro and GBP registered one of their sharpest falls against USD on the last day of the week.

As said earlier, our markets sensed in advance that the dollar inflows may become scarcer hereafter and duly witnessed a sharp correction in the last two sessions of the week.

The bad news was from our skies. Indian Meteorological Department has said that the rainfall was deficient in 27 out of 36 meteorological divisions of India. Now, there is a real threat of a drought like situation in India this year.

Though, agriculture forms a smaller part in overall GDP of India, majority of Indians is dependent on agriculture in India. Further, scarcer rainfall may badly impact the allied industries of agriculture particularly in rural India.

Failure of crops may add the pressure on prices of food articles which are already at high levels and the supply side hyperinflation is the last thing our market would like to have now.

Thus the combination of above said two factors have brought down the sentiments of our high flying market.

Hereafter, the direction of our market may depend on the FII inflows and the monsoon pattern.

As said in the earlier post, our market (Nifty) failed to break 4700 levels decisively. Now it finds support at around 4430 & 4320 & 4200 levels. It faces resistance at around 4550 & 4580 & 4700 levels.

Wishes for a happy week ahead!

Sunday, August 2, 2009

Pace Of Recession Slowing Down?

Economic Data from US indicate that, at last, the pace of recession in their economy is slowing down. There is no major job losses reported last month. At the same time, authorities therein are in mood to tighten their monetary policy. They expect that the unemployment in US may peak little above 10%. It appears that they want to continue their policy “flooding the markets with dollars” for some more time till there are visible signs of recovery in US markets.

At the same time, such flooding of dollars in markets may create havoc in the world markets. To some extent, pegging the currencies of emerging countries undervalued against US Dollar by their respective central banks also disrupts the stability in the financial system.

We could witness the fragility of the global markets including India last week when Chinese authorities warned a bubble in their markets. In no time, our markets lost around 400 points in Sensex. However, continuous inflow of dollars made the traders to ignore these fear factors and surge ahead as usual for another weekly gain in the key indices.

Coming week, we may witness a strong but interesting fight between Bulls and Bears. Bulls may try to break the psychological resistance level of 4700 (Nifty) points and move the market into a momentum zone. At the same time, Bears may grip their hold at around 4700 points.

Resistance levels for Nifty are at around 4700 and 4800 points

Support levels for Nifty are at around 4475 and 4425 points

Wishing a happy week ahead

Saturday, July 25, 2009

Another Super Bubble in the Making?

Our market continued its bull run last week also wherein the key indices gained around 4%. Benchmark Index, Sensex, is once again above the psychologically important 15000 levels. Global markets are not left far behind. HangSeng is close to an important 20000 levels. Dow Jones is above 9000 points once again.

Ben Bernanke’s assurance of continuing the soft rate policy for a longer period of time coupled with strong corporate results across the globe lifted the sentiments of the all the major equity markets. Positive US home-sales data has added fresh hopes that the recession would have a quicker end.

Our market’s rally has so far been a stunning one. It offered no chance to the people who were waiting on the sidelines to enter at lower levels. Abundant FII flows were the key reason for such rally. It is noteworthy that FIIs have put in more than 38000 crores during the current year alone. Union Budget was little disappointing for the market. However, it did not stop market’s upward rally. Market took excuse from the parliamentary speech of the Finance Minister and marched ahead as usual.

I expect that the sentiments of the market may turn more positive once the Sensex breaks 15600 levels and the left out so far, may be sucked into the market. Thus market may slip into a Super Bubble Zone wherein fundamentals would take a backseat.

One should not forget here that the macros are not very much convincing as of now. Poor GDP growth, meager credit growth, dropping exports, low IIP numbers, faulty monsoon and unclear global situation do not warrant for doubling of P/E within such a short time.

Even though the corporate results, in terms of bottom-line growth, have generally been good, the top-line growth has only been marginal. The profits were also more attributed to cost cutting and sharp rise in other income rather than core business profits.

Hence the investors may avoid entering into the market at the higher levels and rather wait for any major correction for an entry with a long term view. They may exit their holdings accumulated at the lower levels whichever achieved their target prices.

At the same time, traders have great opportunity to play according to sentiments of the market. They are advised to trade with strict dynamic stop loss limits.

Sensex faces a strong resistance at around 15600 levels and Nifty around 4600 levels. Any strong break out above these levels would give a big bang movement for the market. Monetary Policy announcement by RBI due for the next week will be keenly watched by the market. Quarterly results of Reliance, India’s most valuable listed company, are disappointing and the market may react negatively to it. F&O expiry may add to the volatility of the market.

