The Markets gained another 2 pc to end the week at new 52 week highs. The markets put behind them all the political uncertainty and the mid caps have joined the party. Let us look at the political, fundamental and technical factors at play.
Political factors:
1. The Government for all the talk of mid-term polls should last out the full term. The mathematics are simple. The half way mark is 272 seats and the government has 254 seats. A shortfall of 18 seats. BSP has 21 MPs and Mulayam 20 MPs. Mayawati cannot afford mid-term polls just yet as anti-incumbency is yet to set in UP.Typically, it takes a minimum of 2 years for anti-incumbency to set in. Mulayam will not withdraw support as he knows Mayawati will step in. He is trying to make the most of a bad deal.
2. The Government knows the only chance for it to counter the corruption allegations is to move down the reform road. Typically, the benefits of any reforms enacted take about 18-24 months to show up. This is the last wave of reforms before the government gets ready for polls. 2012 is the last window of reforms.
3. 2013 will mark a wave of populist measures with an eye on the elections. I expect the markets to rally till Diwali at least on the wave of reforms.
4. The Congress in its history has never failed to complete its full term in office. This was even at the time of the Narasimha Rao led minority government from 1991 - 1996.
Fundamentals:
1. The Ratings downgarde has been most likely avoided by the slew of the reform measures announced. This means lower borrowing costs for Indian companies in the foreign markets.
2. The monsoon has a shortfall of only 5 % and there is no drought like situation in the country.This will help keep inflatio in check.
3. Chidambaram as FM means the flow of pro-market news will cotinue for some time to come. The government needs to meet its divestment targets and hence the rally will be kept moving. The FII flows have also gone up dramatically.
4. QE -3 means that liquidity flows will continue. With India announcing reforms, a percentage of this money will flow into India.
5. The stronger rupee means lower Petrol prices and also the subsidy burden gets slashed. Rupee has already gained about 4 rupees from its low of 57.32. Next targets are 52.5, 51. Also, when rupee strengthens the FIIs who have invested gain.
Technicals:
1. We are in wave C of the rally started from 4532.
A was 4532 - 5629 = 1098 points
B was 5629 - 4770 = 859 points
C can have targets of 5868, 6175 or 6546.
C wave is sub-divided into
C1 from 4770 - 5348 = 578 points
C2 5348 - 5032 = 316 points
C3 5032 - 5720 and ongoing = 688 points
C3 can be extended and can go on to 5771 or 5967.
Post C3 we should have a correction of about 300-400 points before the final surge leading up to Diwali.
I expect a top around the November-December time frame.
Strategy:
Buy on dips at levels closer to 5400.Above 5700, start booking profits. The markets could top out anywhere from 5868 - 5944 to the previous highs.
Political factors:
1. The Government for all the talk of mid-term polls should last out the full term. The mathematics are simple. The half way mark is 272 seats and the government has 254 seats. A shortfall of 18 seats. BSP has 21 MPs and Mulayam 20 MPs. Mayawati cannot afford mid-term polls just yet as anti-incumbency is yet to set in UP.Typically, it takes a minimum of 2 years for anti-incumbency to set in. Mulayam will not withdraw support as he knows Mayawati will step in. He is trying to make the most of a bad deal.
2. The Government knows the only chance for it to counter the corruption allegations is to move down the reform road. Typically, the benefits of any reforms enacted take about 18-24 months to show up. This is the last wave of reforms before the government gets ready for polls. 2012 is the last window of reforms.
3. 2013 will mark a wave of populist measures with an eye on the elections. I expect the markets to rally till Diwali at least on the wave of reforms.
4. The Congress in its history has never failed to complete its full term in office. This was even at the time of the Narasimha Rao led minority government from 1991 - 1996.
Fundamentals:
1. The Ratings downgarde has been most likely avoided by the slew of the reform measures announced. This means lower borrowing costs for Indian companies in the foreign markets.
2. The monsoon has a shortfall of only 5 % and there is no drought like situation in the country.This will help keep inflatio in check.
3. Chidambaram as FM means the flow of pro-market news will cotinue for some time to come. The government needs to meet its divestment targets and hence the rally will be kept moving. The FII flows have also gone up dramatically.
4. QE -3 means that liquidity flows will continue. With India announcing reforms, a percentage of this money will flow into India.
5. The stronger rupee means lower Petrol prices and also the subsidy burden gets slashed. Rupee has already gained about 4 rupees from its low of 57.32. Next targets are 52.5, 51. Also, when rupee strengthens the FIIs who have invested gain.
Technicals:
1. We are in wave C of the rally started from 4532.
A was 4532 - 5629 = 1098 points
B was 5629 - 4770 = 859 points
C can have targets of 5868, 6175 or 6546.
C wave is sub-divided into
C1 from 4770 - 5348 = 578 points
C2 5348 - 5032 = 316 points
C3 5032 - 5720 and ongoing = 688 points
C3 can be extended and can go on to 5771 or 5967.
Post C3 we should have a correction of about 300-400 points before the final surge leading up to Diwali.
I expect a top around the November-December time frame.
Strategy:
Buy on dips at levels closer to 5400.Above 5700, start booking profits. The markets could top out anywhere from 5868 - 5944 to the previous highs.
Sir,
ReplyDeleteI have been following your analysis for the last three months and I take swing trades in Nifty only based on your daily nifty update given on the left column of your blog page. Kindly clarify the following.
As per your nifty update on 20 Sep,if Nifty spot crosses below 5578, we have to exit long positions and we need to trade in the opposite direction or short nifty if nifty closes below 5525 spot levels.
On 20 Sep, Nifty crossed 5578 level. I exited my long position, but didn't enter short position as nifty closed in between the first and second levels.
On Friday I didnt enter the long position either and missed out the rally of 140 points. Please advise how to approach nifty.
Is there a possibility of re-entering nifty now? Also, in case of future trades, if trade in long position is exited when nifty comes down to first level yet does not close below second level and in next one or two trading sessions rallies back above the first level, is it prudent to take the long trade again?
(or Similarly in case of short trade too?)
Hi,
ReplyDeleteThanks for bringing this up. The problem is I missed out on updating for Friday. In such a scenario which you mentioned, there are 2 options.
1. Re-enter when the previous high or low is taken out.
2. Is play with 2 lots and exit the position when the second level is taken out.
Nishit, i am a regular reader of your blog. read you weekly views on mkt.
ReplyDeleteWhat disturbs me is point no.3 in your political view? That means the current liquidity driven rally will mothball into another Bubble which might burst post Diwali. My fear is for retailers or common man who might start jumping on every upmove in NIFTY from hereon.
Secondly, My other fear is w.r.t a top which might get created post Diwali. Do let me know if my concerns are irrational???
Do you still feel debt/NCDs/Bonds offer better yields and would continue to remain better investments compared to Equities???
Yes a bubble formation is very much on the cards.
DeleteMy Strategy would be to play the markets, book profits and move the cash to NCD.
That is what I have been doing for the past 10 years.
Thanks Nishit..Even NCD's are becoming a bit too much. I am sure you understand what I am indicating at..Shriram Transport(2), City union(2),Muthoot(2),Indiabulls,Religare and now even SREI. I started accumulating NCDs exactly a year back. NCds might be money spinners for a couple of years but in the long run Equities scores.
DeleteThe Barometer for me to jump out of some of the equity holdings would be when Small Caps start galloping. Some of them have already started moving and this euphoria will surely catch rest of the penny stocks very soon. Do Correct me if my above readings look wrong or overstated.
sir,
ReplyDeleteThanks for your reply.