Markets await the RBI policy on the 29th January

The markets came back strongly on Friday to gain 0.2 pc for the week. Let us look at the road map for the coming week and also what the markets may do in the month of February.

1. The good results have been pouring in. This week saw Maruti post fantastic results. The results are priced in at a price of 6000 +.

2. Our range for the month of January was 5830 to 6130. The markets may test the upper end of the range in the last trading week for this month.

3. A 25 basis points cut is factored in the prices. Anything more and the markets will rally. At these levels, it is better to enter the front line stocks rather than the mid caps.

4. The tanking of mid caps last weeks underlines the hazards of buying mid caps. When the tide turns there is no safety net.

5. The pre-budget rally should commence with minor falls of 200-300 points on the Nifty.

6. The FIIs have continued buying all through January and based on this, I expect the previous peaks of 2008 and 2010 of 6350+ to be tested once.

7. How the markets behave after the testing of the peak remains to be seen. There could be a small correction after that before we test higher levels or the markets may correct more.

8. In the posts in February, I will demonstrate why February is the best time to sell based on statistical data.

9. The Nifty is currently trading at a Price to Earning multiple of 18.77. The market usually does not peak out at these levels but around levels of 23. The Nifty corresponding value comes to 7500.

7500 may be far off right now, but I would use every dip to accumulate good quality stocks.

The Up Move Continues

The Nifty gained another 1.9 pc for the week. Improved earnings, positive reforms from the Government all helped the markets go higher. Let us try and see what is next for the markets.

2 of the 3 events which were mentioned in the last week post are out of the way. The Credit policy remains as the next trigger.

In the post 2 weeks back, we had spoken of the probable range for the Nifty, it was 5880-6080 we are at the higher end of the range and I expect the lower part of the range to be tested.

Why do I feel the lower end of the range will be tested? This is because the news related triggers are out of the way and there are still 7 trading sessions to go before the Credit policy is announced. Typically, in the week before Nifty expiry, the market reverses direction to the trend it was following for the month. The trend has been up this month so I expect a smaller correction which would be healthy for the markets.

Typically markets have made a top sometime in early Jauary, around March after the budget or in May June time frame. Let us see how the markets pan out. A correction till 5815 will be galthy before the next up move.

The markets are now followig a typical bull market pattern where the beaten down sectors suddely start moving. Oil and Gas, IT sector are the ones which were written of the market. They will be under owned by the market ad they will rally.

The big money will be made and lost in the market during such times. Hence the quality of stocks one owns is the key. Please stick to good quality stocks. I would use the coming dip if it materializes as a chance to add more of the good quality stocks.

Infosys Q3 numbers upbeat, what next?

Last week, we did a quantitative analysis of what can be the range of the markets for the month of January. 9 out of 23 sessions for the month are done with and we are on track with the predicted numbers. Lets take a look at the events which can trigger the expected range. The boundary wall based  on statistics was 5850-6100. We have traversed quite a part of the range already.

1. The Results season will be in full swing next week. Infosys with its guidance gave a thumbs up to the IT sector. More than the results, it was the guidance. Remeber, markets move up 6 months ahead of event actually taking place. After watching the TCS results on Monday and Wipro on Friday, the IT sector will have a re-rating.

2. The major private banks like Yes, Axis and HDFC Bank will also declare their results this week. The IT sector has a weight of 13 pc and the Banks 21 pc in the sector. So, by the end of next week, the directions of 2 key sectors will be out of the way. If the Banks continue with their good showing, the rally will continue.

3. The RBI policy on 29th January will lay down another marker for the markets. A rate cut of 25 basis points is factored in. 50 basis points cut and a CRR cut will lead to a rally.

4. Another event which has no fixed date is the Diesel and LPG price hike.If both are hiked, then the oil and gas companies will rally. This sector has another 13 pc share in the Nifty.

So, we have events which can affect 47 pc of the Nifty composition directly and then we have rate sensitives like Financial institutions and auto sector which constitute another 17 pc. Thus, we have 64 pc of stocks in the index which can move because of 3 reasons:
a. Results
b. Diesel price hike
c. Credit policy

Based on the timing of these 3 events and positive or negative factors each play out we can have the markets rallying or falling. The primary trend is up and corrections can and should be bought into. We have a support level at 5920 coming into play from where a decent bounce up can be expected.

How have the markets traditionally performed in January?

It is a New Year and a very Happy New year to all. The markets typically tend  to make a top in January February period. Let us look at how markets have performed in January typically.

1. In the past 12 years, 10 times markets have been performing alternate to the performance in December. Which means if markets were positive in December than negative in Jan and vice-versa. This year the markets gained 0.4 pc in December so should be net negative for the month of Jan with the same logic.

2. The markets in the past 12 years have always gone below the December closing irrespective of where they close finally. December closing was 5905 this year, so there should be 1 dip below 5900 even though the market may close higher for the month.

3. In 1 year it has also happened that the market even though is mildly positive in December, has gained around 3 pc in January if that happens, then we may be at around 6080 on a closing basis for January.

4. A big fall in the month of January on the basis of statistical data can be ruled out. The range which comes into play is 5880-6080. If we put in a filter of +/- 50 points, then effectively the range for January is 5830 - 6130

5. The markets have rallied on fiscal cliff being averted and the next cliff will occur around end of Februray.

6. The Gilt funds have done exceedingly and the 10 year bond rate is down 7.94 % from 8.14 %. The funds have given an absolute return of 2.5 % in the past 1 month.

7. The Q3 results will come towards the end of the week starting with Infosys on next Friday and I expect a small dip till the results come in. We may test the lower end of the boundary arrived at for the month of January which is 5830-5900 range before going up.

All the picks selected by me and Lakshmi have done exceedingly well and anyone who invested in them would have got magnificent returns.