Wishing for a happy week ahead

Saturday, July 18, 2009

Stunned as ever?

It has been a stunning recovery once again witnessed by the market last week. After losing 1500 points in the previous week as the Union Budget failed to meet the ever growing expectations of the stock market players, market recovered 1200 points almost in the same speed.

Assurance from the Finance Minister on continuing reforms and divestment boosted the sentiments last week and the government siding with Reliance Industries in the KG appeal revived the heaviest among the index stocks. Persistant inflows from FIIs and positive global cues helped the market to sustain at higher levels.

As said earlier, it has been a stunning recovery. Many stock analysts and technical experts failed once again by expecting the largecap indices to cover the gap formed on the post-results day. As usual many who were waiting on the sidelines to invest at lower levels were sidelined.

Market turned to the bullish mode wherein every small positive news is rejoiced and bad news, however big, is ignored. Better than expected results from IT biggies have also helped to lift the street sentiments.

Sensex is back to 14500 plus zone wherein the valuations are little overstreched. Traders may take cues from global markets. Even though, US biggies are delivering better than expected results and stock markets are doing well, oil prices, a key indicator of global recovery, are not showing major upmove which is a cause of concern.

Investors can continue their cherry picking strategy as explained in the previous posts over a period of time with a long term view.

Happy week ahead!

Sunday, June 21, 2009

Too Many Expectations?

Market has too many expectations from the forthcoming Budget ranging from tax cuts, tax holidays, special status for some industries, fresh government investment in infrastructure and divestment of public sector enterprises. Even though, electoral victory by the Congress is more attributed to its populist measures such as farm debt waiver, pay commission and NRGEP and Congress may not like a pro-corporate image ahead of elections in key states, many market participants still believe that Congress government will push for aggressive financial reforms in the coming budget.

However, I have my own doubts whether the budget will be able to fulfill all of the market expectations. With the fiscal deficit mounting to around Rs.4,00,000 crores and the first half yearly borrowings at Rs.2,54,000 crores, government’s ability to push through larger tax cuts is quite limited even though there may few reform measures here and there more expectedly in export oriented sectors.

Hence it will be very difficult for the budget to make a major positive impact on the market as many positive factors have already been discounted in the prices. At the same time, we can not underestimate the ability of certain market participants and media to derive great things from nothing make others to believe it.

In the short term, market is expected to track the global events. In fact, our recent rally is more attributed to the FII inflows which have been stupendous in the last three months. FII inflows were mainly attributed to their expectations of a ‘V’ shaped recovery in the global economy and the huge liquidity made available to the American banking system.

Last week, global market participants came to a new conclusion that even though the recession has come to a near-end as of now, the recovery may not be as swift as markets expected earlier. US economic data has been quite mixed in the recent times and the recent downgrading of American banks resulted in strengthening of US Dollar and JPY, the less risky currencies against other major global currencies including INR. World markets are now apprehensive of raising commodity prices and Federal Reserve’s probable monetary measures to tame the inflationary expectations. These speculations led to withdrawal of FII money from emerging markets including India. Such withdrawal coupled with some local negative sentiments rising from Bombay High Court’s judgment in RIL-RNRL case resulted in a big market fall last week.

I feel that delayed monsoon, revival of Indian industry and performance by the Indian Corporate and firm government action in continuing the financial reforms would carry more weight in the minds of FIIs, who may be waiting in the sidelines for some more time to get better clarity in the global scenario. Even though, negative inflation is bad news for the industry, as RBI Governor put it, India may not fall into a deflationary environment any time soon.

Traders are requested to exercise caution in the near term and initiate long position only in case of Nifty breaking 4400 levels firmly. Banking sector is expected to do well in the short run.

Investors may accumulate shares of fundamentally strong companies during fall. Banking stocks may perform well in the long run. Indraprashtha Gas may be considered as a long term investment option. Strong Government Companies’ stocks may also be considered.

Technically Sensex finds good support at around 14,500, 14200 and 13,600 levels. It faces strong resistance at around 14,700 and 15,200 levels.

Wishing you a happy week ahead

Sunday, June 14, 2009

Tiring Bulls and Fearing Bears

Last week, there was a pause in the Bull Run that had continued for a record thirteen weeks. Still, Sensex managed to close the week with marginal gains. Nifty closed with a marginal loss. However, small and midcap stocks faced a big sell-off probably due to profit booking. Even though, Bulls are quite tired after running for quite some time without break, Bears are still uncertain of taking full control of the market.

