Sunday, June 28, 2015

Monsoon worries swept away

It was another week of heavy rainfall and the markets to went up. If this continues for a couple of weeks more, the monsoon fears may become irrelevant. Let us see what next for the markets?

1. The monsoons are already in surplus of +26 pc. This against the Met department forecast of -12 pc. Now, for the Met department forecast to come true there has to be a swing of 38 pc overall for which from now on the rains will have to be very poor.

2. Another interesting feature of the rains this time is that it has cover all regions more or less equally. Every year not only the quantum of rain but the distribution is very important.

3. Normal rains means another rate cut could be coming in August-September.

4. The Greece drama continues. For some reasons, the markets seem to be pretty confident it would be all right in the end. No markets are showing signs of panic as in  the past.

5. The markets are critically posed in the 8400-8500 resistance zones. This zone is particularly important because if the markets close convincingly above 8500 then we may see new highs coming in the region between 9300-9500.

6. The FIIs have started buying again in a small manner. If the FIIs start buying, then we would see new highs coming.

7. Also, the last fall took about about 15 sessions from 8489 and we have taken about 10 sessions to rise to a high of about 8423. If the markets take out 8500 within the next week, then we are on track for new highs.

8. The monsoon session starts on July 21st and is expected to be a very stormy session. Whatever rise has to come has to come before it starts. This is another indicator to know whether we are good to go for new highs.

Sunday, June 21, 2015

Greece still holds the Key

The markets rallied sharply by about 3 pc this week for the Nifty to close at 8224. This rise had certain strange characteristics. Let us see what these are and what could be the future probable path of the Nifty.

1. The monsoons worries were swept aside and in fact we have received 11 pc surplus rain till about 18th June. A few more weeks of this rain and the monsoon worries will get swept aside.

2. The Greek drama continues and it looks like the drama will be played out till last possible minute. There is a EU Heads summit on Monday where we would get further clues on the market action.

3. All rises in the Indian Markets have always been traditionally on the back of FII flows. This almost 300 point rally has been on the back of FII outflows. FIIs have sold for the past 12-13 sessions consecutively with buying maybe for a couple of sessions in between. On the back of outflows of Rs 1900 crores for May, June has seen about 5500 crores outflows so far.

The markets closed at 8181 on April 30th. So, the markets now at 8224 have absorbed 7400 crores or almost 1.2 billion USD outflows.

4. The monsoon session of the Parliament is only after July 20th and the results also will start flowing in only after 12th July. So next for the next 3 weeks there are no major triggers for the markets except the Greek drama.

5. Technically, 8350 becomes a very critical level both from retracement levels perspective as well as trend line levels.

A weekly close above 8350 would signal the end of ongoing correction. The markets may oscillate in the 8100-8400 range for few more weeks before see a clear move on the either side of the range.

Sunday, June 14, 2015

Greece worries hit Global Markets

The markets closed another 1.6 pc down. This correction which started in the first week of March has now gone on for more than 3 months. How much further will the correction go? Let us try and examine the reasons for the correction and how far can it take us down.

1. This is 1 of the first sizeable corrections since August 2013 when the markets hit a bottom of 5118. It could also be the correction from 5933 which the markets hit in Februrary 2014. In either case, if we look at the time component, we are correcting rises of 19 months or 13 months. The correction should last at least 5 months if look at time wise correction. Since we are in a bull market, correction can be shorter time wise but at least 3-4 months.

2. This means that the markets can remain sideways to downward for another couple of months.

3. We have almost hit the target of 7908 and the next key supports come in at 7800 and 7500. We may very well go down to 7500 but before that some kind of a bounce may happen.

4. The Greeks have to make a payment before the end of June. Talks are ongoing between the Greek government and the lenders. If the talks fail, Greece may exit the Euro. This would have a cascading effect on the global economy and the world markets similar to the Lehman effect. I doubt things will come to such a pass, but the shadow boxing is enough to keep the markets down.

5. The monsoons have arrived and are normal for the first 10-12 days of June. These are early days yet and only July will reveal what kind of rains we have received.

6. The FIIs have continued their selling and sold about 4500 crores so far in June to go with their selling of 4500 crores in the month of May.

If we look at the key events driving the markets, monsoons and Greece are the two key drivers. The Greece story may get sorted out either last next week or the week after. The monsoons effect to be clear will take sometime more, maybe 1 more month. This matches in with the 4-5 months time taken for the correction.

Strategy remains simple, buy on dips good quality stocks. The Private banks especially have come to very attractive levels.

Sunday, June 7, 2015

Markets await the Monsoon Trigger

The Markets, it seems did make a short term top in the first 3 days of the month and the RBI cut rates by 25 basis points. What next for the markets?

