Sunday, July 20, 2014

Cues Turn Positive

The markets have digested the budget and had a rally of 2.7 pc. The Q1 results are in the process of being declared.Let us look at the key factors influencing the markets.

1. The monsoon worries have abated and it is raining in most part of the country. The deficit has gone down to -15 pc from -43 pc. We may have a deficient monsoon but definitely not a severe drought as feared.

2. The FIIs were net buyers to a tune of 2000 crores last week thus being the major drivers for the markets.

3. The IIP numbers have improved. There is a change in sentiment in the markets. The mood of the people is upbeat. Often, it is the change in sentiment which drives economic activity. If people feel optimistic about the future then they spend money and consumption drives growth. It is a cycle and we may just have hit the bottom in terms of sentiment in early 2014 and moving up.

4. Auto sales for the month of June were good. These are early indicators of economic activity picking up and trends for the next few months needs to be monitored.

5. Globally, the Iraqi situation has stabilized and Brent crude prices are down. The Government is losing just Rs 2.5 over diesel and if this trend continues by the end of the year, the subsidy on Diesel should end. Diesel and Petrol being subsidy free, who would have thought about 4 years ago, when Petrol was made free from the subsidy regime in June 2010.

6. The Nifty is at a critical level between 7650-700 and a close above these levels would indicate further upsides.

7. Projected targets could be range from 8100 to 8400 levels.

8. The Results of companies have been fairly good. Reliance beat expectations yesterday and so did TCS.

Time to stay invested and reap the benefits of long term investing.

Sunday, July 13, 2014

Events out of the way. What next?

The last week was an action packed week with the Rail Budget, Economic Survey, Union Budget and Infosys results. The markets sold off on each event day thus fulfilling the adage “Buy on Rumors, Sell on News”. What has really changed in the past 1 week?
1. The Rail Budget met expectations. Most Rail Budgets announce lots of new Trains and there is no mention of how the funds are going to come in. 94 paisa out of every 1 rupee earned by the Railways goes in routine expenses like wage bills, maintenance. Nothing is left for the spend on Infrastructure. It makes sense to have fewer announcements and finish off existing projects.
2. The Union Budget was made within 45 days of coming to power. That is too short a time for any Government to make a meaningful impact.
The next budget is 7 months away and that is the real budget. The Budget announcement was a statement of intent and clarity on Retrospective tax, focus on infra spending are all positives.
The commitment to meet the fiscal targets and no major commitments being made on spending is heartening. The tax sops will improve sentiment amongst the middle class and the expansion of PPF limit to 1.5 Lakhs is most heartening. PPF is the most important form of saving for small investors like me and i would have welcomed if it had been raised to 2 lakhs also.
3. The Infosys results were average. The main show is yet to begin. The Attrition is good because the deadweight is being let go and time for a new Infosys to be built. Its price to earnings multiple is low compared to TCS and I expect Infosys to outperform its peers in terms of stock Price performance.
4. The Budget has come and gone and the monsoons have started to pick up at least in Mumbai. The negatives are getting out of the way and the time is to use every dip to buy good quality stocks.
I firmly believe such opportunities come once in a lifetime and we are sitting on the cusp of 1 such. I do not mind 500 -1000 points correction on the nifty as that gives us a chance to buy good quality stocks cheap.

Sunday, July 6, 2014

Pre-Budget Rally commences

The markets gained 3.2 pc for the week and closed above the previous highs to close at a lifetime high. The pre-budget rally has well and truly begun and the time to part book profits is very well near.

1. The markets have begun to run up and they need to take a pause somewhere before the next serious up move. Budget day becomes very critical as I dont see any correction before the budget now. The Rail Budget on Tuesday will be a pointer to the Union Budget.

2. The Union Budget will be high on reform announcements and could lead to an upward burst. Overall we are now in a secular bull market which i see continuing at least for the next 14-16 months. The 8 year cycle points to a top around early 2016 late 2015.

3. The FIIs in the last week have bought about 60 pc of what they had bought totally in the month of June.

4. The Iraqi crisis seems to be easing a bit. 1 co-relation is that a bull run in equities coincides with a bull run in Oil.

5. The monsoons have arrived in Mumbai, there would be poor monsoons but the impact remains to be seen. The handling of the Iraqi crisis has already earned the Modi Government credit and good will in Kerala and the rest of the country.

6. I expect some big bang announcements in the budget signalling the intent of the Government. Budget is meant to signal the intent and the implementation would be next 16-18 months.

7. This rally has legs to go and targets of 12000-15000 Nifty do not seem unrealistic. in fact, I see similarities between June 2006 and now when the markets almost doubled. In June 2006, the Nifty was 3128 and peaked at 6357 in early Jan 2008.

Now, is the time to build a portfolio of good stocks and remain invested. Use short term peaks  to book profits as we do not know when the eventual top will come.