Markets opened the last week with losses as there was a good amount of profit. Sensex faced a strong resistance around 15500 levels and the Nifty at around 4600 levels. It was widely expected at that time that the Bears would take control thereafter. However, Prime Minister’s statement in the Parliament that the country has a potential for 9% growth and the stunning profit made by Satyam changed the moods of market. Bears were marauded once again. Still, rising crude prices and indecisive global markets checked a repetition of previous weeks’ big show and in fact, small and midcap stocks could not recover their early losses like their largecap peers.

WPI Headline Inflation hit record low levels. Finance Minister impressing upon the PSU Banks to cut their lending rates hit the PSU banks hard. Positive IIP numbers cheered the markets. However, it triggered profit booking by the traders.

US data was a mixed one. There are fears of an inflationary environment choking the growth prospects. Rise in crude prices is negative news for the global equity markets. There are market speculations of rate hike by Federal Reserve sooner than later to moderate the inflationary expectations.

Sensex faces a strong resistance at around 15600 levels and Nifty at 4700 levels. Sensex has a good support at 14500 and 13500 points.

Even though India is a good long term story, the largecap indices appear to be fully priced-in in the short run. Market seems to be in an overbought position. At the same time, tireless FII flows may change every calculation.

Wishing a happy week ahead.

Sunday, May 31, 2009

Betting On A Quick Recovery

It has been an amazing run continuing for the 12th week in a row surpassing even the most optimists’ expectations. Whether “India Shining” and “India Decoupling” stories are back in market? Even though, Indian story is quite intact in a longer run, whether stock markets deserve a valuation closer to the January 2008 peak levels with the economy crawling now just at a half the pace of that time? Let us introspect once again hereunder.

As we discussed earlier, market builds up lot of expectations over Manmohan Singh’s new government. It likes to safely ignore the facts that Congress is not known for speedy reforms and it has come back to power mainly because of its populist face as opposed to the corporate image of the previous NDA regime. It also ignores that the Head of Government is not the de facto political boss. He can not push through tough reforms either way as there are still many political, coalition and electoral compulsions to show a populist face.

Sensex now trades under a fair valuation given the gloomy economic indicators like negative IIP, manufacturing degrowth and GDP growth, lowest in five years, even though the business confidence is expected to improve because of the electoral verdict. Negative credit growth is a depressing factor and an important indicator that the current business confidence is quite low.

Hence, it will be too much on the part of the market to expect that miracles will happen in the short term and Sensex (Companies) earnings will move up drastically in no time. Hence, I am of the view that the any big move hereafter may be another bubble in making.

Hype is building up in the market that there will be a huge divestment of PSU companies in the short term which will take the market further up. It defies the fundamentals of supply and demand. Divestment is good for the small investors no doubt but there are hardly any reasons to chase the costly listed companies with weak fundamentals when there are plenty of fundamentally strong PSU companies are going to be available at much cheaper valuations.

I would suggest the readers to continue their value picking in small lots over a period of time. At the same time, there should not be any “there is no tomorrow” approach. There will be a plenty of opportunity for the small investors to participate in the PSU divestment process that is going to happen shortly.

Nifty may face some resistance between 4500 and 4600. Stronger resistance may be there around 4800 levels. There is huge build up in F&O position and hence it is safer to trade with strict stop loss limits.

Wishing a very happy week ahead

Sunday, May 24, 2009

Left is left out?

Last week has been a dramatic one for the markets. Key indices posted historic gains and the market was shut on an upper circuit for the first time in the history. Decisive electoral verdict for a reformist Prime Minister this time relatively free of coalition compulsions lifted the mood of the market.

Now there is a feeling of being left out among the investors from the last rally in which key indices nearly doubled from their bottoms recovering around half of their total fall. There has been a mad rush in the market last week which witnessed a historic gain and turnover.

Whether this jubilation is justified? Whether every thing has changed in India all of a sudden to become so bullish once a stable Congress government is in place?

One should have strong introspection now. In fact, Congress was in power in the last one year also almost with full control of the government particularly without any Left pressure. What it did to revive our economy? There were two or three very small fiscal stimuli making no major impact on the economy. Further, one should also remember that Congress has always been a centrist party with a socialist face. In fact, the 1991 reforms were more of a result of compulsions from IMF rather than a voluntary one.

