Poor Monsoons and no Reform Announcements drag the markets down

The Markets were down about 2 pc for the week. Lack of news on the reform front as well as poor monsoons dragged the markets down. Let us see if there are any silver linings for the markets.

Fundamentals:
1. No progress in Monsoons means higher food prices. This would mean higher interest rates and would in turn imply no rate cuts in the near time. The RBI policy is on Tuesday and any surprise announcement can lead to a short term spike in the markets.

2. It is high time that there is news on the reform front else the markets are not going anywhere in a hurry.

3. The Corporate Results have been more or less in line. As I mentioned in the previous posts, they do not have much impact on the markets anyway as the markets look 6 months ahead and they are factored in.

4. The Sugar stocks have come down and I still feel this is the best sector to be in with a time horizon of 6 months to 1 year. The dip has given a good buying opportunity.

Technicals:

Last week, I had said:

C started at 4770. There are 2 possibilities here.
a. C1 4770 - 5190
    C2 5190 - 5041
    C3 -1 5041 - 5348
    C3 - 2 5348 - ???? can be 5231, 5195 or 5159 or max 5102.

b. C1 is 4770 - 5348 and C2 is currently ongoing with targets of 5127, 5059 and 4990.

We are well on track to meet the prognosis and a move down to 4990 which will be a buying opportunity. I see the markets oscillating in the range of 5000-5200 for the entire month of August.

Buy nearer to 5000 and also add the same stocks on a close above 5200. This would help you get the best price in.

Sriram Transport issue as mentioned in my previous post is a great opportunity to get locked in a higher rate of interest.

For those interested in individual picks, we have the Cherry Picks from me and Lakshmi.

10 things to know about the Sriram Transport NCD Issue

Sriram Transport Non-Convertible Debenture Issue opens tomorrow. Let us examine the Pros and Cons of Investing in this issue.

1. Sriram Transport NCD is for 2 tenures 36 months and 60 months. For 36 months, for Retail investors they are offering 11.15 % interest and for 60 months it is 11.4 %.

2. They also have a cumulative option for the above 2 tenures.

3. Retail investors are those who will invest within the 5 lakh limit.

4. The issue has been rated AA by Crisil.

5. The subscription is on first come first served basis. Hence those interested in subscribing, please do so tomorrow itself.

6. The issue closes on

7. There is no TDS Limits on De-matted NCDs.

8. Issue closes on 10th August 2012.

9. For detailed explanation on NCDs, please refer my last post on Sriram Transport issue about 1 year back.

10. One can redeem the NCDs as they are listed on the NSE and one gets the sale proceeds on 3rd day after selling.

I would suggest one has limited exposure to this issue. Such high yield, medium risk instruments increase the amount of Interest earned on one's fixed income portfolio.

Awaiting Fresh Triggers

The markets corrected about 0.4 pc last week. A Delayed markets and a lack of clear direction from the Government weighed heavy on sentiments. Let us try and explore what could be the factors influencing the markets.
Technicals:
1. We are in the Leg C of the corrective up move. This has targets ranging from 5700 to 5900.

C started at 4770. There are 2 possibilities here.
a. C1 4770 - 5190
    C2 5190 - 5041
    C3 -1 5041 - 5348
    C3 - 2 5348 - ???? can be 5231, 5195 or 5159 or max 5102.

b. C1 is 4770 - 5348 and C2 is currently ongoing with targets of 5127, 5059 and 4990.

Technically, wait for the breach of 5100 to commence fresh buying.5100 is a strong support area.

Fundamentals:
1. Poor monsoons are already driving up food grain prices. The chances of a rate cut are diminished. Sugar stocks are expected to do well. The bumper harvest of previous years will help India in tiding over this drought.
2. The markets will not move up till there are further steps on the economic reform front. The Presidential elections are out of the way. It is now time for the Government to deliver.
3. Worries on the European front are resurfacing. One needs to keep a look out for the developments in Spain.

The Sriram Transport NCD is due soon opening on July 26th 2012. I will post a detailed review on the 25th of July.

For those interested in stock picks, I have Lakshmi and mine Cherry Picks.

FIIs lead the way

The Markets have been consolidating for the past few days. They closed 1.7 pc down for the week but I expect them to break out of the range soon. Let us explore why this can be a reality.