1. The RBI did what was expected and the Met Department downgraded the monsoons from 93 % normal to 88 % normal leading to the markets tanking.

2. The Monsoons have hit Kerala on June 5th and the Private forecaster Skymet still talks about a normal monsoon. The uncertainty over the monsoons means that the markets are not likely to immediately take off from current levels.

3. Last week, I had spoken of 2 scenarios either straight up or first a correction to 7600-7800 levls and then a move up. The possibility of a correction first seems more likely now.

4. The FIIs have sold about 1250 crores in the first week of June and the DIIs have bought double that quantity.

5. Apart from the monsoons there are no major triggers in the month of June. Crude oil prices have eased up a bit after the OPEC meeting.

6. The Bank FD Rates are clearly on the down move. A FD which was fetching about 9.7 pc about 18 months has come doen to 9 pc and is mostly likely to move down to 8.5 pc.

7. The markets have corrected from 8467 to 8057 and a short term rally to 8250-8300 levels is easily on the cards.

The Greece drama has been postponed till the end of the month and the markets will continue to be range bound till then. Best approach is to keep adding good quality stocks many of whom will be ex dividend in the next 2 months thus giving immediate tax free returns.

Sunday, May 31, 2015

May turns out to be Positive

At the beginning of the month, I had said, very rarely there are 3 months of consecutive decline and if 2 months are negative the third month is almost always positive or flat. The markets performed true to that dictum and gained 3.1 pc in May.

1. The GDP numbers came in good on Friday. The RBI policy is set for Tuesday. If no cut, then expect a very sharp cut in the markets. If there is a 25 basis points cut then expect a small rally. There would be a big rally if there is a 50 basis points cut. This seems highy unlikely at this point of time.
My favorite scenario at this point of time is a 25 basis point cut. As a reaction, markets will rally and then peter off as had happened in early March.

2. The monsoons are yet to hit the coast of India. This is precisely the reason why the RBI will not have a 50 basis point cut.

3. The markets have reached 8433 and there are multiple resistances between 8500-8600. In fact it is quite likely the markets will make a short term top within the first 3 days of the month of June.

4. There are 2 schools of thought, 1 is markets will go straight up from here or there would be a dip first and then a rally. If there is a dip, then 7500-7600 comes as a logical target and that would be a great buying opportunity.

5. Yesterday, I read an article which made great sense. It states that every 2 years there is a 25-30 pc cut in the Sensex and Nifty levels. This has happened at least for the past 10 years. The last major correction was in August 2013. If this substantial correction happens and since we are in a bull market a 20 pc cut would lead us to 7300.

6. I expect the markets to eventually top out at 10000-12000 on the Nifty within the next 1 year. This means every dip right now is a buying opportunity.

The trick is to buy Quality stocks so that even if the markets fall, these stocks can be averaged. There were 2 big events lined up. First were the GDP numbers and the second is the RBI policy. Once these are out of the way, then the monsoons become the next key trigger for the markets.

Sunday, May 24, 2015

Expiry Week Ahead

The markets zoomed 2.4 pc last week and is now nearing  the cluster of resistances. The expiry of the May series is also this week. Let us see what the markets have in store for us.

1. The expected resistances are in the 8500-8600 region and we are almost there. From here, there are 2 probabilities, 1 is we move down to test 7700-7800 or we move straight ahead to test the old resistance of 8800.

2. The next trigger for the markets are the RBI rate cut likelihood on June 2nd and the onset of monsoons. The 2 key events are lined up in early June. Hence, this being expiry week, I expect the markets to be subdued and trade within a range.

3. The FIIs have again begun to buy after the dust up over MAT has settled down. DIIs are also supporting the markets. This has lead to the increase in the Nifty over the past week as the selling pressure has ebbed.

4. Trend line resistance comes to between 8580-8600 for the week. Support comes at 8331.

5. The RBI policy has expectations of a rate cut being built in. If there is no rate cut then that could be a trigger for correction to take place. The RBI may wait to see how the monsoon progresses and then cut rates some time later in June.

6. The Life Insurance and Accident Insurance Schemes launched by Narendra Modi have been a big hit with almost 7.6 crores people opting for it. Such schemes were badly required at nominal rates.

It is now time to be a bit cautious, start booking part profits if bought at lower levels. If this is just a corrective up move then it may mature this week and we hit some kind of interim top. If that is the case then we will continue making lower highs and lower lows. 9119, then 8845 and so on.

Sunday, May 17, 2015

A breakout imminent

The markets have been moving in a small range for the past few weeks and a move of 300-400 points is imminent on either side of the breakout. Let us try and examine how the markets can move.