Sunday, June 29, 2014

Buy the Dip Continues

The markets ended flat for the week. The markets are consolidating at support levels waiting for cues from the Union Budget which is just about 10 days away. Let us explore what could happen in the near future.

1. The Union Budget is 10 days away and the countdown has begun. I expect a budget which is reform oriented, signalling further its intent with a lot of push on Infrastructure. I do not expect the tax slabs to be rejigged more but the exemption for investing in PPF under section 80 could see an upward revision.

2. The Rail budget will give a clue what is coming. The fare hike has been identified and now the Budget should have Infra announcements. The markets could start rallying around the time of rail budget or even earlier.

. The FIIs are taking a cautious stand and the markets are not falling much. This means that the domestic players have jumped in to absorb the mild selling.

4. The monsoons are delayed and while they will catch up in terms of the quantity of rainfall, the distribution in terms of time will take a hit. This will impact agriculture growth. In 2009, we had poor monsoons, the markets had rallied on the UPA victory. The markets had corrected about 13 pc from the top. This time we have corrected about 6 pc from the top. We could either correct to 6700 or 7200 levels.

This would be the buying opportunity, the last chance to get in and watch the fruits grow. as per the 8 year rule, the markets should peak sometime in early 2016. We are about 18 months away from it and I expect a blow out rally to take place.

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Sunday, June 22, 2014

Buy the dip

The markets corrected around 0.4 pc to close at 7511. It was a range bound market with markets making a lower top at 7663. What next in the expiry week?

1. The FIIs have sold in the last week for 3 days out of 5. Small quantities but the buying support has gone.

2. The Monsoon seems to have slowed down. It will be a delayed monsoon for sure now, the rainfall quatity may not change but the timing will affect sowing.

3. The rail fare hike will most likely ensure a gap up on Monday. The medicine may be bitter but if the Indian economy has to improve, bitter medicine has to be taken. Please read my guest piece on Subhankar blog next week for detailed analysis on Subsidy Raj.

4. Iraq situation has raised brent crude prices. Past experiences show that such shocks subside suddenly. Syria when markets a low of 5118 is 1 example.

5. The supports are holding, which means expect a breakout ay time.

6. Next week is expiry, so the real game begins after Tuesday and Wednesday.

7. It is time to buy the dip. Accumulate quality stocks. The Modi era has begun on the right foot and if the same continues, just buy stocks and forget for next 5 years.

8. Key Indicators to watch:

a. The Budget will give the signals on the road map of the Government.

b. Further reduction of subsidies bode well in the long term.

Everyone is waiting for the budget. So, expect either a pre-budget or post-budget rally. 8100 is coming, before or after the Budget I do not know. Before hitting 7200 or straightaway I do not know. But, in the next 1 year we will surely hit both these points at least once.

Friday, June 20, 2014

Bold and welcome move by the Government

The Rail fares have been hiked by the Government, passenger by 14 pc and Freight fares by 6.5 pc. This move is most welcome and a pre-cursor to Acche Din.

Freight fares cross subsidize passenger fares. The passenger fares have rarely been hiked in the past 10 years of the UPA. The subsidy burden was dragging the railways down.

Since, freight fares have been hiked marginally compared to the passenger fares, impact on inflation will be lesser.

My prediction:
Expect the budget to have Infrastructure announcements for the Railways.

A good beginning has been made by the Government. No pain no gain. Next in line will be kerosene subsidy. Diesel subsidy is almost at an end, Petrol has no subsidy, question remains of LPG. Next move coming would be to go back to 9 cylinders or even 6 per year and eventually do away with the subsidies.

The money saved can be invested into Inffrastructure and that will automatically increase producvity. The Mumbai Pune expressway is the prime example of this. It takes almost just over 2 hours from Navi Mumbai to Hinjewadi where the IT hub is. Paying 400 toll, one can leave in the morning, go to Hinjewadi and be back in the evening.

Earlier it used to take 4 hours 1 way from Mumbai to Pune. Nitin Gadkari is the man who conceptualized the much ridiculed 45 flyovers i Mumbai and Mumbai Pune expressway. Roads will be the focus in next 5 years.

If this continues, Congress can expect to be out of power for next 10-15 years minimum.

Sunday, June 15, 2014

Markets take a pause

The markets after having run up on expectations took a pause this week. Correcting about 0.5pc, The Nifty was hardly a representation of the true picture with many of the mid caps showing larger correction. What is next in store?

1. The FIIs were sellers only on Wednesday. they bought 1100 crores on Friday and buyers during the rest of the week too. This means the flow inflow contiues.

2. Iraq was run over in some parts of the country by rebels. This led to Oil spiking and markets correcting. Even more interestingly, Iran is willing to support Iraqi troops with own troops under US guidance. This is an event which is unbelievable but if this axis comes true expect crude oil prices to collapse in the long term.. This is perfect Game Theory scenario where each party has no choice but to co-operate to survive.