Even the current electoral success is owed to the populist measures like NREGS, Farm Debt waiver, fuel subsidies and Pay Commission undertaken by the Congress government as it was very much aware that the corporate image of the previous NDA regime was the main spoiler for NDA in the previous elections. Hence, it is very much doubtful that the Congress will go for aggressive reforms risking its electoral successes in the future. Rather, it would like to carry on its socialist posture and doing some reforms here and there in bits and pieces.

Hence, we may conclude that the market jubilation for a Congress government is an overreaction. Even though the long term story of India is very much intact and the key indices may very well cross many new highs in the future, short and middle term success of our market will be mainly dependent on the following factors.

Ø Mounting Fiscal Deficit which is the biggest threat for our growth.
Ø Slow down in economy and degrowth in industries.
Ø Falling exports of goods and services.
Ø Low WPI Inflation resulting in high real interest rates and persisting credit squeeze.
Ø Global recession particularly the US recession may hurt us.
Ø Falling profits of the listed companies and their poor corporate governance record
Ø Last but not the least, infrastructure bottlenecks.

It will be a challenging situation for Indian economy and its corporate world to recover quickly.

In my view, Nifty is now placed at a fair value with its Price-Earnings multiples at 16-17 levels. Any big rally from here onwards in the short run may be a bubble in the making. However, there are many small and midcap stocks trading at attractive valuations. But they have to be picked only after a careful analysis of their fundamentals under necessary professional guidance.

Nifty faces a strong resistance at 4500 levels breaking which it may move towards 4800 levels. It has a strong support at 4150 levels and any fall below this level may take it to 3900 levels.

F&O open interest has gone up very much in the recent times. There is a market talk that FIIs are now selling in F&O market even though they keep buying in cash market. Caution is the key word now and any trading position should be accompanied by strict stop loss limits.

Wishing a happy week ahead!

Saturday, April 18, 2009

Happy Times Are Back?

It has been a stunning rally sustaining for the sixth week in a row. Even the hardcore optimists would not have expected such sharpest recovery in a Bear phase.

Even the poor guidance from Infosys, last week, did not affect the market sentiments beyond a point. Positive global market cues and resumption of FII inflows were the main reasons for such sudden turnaround in market sentiments. Are the happy times back? Whether this mind-boggling rally will sustain in the longer term?

Last week was one more truncated trading week. Though the results of Infosys were in line with the market expectations, the guidance was way below expectations. There was an initial negative reaction in the market but recovery came sharply because of the strong positive undercurrent.

Small and midcap stocks outperformed their largecap peers. Many smaller stocks were hitting upper circuits giving an indication that the operators are back in the market in full swing.

Banking sector was the major gainer for the week as the market was expecting good results from that particular industry. Capital Goods and Realty sectors also recovered significantly on the hopes of an economic recovery sooner than later.

Consumer Durable sector was the worst hit for the week as the traders shifted their focus to high growth sectors. IT sector was negative because of the poor guidance from Infosys. Oil & Gas sector was facing heavy profit booking.

Even though, largecap indices have successfully broken the psychologically important 200-day Moving Average levels, they could not sustain above these levels for a longer period of time. There was an indecisiveness prevailing in the market at the higher levels evidenced from the sharp rise in India Vix, the volatility indicator, to 50 plus levels.

Inflation fell to new low level of 0.18% even though the market expected it to be much lower i.e. to hit negative zone.

Week Ahead?

All-important Quarterly Review of the Monetary Policy (RBI) will be published during the coming week. There is a divided view in the market whether RBI will cut its policy rates in this review. Even though the WPI inflation is hovering near zero levels, the more important CPI inflation is still in double digits. Market will look for fresh cues from the Monetary Policy.

US economic data and global markets may also be closely followed. This month alone, FIIs pumped more than Rs.3000 crores into Indian markets. Further inflow is crucial for the market to sustain at higher levels.

There is a divided view in the market on the direction here onwards. A section of the market players feel that Nifty has made a “Double-Top” pattern in the 200-day moving average zone and has fallen thereafter in the last week indicating that there will be good amount of correction downwards taking the Nifty to 3150 levels.

Another section believes that the bull phase has just begun and there will be a longer bull run at least till the election results are announced.

Technically Nifty has to firmly close above 3500 points to sustain the current rally. In such case, next targets will be 3600 points and 3750 points. If the Nifty falls below 3300 levels, the downward target will be 3150 and 2970 points.

Happy investing times ahead.

