Sunday, May 29, 2016

Technical Breakout in the Markets

The ferocious up move in the last 3 days broke through several technical barriers and one can reach several conclusions from the move. Let us try and explore each 1 of them.

1. The downward trend line joining all the tops from 9119 (The previous All time high in March 2015) has been convincingly broken on the up side. This means that the correction is over.

2. 7900-8000 was key resistance as well as previous top, that has been convincingly broken and now becomes a support level.

3. There will be retracements of the entire up move from 6825 to 81xx or higher. These would be buying opportunities. The retracements would approx be at 7850,7650, 7500 and worst case 7350. It is unlikely we would go below 7500.

4. On the up side the previous top of 8336 becomes a target. Also, trend lines give a resistance between 8300-8350.

5. The markets may correct the up move from 7715 to current levels before 1 more leg up.The targets for this correction could be 8000, 7950 or 7900.

6. From sell on rises, this has now become a buy on dips market.

7. The FIIs have bought for the last 3 days but still remain net sellers for the month of May.

8. The large caps have rallied. Now, they will take a breather and the mid caps will rally now.

9. The weekly Bollinger Bands indicate some cooling off for the markets.

The structure of the market has changed now. The correction is over and we have a bottom in place at 6825. We can never catch exact tops or bottoms and even if we get a chance t buy at 7500 or 7750 now, we should grab it with both hands.

Sunday, May 22, 2016

Flat Markets so far in this Financial Year

I just happened to look at the market movement post 31st March and we are at the same level since then. Almost 2 months have gone by and no movement. This means a range breakout or breakdown is coming soon.

1. On March 31st 2016, the markets closed at 7738 and yesterday they closed at 7749. The high and low in this period is 7516 and 7992, a range of 476 points. So if the markets break 7992, then they may head to 8468 and if they break 7516, target is 7040. In the month of June I am sure we will come very close to either of these 2 levels.

2. The FIIs continued their selling and now are net sellers for the month of May. If this trend continues, then the markets will see further downsides.

3. Mahindra Financial is coming out with a NCD offering and coupon rate of 9 pc for 10 years seems very attractive to me. You can get 9 pc locked in for the next 10 years. This current low interest rate regime will continue for at least 2 years more.

4. The Election results were more or less on expected lines and hence the markets sort of ignored them What I have noticed is post results, invariably the markets trend to drift irrespective of the results.

5. The market behavior over the last few days has been indicating some form of correction. There are no new immediate triggers present.

It is time to keep fresh cash ready. AT every dip, one can start accumulating. The time to buy will be soon upon us.

Sunday, May 15, 2016

Election Results to watch out for

The Markets are in a somnolent state oscillating in a thin band of 200 points on the Nifty. The monsoons in a couple of weeks or so will be 1 solid trigger. This week we have the election results of 4 Assembly States.

1. Usually, State Elections should not affect the markets but in 2006, the markets had a steep crash after these results. The BJP is a marginal player in most States, except Assam. This result is very crucial for the Congress Party. If they are able to show a strong showing and retain Assam and Kerala, then the markets may take a plunge.

2. The FIIs have been marginal buyers. They are not pumping in huge quantities either. This is 1 more reason why the market is not giving a breakout.

3. Technically, as is for the last several weeks, 7950 and 7750 remain key levels. We ended 13th April with 7850 and now we are at 7815. The markets have not gone anywhere in the last 4 weeks.

4. The Met Department is supposed to issue a second monsoon forecast today. I expect it to be positive.

5. The Parliament has closed and there will be no action till the Monsoon Session in June. No GST bill passed so far.

6. The markets are listless and waiting for a trigger to either rise or fall. I expect this scenario to continue, firstly at least till Thursday when the elections results are out and secondly the more major trigger, the progress of the Monsoons.

There are individual stocks which give buying opportunities and my advice is to pick them when you feel the price is right. Such stocks may not fall further when the markets fall.

Sunday, May 8, 2016

7900-8000 becomes a firm ceiling for the market

The markets again had a negative week and the markets have not moved much in the past 3 weeks. The triggers for the Market movement are almost done with in the near future. Let us evaluate what can move the markets in the near future.

1. The progress f Monsoons in the first week of June and the UK referendum on whether to stay in the EU in late June are 2 big triggers and which could be positive for the markets.