3. Iraqi effect on markets usually will be a short term flash in the pan event. I have noticed in the past such International flare ups quickly lose their impact o markets like Ukraine Russia or the Syrian crisis.

4. The Modi Goverment has realised the ecoomy is in worse shape than initially believed to be. It is like the treasury has been looted for 10 years ad empty coffers left. This will call for some tough measures in the form of subsidies beig reduced.

5. Modi brings his own luck and if Iraqi crisis fades soon  then diesel subsidy the largest of the lot amongst Diesel, Petrol and Kerosene will fade on its own.

6. The Budget is in the middle of July and soon, especially after this expiry is done with we can expect a pre-Budget rally on hope.Hope is the biggest thing in which markets rally on.

7. The markets has supports at 7489, 7400 and deeper down at 7223.

It is a buy on dips markets and we may be getting 1 more opportunity to buy the dip.

Sunday, June 8, 2014

Markets set for new highs, after maybe a pause

The Markets took off on Friday on the back of Oil and Gas sector stocks. with lots of news swirling around, the markets ended the week about 4.9 pc higher. What next for the markets then?

1. The Feel Good factor is at play. The Honeymoon period of the Modi Sarkar is in full play and I expect after some more consolidation, the rally to continue till the Budget announcement in mid July.

2. The Oil and Gas stocks were in focus. Policy reforms are expected and diesel also is almost de-regulated. The under-recovery is down to rs 2.80 and with the rupee strengthening and monthly hikes of 50 p, I expect the entire subsidy to be wiped out in next 2-3 months.

3. No subsidy on Diesel and Petrol, that leaves us only with LPG and kerosene. The Oil Marketing companies are set to rally on this.

4. The target for the Nifty could be 8100 by the time of the Budget presentation. The correction of the move from 6638 to 7564 seems to have ended at 7216.

5. The Rally is absolutely broad based now, and one must clean up the portfolio with dud stocks right now.

6. Those who invested in Gilt funds have a reason to smile, as the yields have fallen from 9.10 pc to 8.52 pc With the RBI signalling further easing, expect Gilt funds to do well.

7. The FIIs have been massive buyers during this week and one can expect this trend to continue.

8. The Monsoons have hit Kerala and that is a relief.

Looks like "Acche Din" have arrived at least for the Equity markets.

Sunday, June 1, 2014

Opportunity to Buy Stocks

The market has gone into a Consolidation mode and now is a good time to add fresh stock positions. After the last elections in 2009, the top hit by the market 2 days after the elections was the top for 3-4 months. A similar story might be playing out, already 2 weeks have gone by.

1. The Markets ended May with a gain of 8 pc. June has historically been usually a positive to neutral month overall.

2. The Budget would be around 10-15th July, so one can expect the pre-budget rally to start in the 3rd week of June.

3. The RBI Policy on 3rd June will give direction to the markets. An unexpected rate cut may lead to the markets galloping ahead.

4. PSU stocks would be a theme under the Modi Government. PSU Banks especially mid-sized Banks with good dividend yields are a safe bet right now.

5. Most of the uncertainities which plagued the markets have disappeared and looks like good days are here for the markets again.

6. Gold has fallen into an abyss and I feel the golde days are behind for Gold at least for the next few years. gold does well whe there is fear in the markets. Right now, fear has vanished from the global markets.

7. The FIIs invested a huge amount in buying part of Kotak Promoter stake and also QIP of Yes Bank on Friday. They pumped in almost 14000 crores for the month of May.

All the factors are in place for a bull run. It is a buy on dips markets right now.

Sunday, May 25, 2014

Broad based rally in the markets

The markets gained 2.3 pc for the week. this was not the real story, it was the action in the mid caps and small caps which was where the real action took place. Let us now look at the possibilities ahead.

1. There seems unlikely to be a real correction now in the markets, it has become a buy on dips markets. The FIIs were sellers for 3 days in the markets, but they made up for it on Friday.

2. Above 7400 and 7477, we are headed to new highs in the markets. This is a good time to remove all dead stocks from the portfolio and move into quality stocks.

3. The next week, markets will cheer the Cabinet formation and the next significant event will be the Union Budget in mid July. Unless, the monsoons are a total washout, they will not affect the markets.

4. Infrastructure, Power, roads are the themes which can be looked on.There are several reasons for it. this is likely to be the thrust of the new Government and also these stocks have been badly beaten down.

5. All corrections from hereon are buying opportunities. The market has changed from sell on rises market to a buy on dips market.

6. Gold prices have come down on import relaxation. Gold as an investment class should not be a option now. Gold works when there is fear in the world and uncertainty is there.

7. One must book profits at regular intervals, else when the crash comes, all is lost. The profit can be locked in fixed income or real estate.