Sunday, March 29, 2009

Cautiously Optimistic!

Last week, it has been a stunning rally surprising even the hardcore optimists as the bull-run continued for the third week with a bang. Well supported by the global trends, Sensex rallied by more than 1,000 points and Nifty by 300 points. Sensex closed above psychologically very important 10,000 levels and Nifty closed above 3,100 levels.

FIIs turned net buyers for the week with inflows to the extent of around Rs.1300.00 crores. Frantic Short covering ahead of the F&O expiry also helped the market to rally further. Renewed domestic interest helped the market to sustain its gains.

As we discussed last week, there are hopes prevailing in the market that the American currency, to be released into the market shortly, would find its ways to equity markets (in particular, emerging markets) and commodity markets. Accordingly, US Dollar weakened against major global currencies including Indian Rupee. There was a strong rally in commodities as well, particularly in base metals.

Revision of the global financial sector outlook, helped Indian banks to post huge gains. Metal stocks also gained in a big way during the week thanks to the rally in commodity markets and better visibility of raising demand.

As the change in methodology for calculating the movement of Nifty was more favorable to Reliance Industries, it gained in a big way. Other Oil & Gas stocks also gained on hopes of increased demand. Nano release further lifted the sentiments of the market and Auto stocks were also doing well.

Inflation fell further down to 0.27% raising the hopes of fresh cuts in interest rates.

Week Ahead

There are views that the market has already found a bottom at around 2600 levels (Sensex around 8000) and may see an interim rally, which may last, up to 3600 levels (Sensex around 12000)

Even though, there are some reasons like renewed FII inflows, fresh domestic interest, bottom fishing etc, to support the above views, one should exercise extreme caution in taking a long position as there has already been a big rally of 500 points (Nifty) and the profit booking may emerge any time soon. Further, Rupee not breaking 50 mark creates doubts on any large FII inflows in the short term ahead. As we discussed earlier, 3200 points (Nifty) may be the next target for the market.

Coming week, there are many key events such as G-20 meeting, ECB meeting on interest rates and announcement of bailout package for US Auto industry. Markets will be keenly following the outcomes of the above events. Further, there are many economic data to be released from US.

With many Indian Operators becoming quite active again, the focus may shift to small and midcap stocks. “Akruthi” chapter reminds the small investors to be extremely cautious about the abnormal movements in small and midcap stocks.

One can accumulate stocks with good valuations and high dividend yields on every dip with a long-term view. Short-term traders may go long till 3200 points however with strict stop loss limits. A fresh view can be taken after 3200 levels.

Wishing a great week ahead.

Monday, March 23, 2009

Currency is the King

Last week, US Federal Reserve announced that it would buy back over 1 trillion dollar of government debt. Though it is a bad move for the global economy in the long run, global markets rejoiced the move with the hope that thus increased dollar flow would help in reviving the world markets in the short run. Our market also joined the global party with a second consecutive positive weekly close, which is rarity nowadays.

Buy back plan resulted in weakening of US Dollar against all other major global currencies. Gold and other commodities went up in dollar terms. Crude Oil crossed psychologically important $50 levels. Reports that China was piling up base metal inventories helped base metals to post gains.

In addition to the above, positive data on housing and employment from USA resulted in a global rally in equity markets too.

Indian markets also joined the rally on the hope that FII inflows would go up here onwards. Beaten down sectors like metals and realty were the major gainers for the last week. Barring Capital Goods, almost all sectors had a positive week. Highlight of the last week was the surge in small and midcap stocks outsmarting their largecap peers.

Though the fall of headline inflation to new low levels (0.44%) raised fears of a deflationary environment, there were fresh hopes of further cutting in interest rates also.

Thanks to the huge stimulus packages announced by governments/ central banks across the globe, there is a lot of money flow into the economy and some part of it may find its way into markets also helping them to stage a relief rally.

At the same time, Nifty closing below the crucial mark of 2810 points and the Dow Jones closing below 7500 levels show that the markets are not yet fully convinced about any major revival in the equity markets. Surge in CBOE Vix also indicates that we may expect some more volatility in the market in the coming week.

As there is no major economic event in India on account of General Elections, our markets may follow the global trends particularly from USA. There is a lot of economic data going to be published in US coming week, which may set the tone for the global markets.

As we told earlier, 2810 levels (Nifty) will continue to be a strong resistance. Traders may take long position once Nifty breaks 2850 decisively however with a strict stop loss limit.