2. The FIIS have sold nearly 750 crores in the first week of May and an equal quantity has been purchased by the DIIs. There seems to be a overall lack of interest.

3. Globally, there seem to be no major triggers on the anvil.

4. The major corporate results have come and gone. Infy, TCS, HDFC bank surprised on the positive side whereas Axis and ICICI Bank had negative surprises.

5. Technically, the next supports lie around 7450-7500 if the current range were to give way. Resistances remain at 7850, 7950-8000.

6. Sugar sector seems to be in a sweet spot with the production of sugar set to fall. There is no corresponding dip in the consumption.

7. Capital goods is another sector which will do well after years of recession.

There are currently few IPOs there in the market and there can be listing gains on the same. With the new SEBI norms that all Retail Applicants will be treated on par, that is if you apply for 1 lot or 10 ots, you will be allocated only 1 lot, it makes sense to apply for only 1 lot.

Sunday, May 1, 2016

ICICI Bank Results show the Risks of NPAs

The week was flattish for the markets as the markets continue to stall around the 8000 levels. ICICI Bank declared its results after market hours on Friday and which were disappointing to say the least.

1. ICICI Bank increased provisioning for NPAs and this led to a decline of 76 % in its profits. The executives of the Bank will also forgo bonuses for the year. Steel, power and cement sectors could have more NPAs.

2. The ICICI Bank results underline the fact that the Indian economy is not out of the woods and the financial sector could face more stress.

3. Bank of Japan refused to extend Fresh Stimulus to the markets and that will lead to less hot money pumping up emerging markets like India.

4. The FIIs were net buyers of only about 3000 crores compared to 24000 crores in the month of March 2016.

5. It will take some very strong news to take the markets above 8000. The Parliament is in session only the next week and GST bill does not seem to be on the agenda.

6. Technically, 7950-8000 remain very strong resistances and supports are at 7400-7500 followed by 7250.

7. There are some very good IPOs in the market with Parag Foods coming in the first week of May.

8. The Election Results in May could provide some direction to the markets. The similarities are eerie. In May 2004, 2006, the markets corrected in May on the back of election results and there was no correction in the month of March like this year.

Sunday, April 24, 2016

Good results from Infosys and Reliance

The full year result are off to a good start with two bell weathers announcing very good results. The market has now reached a very solid resistance zone and will need some very good piece of news for further rise.

1. The Results season has started off in full swing and the results are very good till now. Results season and Parliament in session means the market moves are in a very narrow band.

2. The FIIs continue to buy but their volume of buying has dramatically reduced. Till date in April they have bought 2000 crores worth of stock whereas they bought 26000 crores in entire March.

3. The Global cues are neutral at the moment. The next big triggers are still some time away. THe UK vote whether to stay in the EU is in June, election results for the assembly elections are still 1 month away and the progress of the monsoons still 45 days away.

4. The Parliament is in session the next week onward and expect the Opposition to block the proceedings over the dismissal of the Uttarakhand Government.

5. Technically 7950-8000 are strong resistances. Logically, the markets should correct to the 7250-7500 band before making attempts for further up moves.

All in all, a dull time for the markets. It is a good thing to book profits for those who bought stocks at lower levels.

Markets always give a chance to buy stocks.

Sunday, April 17, 2016

Fixed Income Options in Falling Interest Rate Regime

Let us take a break from the normal markets this time and look at the various fixed income options available especially for the Senior Citizens. A friend of mine had this query and I realized this might be something many of us might be looking at.

1. Bank Fixed Deposits - The Rates have crashed and this becomes the most un viable option of all. The benefit of Bank Deposits is that easy liquidity is available.

2. NCDs - Many non convertible debentures are listed on the NSE and are can be bought through Open Markets. Some like L and T pay about 10.24 % twice a year. There are other NCDs also listed of less reputed players.

3. Tax Free Bonds - One should always apply for every issue and once we get proportionate allotment keep accumulating these tax free bonds. No Income Tax needs to be paid on these bonds' interest every year.

4. Debt Funds - A clear idea of good debt and income funds can be had on I can spot many funds which have consistently given returns of 8 to 10 pc per annum. Now, the catch with such funds is that one needs to hold them for 3 years to qualify as Long Term holdings. Also there is a Dividend Distribution Tax to pay. This the MF will pay on your behalf.

