Vote-On-Account - What this year's interim budget means?

The Vote-On-Account has come and gone. Let us try and explore its implications. I had written a guest article for Subhankar which can be explored at the below link:
http://investmentsfordummieslikeme.blogspot.in/2014/02/all-you-want-to-know-about-vote-on.html

The significance of March

The month of February is almost over and the markets have gained around 1.1 pc. The markets have proven their historic Feb behaviour of significantly going below the Jan close and bouncing back to give a mild up move. Now, the month of March is historically a very significant one.

1. March 15th is the last date for payment of advance tax. Historically, March has low liquidity and short term interest rates spike up. This leads to withdrawal of margin funding and usually markets are lacklustre. more about that in next weel's post.

2. The opinion Polls are veering towards a NDA led government. At the same time opinion polls need to be taken cautiously. If a BJP led formation comes to power the markets will spike up.

3. A major correction is due, either before the elections or after the elections. The markets could go upto 6500-7000 and then correct or correct before reaching those heights. As time passes, the likelihood of a rise first increases.

4. If one takes into consideration, the Elliot patterns, then we should finish this correction around 5800-5900 before beginning the final wave up to coincide with the results of the elections.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896 """


Now this C wave could be broken into:


C-a 6358 - 5933
C-b 5933 - 62XX
C- b can be spilt into a 5933- 6106, b 6106-5985, c 5985 and ongoing to end at  6158 or 6264 approx.

So what could be our strategy now?

Buy at 5800-5900, quality stocks and be prepared to watch them go lower if the rise doesn't materialize.

The risk reward is better at 5800 than at 6200.


Followed by C-c finishing between 5750-5850.

Market continues sideways move; Vote on Account on Monday

In the absence of major triggers, the markets continued its side ways movements ending the week 0.2 pc lower. the next week is the Vote on Account or the interim budget. This is expected to be another non - event. Let us explore the key triggers for the markets.

1. The inflation number is easing up which means that it may be the end of rate hikes for the moment. Food inflation is coming down and this is a good sign.

2. The Government has made good money in the spectrum auction. this should lower Government borrowing and also ease the fiscal deficit. even though, the bonds yields are not reflecting, it means lower interest rates.

3. The FIIs continue to be mild sellers in the first 2 weeks of February. This also explains why the market has gone no where in Feb. The markets are down by 0.7 pc in the first 2 weeks of the month.

4. SBI results were poor and the PSU banks continue to labor under the bad loans. They are a bet only for those willing to wait for 3-5 years after which they may reward the patience handsomely.

5. As per Elliot, we are correcting the rise from 5700.

It was stated that,

"""
The range for the month can be 5850-5950-6200-6300. Feb can be a historically a very volatile month.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896 """

After a small up move, 1 last down move would be still pending.

All in all, a dull period for the markets. Time to lock into debt and fixed income instruments.

The Februrary - April Seasonality phenomenon

The markets have a strange tendency of repeating the cycles. There are 2 famous cycles, 1 is buy in November and Sell in Feb. Another is buy back what you have sold in Feb back in April. let us explore the Feb April cycle.

1. If you consider the lowest price of the Nifty in April, it is aalmost always 5 % cheaper than the highest price In Feb. what this means is that almost always you can get prices of stocks cheaper in April, than in Feb and March.

2. In the previous 2 election years of 2004 and 2006, there have been massive crashes after the election results in May. The markets always give 1 buying opportunity in the April to May period.

3. In the past 2 years, the trend has slightly changed with the prices being marginally more expensive in April than in February.

The question which arises is should we book profits in Feb itself or wait till March.

1. In the past 4 years, the budget has not brought in any unpleasant surprise. This has lead the markets higher in March.

2. This year there is only a vote on account on Feb 17th, which will not influence the markets in a major way.

Also, in the past 4-5 years, the market has deviated from the tendency to make a top in Feb-march but later during the year.

Key takeaways:

One can gradually book profits and take some money of the table. There should be no hurry to jump and buy.
Buying should be done only in quality stocks at the right price.

How have Markets historically fared in February?

The month of January is behind us and the markets lost about 3.4 pc for the month. we had said "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." and the dip did come.

1. The month of February is not a very positive month on the upside. so, the upside is typically capped. This may be due to the fact that every year the budget is on 28th February.

2. In the last 13 years, month of February has always gone below the Jan close. which means that 1 dip will come for sure.

3. 9 times out of the last 13 years, the low has been substantially below the Jan close (more than 2 pc below). This implies we will see 5950 at least once this month.

4. Similarly, the highs have also been 2-3 pc higher than the jan close. so, on the upside this gives a range of 6200-6300.

5. On the lower side 5850-5950 comes into the picture.

The range for the month can be 5850-5950-6200-6300. Feb can be a historically a very volatile month.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896