Sunday, March 31, 2013

How have the markets fared in April?

The month of March has drawn to a close. Let us see how the markets have usually fared in the month of April. March ended with a marginal loss of 0.2 pc which was ironically the average loss in the month of March.

1. The month of April has almost always seen a loss of at least 2-3 pc below the March close. This implies that 5500-5550 should be tested at least once.

2. The month of April has been positive 5 times and negative 7 times in the past 12 years. In the recent years, April has become a positive month. The average gain in the month of April has been around 1.5 %. This leaves us with the targets of 5750-5800.

3. The upside seems limited for the month of April. The range which seems to emerge is 5500- 5900 at the upper side. The bias seems to be flat to negative.

4. If the up move which has begun continues then we may see 5800-5900 before coming lower during the results season.

5. It is a new month and a new financial year. The Gilt rates have gone back up to 7.96 % to 7.99 %. This is another opportunity to enter Gilt Funds.

Overall, the markets direction seems sideways for the moment with a negative bias. It is a buy on dips markets with good fundamental stocks.

Sunday, March 24, 2013

Time for a Bounce?

The markets had a free fall in the last week losing about 3.8 pc. There seems to be despondency all around. Is it really all gloom and doom as portrayed? This week let us step back and look at the next 1 year.

1. The elections can be held latest by April 2014. There are 3 windows right now, September 2013, December 2013 or April 2014. The most likely option looks to be December or April. The reason for this being is that the logistics demand at least 3 months post the the Government falls. June-September is the Monsoon season in India.

2. For all the posturing no one is ready for elections just as yet. Mayawati is waiting for the Samajwadi to mess up further, the Left front is waiting for Mamata to become more unpopular, the BJP is still to decide who will lead them and are waiting for UPA to become more unpopular.

3. The complex Mathematics will keep the Government aflloat. This coupled with the Congress track record of always completing their term may well lead to the elections being held 1 year ahead.

4. The next trigger will be the full year corporate earnings which will come around the 15th of April. Till then, there are no major events lined up. Cyprus should be settled today and if that happens the markets should rally up.

5. The year end NAV game will start in earnest from Monday. The Fund Manager bonuses are paid based on the March end NAV values. Hence, I believe at least the large caps should rally in the next week.

6. Many book losses in March to offset short term capital gains against losses. This is to pay less income tax. This could also lead to midcaps being further hammered.

7. Logic suggests that markets should rally before elections so that the funds are available to fight the elections. One of my good friend has carried out a study about pre-election year performance and almost always there has been a 20 pc gain in the markets.

8. Technically, the markets should bounce. 5950 is the key level. Any move beyond 6000 and we still may see new highs.

Sunday, March 17, 2013

Will the RBI cut Interest Rates?

The markets are having a roller coaster ride. They are up 1 day and down the other. So, let us see what they have in store for us for the remainder of this financial year. For the last week, the markets were down 0.6 pc.

1. The key event for the next week is the RBI policy on Tuesday. If there is a rate cut, the markets will rally. I think there would be a rate cut in some form. Let us see what the RBI Governor has in store for us.

2. The advance tax figures may point to some revival in growth figures.It is ow for the RBI and the Government to build on these, by providing appropriate stimulus at the right time.

3. The cut in Petrol prices and no hike in Diesel prices means there is no under-recovery on Petrol and a Rs 8.64 under-recovery on Diesel. I suspect once the Parliament closes, we will see a hike a 50 paisa hike in Diesel prices. Diesel subsidies account for 60 pc of fuel subsidies and sooner they are eliminated better it is.

4. Debt funds especially the Gilt funds still are very attractive to be added with a year long horizon. If I check the Value Research site for the last 1 year, Gilt funds have beat Equity and Gold Asset classes.

5. I expect the current rally to pick out in May or June at levels between 6500-7000.

6. It makes sense to add quality stocks on every dip. Even if the markets collapse, the stocks can be averaged out.

7. Elections are scheduled for April 2014. I expect that the markets will peak out much before that. The elections and the period around the elections I believe will offer a good opportunity to accumulate quality stocks. As per the 8 year cycle, the next peak should be in 2016. Typically, 2 years before a new peak, the markets rally the most. 2014 - 2016 is the time to be invested in stocks.

8. Gold is trading at the lower end of its trading range. 1500-1800 USD band has been its trading range for quite some time now. A break on either ends will lead to the to the testing of 1200 USD or 2100 USD.

Let us wait and see what Dr Subba Rao has in store for us. After the credit policy, there are no triggers for the next 3 weeks till the early full year corporate results. If the policy is positive and the liquidity flow continues, markets will rally.

Sunday, March 10, 2013

Will the Rally sustain?

The markets rallied by 4 pc in the past week. The rally caught many by surprise and let us what lies ahead for the rest of the month. Whatever be the short term direction of the market, India remains a strong growth story in the long term.

1. 15th March is the time to pay advance tax final installment. market typically remains subdued expect in a few years.

2. The inflation numbers are out next week and the RBI policy on the 19th of March. Any rate cuts and the markets will rally.

3. The Government has made a lot of announcements, a pragmatic budget has followed and the Results have of Corporates have been declared.

4. There are no positive triggers left except liquidity gushing out. What I have noticed is this up move from 5663 - 5953, many of the stocks have not moved.

5. 5950 - 6000 becomes a critical resistance zone due to many moving averages, previous resistaces, supports lying in this zone.

6. Elliot throws up 2 possibilities. The wave 4 has ended at 5663 and this is last leg of the rally heading towards 6400-7000 range or 1 more down leg is pending to re-test 5400-5550.

In either of the 2 cases, the market is in no trade zone. It has rallied over 300 points so at least a correction of 100 points is due. 5850-5880 are support areas where 1 could add to their positions.

Nothing beats investing in good quality stocks at every dip.

For those interested in Options, I will update my Options link comments section.

Thursday, March 7, 2013

Option Strategy for March

Here is 1 Option Strategy that can be tried out.

Sell March 5900 call @ 44 or more.

Hold till expiry.

If Market touched 5900, buy 6000 March Call.

Will keep you updated in this thread if any change in positions

Note: Please refer comment section of this thread for updates.

Sunday, March 3, 2013

How have the Markets fared in March?

It is a new month and time to again check statistically how the markets have fared in the month of March. The expected range for Feb was breached on the lower side thanks to the budget day effects. The downward bias was maintained in the month.
Gains in March over the years
1. Traditionally, march has been a down month with 7 out of 12 past years it showing a negative bias. Only 2006 and 2009 have been huge positive years.

2. The good news is that whenever February has been negative, march tends to be positive. This year we had a negative February with a 5.7 pc decline.

3. The average gain for the month of March is 0.17 which is hugely misleading as there have been huge swings across the years.

4. The markets generally tend to go below the February closing price in March. On an average it could be around 4 pc. This would mean 5470 - 5500 on the lower side.

% below Feb Closing

5. On the higher side, the markets can go up even 7 pc. This means an upper range of 6091 which is improbable but not impossible. A more likely figure will be a gain about 5 pc which is what last 5-6 years average indicates. This gives us a figure of 5977.

The Range which is in play is roughly 5500 - 5950. We are right now at 5719 which is very close to the mid point of the range at 5725.

It could very well happen, that in the first half of the month we test the upper half and then the lower half. Let us wait and watch how the markets behave. based on this range, I will post a derivative strategy for Thursday.

The Budget was a non-event and a pragmatic budget. Let us accumulate quality stocks at lower levels.