Fundamentals:

1. The FIIs have been buying heavily in July. They have bought equity worth 6500 crores so far. This has eased the selling pressure on the stocks.
2. The global commodity prices have remain subdued. Crude has settled around the 100 dollars a barrel mark. India which imports almost 80 pc of its crude, is the major beneficiary of this.
3. Global negative events, especially in Europe are taking a breather.
4. Post the Presidential election on June 19th, there are expectations of major reforms. FDI in Retail, GAAR norms easing and the Vodafone tax case are a few of the reforms expected.
5. The progress of Monsoons is another key factor in determining the direction of the monsoons. Monsoon activity has revived over the past couple of weeks.

Technicals:
1. As per Elliot, the market is in the 3rd Corrective upmove from 4532. A was 4532 - 5629. B was 5629 - 4770.
2. The Leg C has completed the first 2 legs. C1 was 4770-5190  = 420 points, C2 was 5190-5141 = 149 points.
Leg C3 has completed the 1st wave from 5041 - 5349 = 308 points. 2nd wave will have targets 5231, 5195, 5158.

It is a buy on dips markets. For those interested in stockpicks which have done pretty well, we have the Cherry Picks.

Consolidation after the Up Move

The markets gained 0.7 pc for the week and what was more important was that the markets are consolidating their position before commencing the new up move.The next few week should very bullish for the markets and let us investigate the levels which the markets can reach during this period.

1. On the reforms front, there seems to be a silver lining with the PM showing positive intent. A final decision on the Vodafone tax front case will lead to a rally in the markets.

2. Oil is holding on at lower levels and this is a big positive for the markets like our markets.

3. Technically, we can map this rise as Leg C.
Leg C -1 was from 4770-5190 = 420 points
C-2 was 5190-5042 = 148 points
C-3 ongoing with targets of 5462 or 5721 points.

4. The Sugar sector looks extremely positive. Brazil has seen heavy rainfall which has lead to decrease in sugar output and India is witnessing scanty rainfall. Sugar sector seems to be looking good for next few months.

5. The Q1 results will be out from this week. Usually the results are factored in the prices and unless we see very good or very bad results, the results are usually discounted in the market prices.

6. Considering the rally so far, the indices may take a breather early next week before peaking out for

As I see the interest rates coming down, this will be last chance to lock in high interest rates. I can still several banks giving high interest rates on 3-5 year maturity. Profits from the equities can be locked in these FDs. The Gilt funds which I have been recommending for long have given fantastic returns in the past 2 months. The 10 year bond yield has come down  to almost 8.1 % from the near 9 pc levels.

For those interested in Equity picks, I have Lakshmi and my picks. We are sweetening our Cherry Picks with some sugar picks.

Leg C commences upwards

The markets closed about 2.6 pc higher for the week. It has finally broken out of a range and looks to be moving ahead. Let us look at the factors which can move the markets in the coming weeks.

Fundamentally:
1. The Government seems to be showing signs of moving out of policy paralysis. The PM taking over the Finance Ministry and seeming to reverse key prickly issues like the Vodafone Tax case and a re-look at GAAR. This will boost FII sentiment.
2. The crude oil prices are hovering between 95-100 dollars a barrel. The Petrol prices in Mumbai have already come down by about 5.5 rupees post the hike by Rs 7.5. Further strengthening of the rupee will leave scope for further reduction in petrol prices. Every 1 rupee strengthening of the rupee against the dollar should lead to a drop in petrol prices by out 0.74 p
3. Monsoons hold the key. Monsoons have been deficient so far. If the trend continues then the markets may witness a fall. It has been observed that for the past few monsoons are delayed by about 15-20 days. The monsoons start late and end late.

Technicals:
As per Elliot, the entire move from December 2011 can be categorized ito 3 legs A, B and C.
1. Leg A was 4532 - 5629 an up move of 1097 points. It was corrected by B leg down to 4770. B corrected A by 78.4 pc.
2. Leg C can extend anywhere between 5447 to 5867.
3. Leg A took approx 2 months, Leg B consumed about 3.5 months. Leg C should consume about 2 to 3.5 months. This up move should end in the time span of about August beginning to about mid-September 2012.
4. The area between 5094 and 5150 will act as strong support now.

Conclusion:
The Strategy now should be to go long on all dips with a stop loss of 5094 and a target of 5450-5850. After 5450, one commence part booking of profits once the markets cross 5450 levels. 1 strategy could be booking 10 pc profits for every rise of 50 points from 5450. By this strategy one would have liquidated the portfolio by 5900-5950 which forms the upper limit for this up move.
For those interested in individual stock picks, I have Lakshmi and my picks