Sunday, August 10, 2014

Correction: A Buying Opportunity

The markets continued the correction from the top. Week on week, the markets corrected 0.4 pc to close at 7569. The Long Term trend remains intact and this should be treated as a buying opportunity.

1. In every Bull market, corrections are normal and a correction of 10-15 pc from the top should be treated as normal and welcome.

2. The FIIs have sold about 1000 crores in August and the DIIs have bought above 1600 crores. Such phases are usually buying opportunities.

3. The monsoons have stabilized, the deviation from the Long Term Average has come down to -17 pc.

4. The markets have been driven down mostly on geopolitical tensions. As seen in last August, these are transient in nature. The bounce is sharp and does not give too much of a buying opportunity.

5. The Auto Sales have been robust now for the month of July. Auto Sales are early indicators of heightened economy activity and a change in sentiment.

6. The Economic cycles are always based on sentiment. The minute people start feeling confident and good about themselves, they start going out and buying. Buying leads to orders being placed and the cycle goes on. The trigger for the chage in sentiment was the election of the Modi Government.

7. Key elections in states of Maharashtra, Haryana, J&K are the next trigger. while the BJP is expected to do well in Maharashtra and Haryana, the proof of the pudding is in the results. An opinion poll gave the BJP-Shiv Sena combo a 2/3rd majority in Maharashtra. The results are key so that the BJP boosts its numbers in the Rajya Sabha and is not that dependent on regional parties to pass key bills.

The coming days and weeks will give good buying opportunities and one should stick to good highly robust stocks with strong and managements with integrity.

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