Now, if you go for the growth option and liquidate the gains, Short Term Capital Gain will be as per your income tax slab. This option is good for Senior Citizens who are not paying much income tax.

5. In case one is a Senior Citizen, then there is a Government of India Scheme with assured 8.6 % interest per year.

So these are the options available. The next 2 years are going to be very tough for fixed income folks and one must look at all possible options to squeeze out the last penny from our investments.

Sunday, April 10, 2016

Sell on News Event materializes

The RBI Policy has come and gone. It announced a 25 basis point reduction and not the 50 basis points which the markets was expecting. April is a month of corporate results and I expect  the markets to be flat with a negative bias.

1. The entire rise from 6825 to 7777 can be corrected. The targets for this correction can be 7413, 7301, 7188 or 7050. This would be the dip which presents a very good buying opportunity.

2. The RBI will not cut rates further till it gets to see the progress of the Monsoon. The GST Bill also is not likely to get passed very soon.

3. The FIIs have become marginal net sellers for the month of April so far. Any up move is largely dependent on FII inflows.

4. Stock moves have become very sector specific. In the last 2 weeks, the Pharma stocks were heavily battered. Front line Pharma stocks are always a very good bet. The USFDA observations are always closed.

5. Globally, the markets do not have any positive clues.

6. The next 2 weeks are truncated weeks with 3 trading holidays on April 13, 14 and 19. This will lead to very subdued movement in the markets.

7. The Corporate earnings are expected to set the tone for the markets which will start coming in from the next month.

8. There are 2 ways at looking at this rally. 1 is that the correction ended at 6825 and this is a fresh impulse under way. Second is that this is just a corrective up move and 1 more leg down is pending to new lows.
Whichever way one looks at it, 7250-7400 seems to be on the cards and which would be a very good buying opportunity.

Sunday, April 3, 2016

RBI Policy to dictate the next course of Action

The RBI policy is on April 5th and expectations are being built in of a 50 basis points cut. The rally so far from Budget day has been on expectations of a Rate Cut. The RBI policy could well turn out to be a Sell on News event.

1. The FII continue to buy. They bought about 24000 crores worth of shares in March and that is one of the key reasons the markets have rallied so far.

2. The Government commitment to meet the fiscal deficit target as well as the Rate in Small Saving Schemes has led  to expectations of a higher rate cut. Governor Rajan normally holds his cards close to his chest so one never knows.

3. April is the month of full year results of companies. Result months are typically flat to down months for the markets.

4. The Sell in Feb, buy in April saying which usually comes true states that same stocks are usually cheaper in April than they were in Feb. The same may not hold true this time as the markets were down in Feb and up in March. The adage can be modified to get the stocks cheaper than their peak prices in March.

5. For the last 5-6 years, April has been mildly negative to a flat closing month. Let us see what this month brings in.

6. Technically, we are heading into a resistance zone from 7800 to 8000. Supports remain at 7600, 7450 and 7250. The markets may go down towards 7200 but not below that.

7. The Pharma stocks have been beaten down on USFDA warnings and as such present a good buying opportunity.

It is time to be cautious, book a little profit and wait for dips to add more.

Sunday, March 27, 2016

Year End NAV dressing will keep the market afloat

The Hope of a Rate Cut rally continues and the markets gained a further 1.5 % in the truncated week. The year NAV dressing time is here and the bonuses of the Fund Managers are dependent on the NAV values so expect the markets to remain afloat at least in the first half of the week.

1. The key ingredient of a rally is the FII inflow and till date in March the inflow has been 16500 crores. This has been the highest since March 2014 when it was 25000 crores. As long as the money is pouring the markets will rise.

2. The RBI policy on the 5th of April is a key trigger. A 25 basis rate cut has been factored in. It could also happen that it is a sell on news kind of event. The markets have run up almost a 1000 points and some kind of correction is due.

3. The Result season is in April and as we have noticed in the past the Results season usually the markets are flat to negative.

4. Technically speaking we have resistances coming in from the 200 EMA at 7778 and at 200 DMA at 7900. The layer between 200 EMA and 200 DMA becomes a critical zone. This zone is tested before a breakout or a breakdown.

5. The Global cues are quiet at the moment. So everything depends on the RBI Action in the first week of April.

This is a good time to book profits for stocks bought at a lower level and wait for a dip to buy again.