F&O expiry for March series, due for this week, may add to the volatility of the individual stocks.

Rupee may follow the global trends and it will be difficult for it to break 50 mark because of surge in crude oil prices.

Happy week ahead.

Sunday, March 15, 2009

A Bear Rally in sight?

There was a positive surprise for the Indian investors last week who expected a narrow subdued trade for the week because of the two intervening holidays and ongoing election season. Profit shown by Citibank (unexpectedly) and its chairman’s assertion that the bank would no more require government assistance spurred the sentiments of the global markets. Our markets also happily participated in the global rally. Now, we have wait and see whether this rise will turn into a bigger “Bear Rally” taking Sensex to 10000 plus levels.

Though IIP (Industrial Production) numbers (-0.50%) were negative, markets took them as positive as the expectations were still worse. Similarly, inflation falling to multi-year low levels raised fresh hopes of another round of rate cuts by RBI.

Traders who were shorting the market till then caught unaware by the sudden upsurge of the market and started covering their short positions in a hurry, which resulted in further rise in the indices.

FIIs turning to be the net buyers and the breadth (Advance–Decline Ratio) being positive were the highlights of the week. However, trade volumes were much lower which is cause of concern.

Index majors such as Reliance, ICICI Bank and SBI led the rally. Stocks from the beaten down sectors such as Real Estate, Banks and Metals gained in a big way. Auto sector also went up because of their better show of sales numbers. Sizeable order for heavy vehicles from government helped Ashok Leyland and Tata Motors to post significant gains. Sale of shares (personal holding) by one of the top executives of Bharti Airtel impacted its shares negatively.

Dollar weakened against other major currencies including Indian Rupee because of fresh hopes of revival of economy. Similarly, Crude prices went up because of the fresh hopes of higher demand for oil arising due to the increased government expenditure under their stimulus packages.

Volatility indices like CBOE Vix and Indian Vix fell sharply giving the hopes of a stable markets in the coming week. It will be quite interesting to see whether bulls can come out of the bear-grip next week and take the Nifty to 3000 levels (Sensex 10000 points).

Last week, Nifty has closed at the strong resistance levels and it has to cross these levels (2730 points) to move towards 2810 points breaking which towards 3050 points. If, Nifty fails to cross the said levels, we may witness another round sell-off dragging the Nifty down to 2500 points once again.

Traders may initiate long position in case Nifty breaks 2730 levels firmly in Monday’s early trade, however with a strict loss limit of 2670 points. 2550-2600 points appear to be a strong support for the market. PSU Banks look attractive as majority of negative news flows have been factored in.

Indian Rupee may strengthen against US Dollar depending on the further rise in the global markets. However, it will be quite difficult for it to break 50 mark.

As of now it appears that the markets may be cautiously bullish and look for further direction from US markets. Bulls have to keep in mind that the “Bear Rally” cannot last for a longer duration unless there is a major turnaround in the global economy.

Wishing you a happy week ahead.

Sunday, March 1, 2009

Uncertain Times Ahead!

Our market has shown a remarkable resilience in the last week by defying the weak global trends particularly from US and China. Even though, Rupee fell below its lifetime low levels on downgrading of rating by S&P, equity market was not affected much. Weak GDP numbers also had a limited impact on our market as the lower GDP numbers coupled with multi-month low inflation raised fresh hopes of interest rate cuts by RBI.

Duty cuts by the Central Government, rate cut hopes and better than expected results from Tata Steel saved the market from the above said negative factors. Further, there was a good amount of short covering ahead of F&O expiry due for the last week helping the key indices to post modest gains. At the same time, sell-off continued in the small and midcap segments and the overall breadth of the market was negative.

As we mentioned earlier, 2700 levels for Nifty proved to be a strong support for the market. Auto stocks were the major gainers due to the rate cut hopes and launch of Nano Car. IT stocks also gained for the week, because of the Rupee fall. Realty sector continued its downtrend. Banking stocks also fell significantly during the majority part of the week though they covered a part of their losses on the last day of the week on rate cut hopes.

Week Ahead:

Falling inflation and the pressures on the Central Government to do something before the elections may prompt a rate cut by RBI in the week ahead. Rate cut may help interest rate sensitive stocks. Reliance Industries – RPL merger may benefit RIL shareholders and the RPL shareholders may be hit. Further, raising trend in Crude Oil may help, Oil producers and Oil Refineries. At the same time, Special Audit on NIFTY Companies announced by SEBI may have some negative surprises.