1. The Parliament has ended and the GST bill is still to be passed in the Rajya Sabha.

2. 1 year of Modi Sarkar is nearly done and even though a lot has been done, the sky high expectations have not been met. More on 1 year of Modi Sarkar in a separate piece as it merits an entire separate piece in itself.

3. The exports have fallen for the 5th month in succession underlining weak global demand.

4. The Fuel prices have been hiked and are now only 6-7 rupees below the peak prices. The excise hikes of 7-9 rupees no one is talking about a rollback. The oil prices were supposed to bounce till 70 USD per barrel and are almost there at 66 USD a barrel. Anyfruther rise beyond 70 USD and then the Government strategy needs to be seen.

5. The monsoons are round the corner and the next moves will be dictated by the Monsoon. Till then the Markets would continue to do time pass with mini moves up and down. A clear trend would emerge only after the onset of monsoon.

6. Inflation is under control and the Factory output is flagging The RBI can cut rates on June 2nd or wait for clear indications from the monsoon to cut rates. RBI has demonstrated that they do not necessarily cut rates only during policy meetings the last 2 times.

7.. The markets if they break 8300-8350 can move up move up to 8600 levels and conversely if they break 8100-8150 can move down to next support of 7800-7850.

This would be the broad range till we have the confirmation about monsoons. A poor monsoon would take us as low as 7500. These are important levels as they are the levels hit when Modi won the elections.

The next few weeks would be the lull before the storm and a clear trend would only emerge by the middle of June by when it would also be clear whether we have a poor or good monsoon.

Sunday, May 10, 2015

Will GST be passed in the Rajya Sabha?

The markets ended flat last week but that was only half the story. The first half saw a decline and the end of the week saw the pullback as expected.

1. The Parliament session ends in 3 days and the GST bill is expected to be voted upon in the Rajya Sabha. It has aready been passed in the Lok Sabha. If the Government manages to push it thorugh then it would be a very big sentiment changer and then expect a relief rally to 8500-8600 in the next week itself.

2. The FIIs coninue to sell. The latest reason being given is a slew of IPOs in China and money being diverted there.

3. Globally, the things go into a quiet period of time right now. Once the Parliament closes on Wednesday, there would no major immediate triggers for the marets to fall or rally.

4. The next major trigger would be the monsoons in early June.

5. The bond yields have gone back to almost 8 pc from 7.66 pc. If it goes higher to say 8.2-8.3 pc then one can again look at buying Gilt funds.

6. The corporate results have come and gone. They do not show much promise yet.

7. The Auto car saes showed a decent spike in the month of April. Auto sales are usually an early indicator to show that the economy is picking up.

In a nutshell, we may have made a short term bottom at 7997 and can expect markets to trade with a positive bias in the near term, especially if the GST Bill goes through.

Wednesday, May 6, 2015

Image speaks a thousand words

The attached image speaks a thousand words. Very rarely since 2008, the markets have declined for 3 consecutive months. And even when they have declined the fall in the third month has been very marginal. we cannot catch the exact top or bottom and now may be a good time to buy.

Sunday, May 3, 2015

2 months of decline -Time to Buy?

The markets have declined straight for 2 months now. We have corrected about 10 pc from the top in the Nifty and in many individual stocks even more than that to about 20-25 %. Is it now a time to buy?

1. The attached image speaks a thousand words. Very rarely since 2008, the markets have declined for 3 consecutive months. And even when they have declined the fall in the third month has been very marginal. we cannot catch the exact top or bottom and now may be a good time to buy.

2. The 7950-8050 zone is a cluster of support zone in technical parlance. If we breach this we are staring at 7500.

3. The FIIs were net sellers for the last few days and that contributed to the lack of support for the markets.

4. The US fed maintained status quo on rate hikes. This means the party will continue for sometime more.

5. The fuel prices were hiked over the weekend and all the excise rate hikes, there is no talk of rollback. The rate at which this Government is progressing, the political climate may soon turn to be hostile for reforms. It is the next 1 year or never for rolling out reforms.

6. The markets may rally from here, but it may only be a relief rally of 500-600 points. The market is becoming a scalper's markets unlike from August 2013 to Feb 2015, a period of 18 months in which it only went up straight in 1 direction.

A good way to play this kind of market is part book profits and lower the cost of acquisition. In this way, you do not lose if the markets fall nor miss out if it rises further.

Example: If you buy a share A worth about Rs 100. It moves to Rs 110 and you sell half the quantity. Your cost price for the remaining shares becomes 90. Now, if the markets fall, then your revised cost price is less than at the price at which you bought. So you can absorb 4-5 % fall in market terms and still have same price. Which means if you bought at 8181 and markets went up to 8500 and then fall. Your revised cost price would be equivalent to levels bought at 7950-8000.