Sunday, December 29, 2013

How have the markets fared in the month of January?

The year is drawing to a close and we are nearing the key months of January to March. Typically, markets usually top out in these 3 months and if they dont top out then a major crash is seen in the month of May. Let us see historically how the month of January has fared for the markets?

1. The month of January usually sees the closing price of December violated at least once. Last year was an exception.1 also gets to see a price which is substantially lower than the closing price of December. With 2 trading sessions to go the closing currently is 6314.

2. The month of Jan has also seen huge swings on the downside with falls of 16 and 10 pc respectively. The gains have been 8 and 12 pc respectively.

3. When the month of December is positive, Jan is usually negative and vice-versa. Last year however was an exception to this rule.

4. Out of past 13 years, 6 have been positive January moths ad 7 have been negative. The years when the month has been negative, the degree of fall has been much more than the degree of rise when the month has been positive.

5. The average gain has been 5.5 % when the month is positive and the average fall has been 6.4 % when the month has been negative.

So what should our strategy be?

It should be buy on dips and if the statistics are correct, then 1 dip should come to around 6000-6100 levels which would be the time to buy quality stocks.

In the meantime, fixed income offers 9.01 pc tax free returns for the NHB bonds. Gold can be avoided at the current point of time.

Thursday, December 26, 2013

Has Gold lost its lustre?

We Indians tend to be conservative as far as investments are concerned. Why is that? Perhaps because several generations of Indians have faced hardship and deprivation due to exploitation by our ‘rulers’ – both overseas and Indian. Lack of education and infrastructure have contributed to the tendency to ‘hoard’ rather than ‘invest’.
For generations, two of the avenues for investing our little savings have been in land and gold ornaments. This is true even today in the hinterland – where infrastructure and banking services remain primitive or non-existent.
In larger towns and cities, infrastructure and services have improved to the extent that other avenues of investment – like post office and bank fixed deposits, mutual funds and equity are readily available. But our fascination for investing in real estate and gold has not dimmed.
In this month’s guest post, Nishit suggests that it may be time to reduce investment in gold. Debt and equity investments are likely to provide better returns in the foreseeable future.

Please read my guest post on Subhankar's blog:

Sunday, December 22, 2013

Has the Santa Rally started?

The markets digested 2 events of the Central Banks of the US and the RBI coming out with policy pronouncements. Let us see what they mean for the markets.

1. The US Fed has started slow tapering of the bond purchases from January. The markets did ot show any major negative reactions because it was reduced only by 10 billion USD and the Fed softened the blow by saying that the low interest rates regime is here to stay.

2. The tightening of the monetary policy means that the party for Gold is over unless there is some major event like a geopolitical event. Gold peaked at 1920 USD some time in September 2011 and has been on a downward spiral ever since. Now it is trading at 1200 USD. The price of Gold in rupee terms increased because the rupee has weakened by about 20 pc since September 2011. The exposure  to Gold can be reduced and no further Gold should be added to the portfolio.

3. The RBI has held rates becuase the inflation has been primarily been due to the food inflation. This is expected to come down in December and Januray and hence the rate hike has been deferred till the ext policy meeting in mid-January.

4. The markets rose on the RBI decision to hold the rates, took a momentary dip on the US Fed decision but then smartly rose on Friday.

5. The 6350-6360 remains a key resistance level for the markets to overcome. Once, this is broken and the 6415 previous highs are surpassed, once can expect the markets to rise. The targets remain of 6500-7000. The markets are entering the holiday season and one can expect lacklustre activity going forward.

6. The coming week is a truncated week on Wednesday being a Christmas holiday and expiry being on Thursday which can lead to volatility.

It is time to enjoy the Holiday season and maybe look for trading bets.

Sunday, December 15, 2013

Sell on News comes true

There is an old adage in the markets, Buy on Rumours and Sell on News. The markets displayed this by hitting an immediate high on the news of BJP victory and then promptly retreating back to close the week 1.5 pc down. Let us see what can happen next?

1. The FIIs have continued to buy every single trading day in December. The DIIs selling is lessening. As long as this FII buying continues, the markets will not tank.

2. This week, all eyes will be on the Central Banks as we have the FOMC meeting and the RBI meeting. I expect some kind of Repo Rates hike in the RBI meeting. The FOMC is unlikely to make any statement which is dramatic as this would be the last meeting Ben Bernanke would be chairing. Typically, he would leave the tough announcements for the next chair Janet Yellen to make in January.

3. The markets gained 9.8 pc in October and have lost 2 pc in November and 0.1 pc so far in 2 weeks of December. This points out to some kind of correction rather than a top being formed.

4. Historically, the markets either correct in the Jan-March quarter or heavily correct in May. The rally will continue unless some really bad ews comes on US Fed tapering.

5. The support levels for the markets come at 6245, 6193, 6141, 6076 and 6061. Oly below 6061, oce can say the correction will extend much further down.

6. The tax free bonds have been drawing a good response and it would be a good idea to lock in some of the money in those while the rates are still high.