To conclude, there are equally strong positive and negative news flows to the market and it may continue to move in a narrow range. It appears that there has been a lot of action in F&O segment at the Nifty levels 2700 and 2800. 2700 levels for Nifty continues to be a strong support and a firm breach, if any, would lead to a massive sell off. Similarly, 2800 points will give stiff resistance to the Nifty and in case it breaks 2830 levels, there will be a rush for short covering, taking the market further up towards 2900.

Happy week ahead.

Sunday, February 8, 2009

Break out is possible?

Our market has been hovering in a narrow range of 200 points (Nifty) for many days now. Second stimulus package to be approved by US Senate and the Interim Budget to be presented in Indian Parliament in the coming week are expected to take the market beyond the range upwards.

Week that was

Worse than expected US GDP data resulted in a negative opening for our market. With the corporate results were almost over, the traders were clueless on the future direction for the Nifty. Hence, market was stuck in a narrow range. Trading volumes dried up. As expected, Nifty took a strong support at the levels around 2750 points.

Sudden spurt in inflation in the previous two weeks surprised many market pundits dampening the rate cut hopes. Stocks from Interest rate sensitive sectors like Auto, Banking and Realty were sold off. Worse than expected results from DLF affected the realty counters further. There was also profit booking in the counters, which rose significantly in the previous week. FIIs sold last week in cash market however in a small way.

At the same time, cement counters were shining because of better than expected consignments. Interim judgment on KG gas favoring Reliance Industries Ltd helped the index major to post gains for the week. Nifty and Sensex ended the week with marginal loses and the breadth of the market was negative.

Week Ahead

Inflation resuming the falling trend and the announcement by RBI head brought back the hopes of another round of rate cuts. As said earlier, US stimulus package brought huge expectations from the markets across the globe. Similarly, interim budget due to be submitted in the coming week will be closely monitored by the market. There are expectations of stimulus measures in the interim budget to revive the economy. There are market expectations that the Nifty range (2700-2900) will be broken this week upwards and the next targets for Nifty are 3050 and 3200 points. At the same time, market may continue to be volatile. Traders may take long positions in Nifty and largecap stocks however with a strict stop loss limit of 2750 points.

With the emerging markets posting gains for the second week in a row, Dollar is expected to weaken against the emerging currencies. Base metals and crude may strengthen based on the US stimulus measures. Gold may weaken in case the stock markets do well.

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Sunday, February 1, 2009

Positive Surprise

Last week, our market surprised many pundits by its sharp pull back ignoring many negative factors such as poor results from corporate world, resurfacing of inflationary concerns, no rate cuts by RBI, looming economic recessionary concerns and Satyam Issue. The sharp pull back was triggered by a positive surprise in US homesales data. Traders returning after a longer weekend were caught unaware of this development had to square their short position in a hurry leading to a sharp bounce back particularly in the largecap indices which is evident from the fact the beaten down sectors (Metals, Realty and Banking) of the last F&O series were the major gainers for the last week.

Positive global cues (barring US markets), return of FIIs though in small numbers and heavy investment by Mutual Funds helped in sustaining the pull back and crossing the crucial fifty days moving average of 2850 (Nifty)levels. At the same time, the rally was not a broad based one and the small and midcap stocks under performed their largecap peers. Inflation moved marginally up to touch 5.64% and was largely unnoticed by the market. As we have been mentioning in the earlier posts, the range around 2700 points stood as a firm support for Nifty.

Week Ahead

US economy has contracted worse than expectations as per the data published therein on Friday, which may drag our markets down in the opening trade of the coming week. Our market will also look for cues from other Asian peers. However, there are expectations that our market will have a bounce back after an initial fall as the underlying sentiments have turned mildly positive because of the last week’s developments. Further, there are reports of fresh addition of long position in the new F&O series, which may help sustaining the pull back rally. The pull back may even take the Nifty to 3050 levels but 2880-2900 levels may act as a stiff resistance. Traders may accumulate Nifty futures and major stocks such as Reliance, SBI and ONGC around 2800 levels with a stop loss limit around 2750 and 2660 levels. At the same time, in case of further bad news, if any, from US/Europe may drag the market below 2800 levels, which is negative in the medium term. Trading View on few stocks is given below.

Stock Target 1 Target 2 Support 1 Support 2

Reliance 1375 1430 1215 1110
SBI 1188 1227 1084 1018
ONGC 675 698 624 580

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Sunday, January 18, 2009

Obama - The Change

Coming week is going to witness a historic occasion of Mr.Obama, swearing in as the President of United States of America. For quite some time, we have been only hearing bad news, from USA, such as recession, job losses, bankruptcies, liquidity crisis etc. This is the first good news for the world from USA after a long time not just because a person, from the community that has been exploited for centuries, is becoming the head of the most powerful country of the earth but also because he is the person who won the elections by promising a “Change”.

Week that was

Market opened negative this week because of worse than expected US labour data and indecisiveness of our government in bailing out Satyam. Further, poor results from Bank of America and the decision of Citibank to sell its own parts had a negative impact on the global markets. Many Global markets being down this week on account of recessionary fears and financial crisis were not going well with our markets.

At the same time, to the surprise of many pundits, our markets found strong support at around 9000 points for Sensex (2700 points for Nifty) thanks to the strong rumours that Ambani brothers are nearing a settlement in the KG Gas sharing issue. Further, speculations of KG gas production starting any time soon and supply of gas to NTPC helped the markets to cap the losses for the week. Reliance Pack was the star performer for the week. IT stocks did well mainly because of the positive surprise by Infosys quarterly results. Sharp fall in inflation raised fresh hopes of one more round of rate cuts. However, Realty stocks continued their downfall. Bank stocks did badly during the week despite good results because of the negative outlook on the global financial sector. FIIs were the net sellers for the week.

Week Ahead

As said earlier, Obama factor may help the markets to have a small rally in the beginning of the week. However, the gains may be limited because of the strong underlying bearish sentiments across the globe. Satyam Scandal and doubts of Corporate Governance of the Indian Companies may haunt our markets for some more time. Resumption of FII outflows may also hit the sentiments of the market. To sum up, our market is likely to be highly volatile this week with the indices moving wildly on either side.

Resistance levels are

Sensex - 9500-9600, 9900-10100,
Nifty- 2900-2930, 3000-3030

Support levels are

Sensex - 8950-9050, 8400-8500,
Nifty - 2700-2725, 2475-2525

Traders may initiate short position in case Nifty closes below 2700 levels and long position above 2700 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials (in case of market fall) on a long-term basis.

Rupee is expected to weaken further against the US Dollar and move between 48.00 and 49.50 on renewed FII outflows. Its direction will depend on the factors discussed above.

Happy Week Ahead

Sunday, January 11, 2009

Satyam Shivam Scandalism

Just when it appeared as if everything is all right for the New Year 2009 and the market heading for a solid recovery, Satyam Scandal spoiled the party. Sentiments of the market were totally shattered by the Satyam disclosure which is evident from the 1000 points fall in just two trading sessions. Government initiated certain measures to revive the Company after the trade hours on Friday. Hence, the market reaction for the measures will be closely followed in the next week.

Week that was

Market opened positive for the week because of stable global outlook and bullish local sentiments. Sensex hit a seven-week high and more importantly the small and midcap stocks were performing quite well. As said earlier, Satyam Scandal came as a shock to the market and the Sensex lost as many as 1000 points in no time. Breadth of the market turned extremely negative. Market started looking suspiciously many companies who are on the edge. Delay by the Central Government in initiating action against Satyam Promoters has further dampened the market sentiments. 10-month low inflation data and fall in crude oil prices did not get noticed by the market. Realty sector was the worst hit for the week followed by Consumer Goods sector and IT sector. Cement sector and Auto sector were the better performers for the week. Satyam stock was the worst hit which lost more than 86% in just one week.

Week Ahead

I expect that the arrest of the Satyam ex Chief and formation of new Board of Directors by the Government may improve the market sentiments to some extent. However, worse than expected labor data in US may not go well with the market. Resumption of FII outflows may also hit the sentiments of the market. Quarterly corporate results will be viewed hereafter with distrust only. IIP data due to be announced next week may have a limited impact unless there is a positive surprise. To sum up, market is likely to be heading downside next week unless there is any miracle.

Resistance levels are

Sensex - 9650-9750, 10200-300,
Nifty - 2940-2970, 3130-60

Support levels are

Sensex - 9100-9200, 8650-8750
Nifty - 2780-2800, 2675-2700

Traders may initiate short position in case Nifty closes below 2780 levels and long position above 2950 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials in case of market fall on a long term basis.

Rupee is expected to weaken further against the US Dollar and move between 47.50 and 49.00. Its direction will depend on the factors discussed above.

Happy Week Ahead