The markets usually never crash in December and it is time to enjoy the winter chill and watch the markets meander their way up.

Sunday, December 8, 2013

Election Results indicate a clear anti-Congress wave

The ballots are counted and the victors have been declared. Who are the real winners and the losers? Are the election results a mirror to what is going to happen in the next 6 months, general elections? Let us try and explore. How will the markets react? Lot of questions to answer.

1. First things first. Whatever be the minor change in positions after now, the message is clear, the voters want the Congress out. The party has been almost wiped out in Delhi, in Rajasthan and Madhya Pradesh they have won very few seats. If the BJP can secure almost 2-3rd majority after 10 years in power in MP, it means Congress may eventually get wiped out from the Hindi heartland. Remember, no party can afford to remain out of power for almost 15 years in a State, the cadres start deserting the party.

2. In Delhi, the Congress will finish a poor third. This sends out a very strong message. The voters are fed up with the Congress. They will prefer anyone else but the Congress. Even the unkown Aam Aadmi Party will do. The results put the AAP in the best position of the 3 parties in Delhi. They can continue with their shrill rhetoric till the General Elections. As the Oppositio party, they can ask questions. If they had won, they would have to give answers soon.

3. Rajasthan has been a whitewash for the Congress. Losing a elections after 5 years in power is fine but this is a whitewash but with the opposition winning almost 75 % of the seats is a bit too much. The Congress may get decimated in Rajasthan.

4. The only silver lining for the Congress is the Chattisgarh elections. Here also, they had the advantage of 10 years of anti-incumbency factor, the sympathy factor for the massacre of their leaders and yet they are neck and neck with the BJP. A few seats here and there. No decisive mandate in their favor.

5. What does this indicate for the 2014 elections? A NDA led formation or a Third Front khichdi leading to instability. There may be 1 more general election about 2 years from this one. This reminds of the 1996 scenario where for 2 years we had the Third Front propped up by the Congress and then BJP coming with a mandate in 1998.

6. The ball will now be in Narendra Modi's court. If he can keep up the momentum and continue with the pace of rallies, the BJP may just be in power. Remember Modi needs just around 200 seats, with 200 seats the allies will come. Power is a magnet for the allies, idealogies be damned.

7. Where will the 200 seats come from? UP and Bihar are rich harvest states. Karnataka has Yeddyruppa coming back. Gujarat Maharashtra, Rajasthan, MP, Punjab, Delhi are few more friendly States. In the South, they would need Jayalalitha's support, and in Telengana the TRS support.

8. Now, where does that leave the markets? In the short term we would have the Santa Claus Rally if no tapering happens. remember, BJP victory is just a excuse, the rally is based on liquidity flows from abroad. The FIIs have already purchased 3500 crores worth of shares in the first week of December to go with the November net purchase 6500 crores.

9. The December rally also takes place as Fund Managers usually dress up their portfolios to get end of year bonuses. In the month of Jan-March, the markets usually top out and if they do not in May usually a big crash.

10. In the short term, watch how market behaves around 6357, if that is taken out then in a euphoria rush 6500-7000 on the cards.

11. The NTPC bonds were sold out in a day. The Hudco bonds and IIFCL bonds are still open. Invest for safe tax free returns.

Sunday, December 1, 2013

All Eyes on December 8th Results

The markets rallied smartly by 3 pc during the expiry week to close just below the 6200 mark. The Elections are on in full swing with Rajasthan going to the polls now and Delhi on December 4th. The next immediate trigger for the market will the results on the 8th of December which is next Sunday.

1. The heartening part of this rally is that even the mid caps have begun to rally. Voltas gaied something like 23 pc last week. All signs indicate Nov-Feb rally with a market top for the year being hit sometime around the Jan-Feb period.

2. With the G-Sec yields around 9 pc, the tax free bond issues of NHPC and Hudco opening next week are very lucrative. With the interest tax-free and yileds of 8.91 pc and 9.01 pc, once can lock away some portion of the income for the next 20 years. Historically, these are very high returns post tax.

3. Technically, the markets need to close above 6350 to hit new highs. The way the markets rebounded last week was very heartening and point to a move in the upwards direction.

4. The GDP numbers came in at 4.8 pc, taking the half year GDP growth to 4.6 pc from the first quarter growth figures of 4.4 %. I expect the full year numbers to be between 5-5.5 %. The second half of the year has good agriculture growth as well as Election expenditure. Elections tend to add to the GDP growth numbers.

5. The fiscal deficit numbers for the period April-October has already hit 84 pc of the full year target of 4.8 pc. This is worrisome and could mean more measures like divestments and the Telecom spectrum auction i January.

6. The upside to the markets may remain capped due to the outflow of these issues, as well as the tax free bond issuance. The upside is again heavily dependent on foreign inflows which again is tapering dependent.

7. The short term moves of the markets in the next 2-3 months, is all dependent on liquidity. The fundamentals will start settling down after the outcome of the General Elections in May 2014.