RBI Meeting can lead to a decline in the markets

The RBI policy is scheduled for 29th September and everyone has taken a 25 basis point rate cut for granted. Let us see what could be the probable outcomes of this meeting.

1. The Governor will announce on coming Tuesday at RBI Half Yearly Policy, the decision on a rate cut. A 25 basis point rate cut has been taken for granted by the markets. The markets will rise if there is a 50 basis point cut or a 25 basis point cut with promises from the Governor of more to come.

2. The Governor may not cut rates but give indications that he is inclined to do so in the future.

3. If there is no rate cut, then the markets will tank immediately. This year the rates have been cut thrice. The first Rate cut was cheered by the markets, it was an unscheduled rate cut. At the time of second rate cut, on announcement the markets made a significant top of 9119 on March 4th which has not yet been broken in past nearly 7 months.

4. In June, when the RBI Governor actually made the announcement on the scheduled today, the markets actually corrected. In a nutshell, the market tends to make a significant top after the RBI meet.

5. Technically, we may in last leg of the down move, with wave 1 correcting 8055 to 7723 = 332 points. Then the 2nd wave up 7723 to 7894 and ongoing. (171 points).

6. The FIIs continued to be strong sellers during the week. Till this trend does not reverse, the market trend will not reverse.

7. After the RBI policy, the next significant event for the markets will be the corporate results after 12th October and then the Bihar election results in early November. Provided the results are favorable for the BJP, then we may be set for the traditional November to February rally in the markets.

RBI rate cut could be next Trigger

The much talked about FED Meeting has come and gone. The uncertainty continues though may be postponed by about 3 months. What else could take the markets higher?

1. The FIIs continued to be net sellers during the week. They bought on Friday. Only if they resume their buying we can see a substantial up move.

2. The Fed decision is now postponed till at least December. The RBI may cut rates at their policy meeting on September 29th. This may prove as a trigger for the markets.

3. Right now, technically we are at a very key junction. 1 more down move may be pending or we may breakout of this correction.

4. 8200 levels become the key levels to watch out. If we break 8200 and go up then we may have broken out of this consolidation phase of more than 6 months. My sense is we may see 1 more correction ending around 7200-7500.

5. Highlight of last leg of down move is that all stocks do not move down equally. Some stocks may have already made their bottoms. It could also be that we correct 200-300 points to correct the up move and then move ahead.

6. Monsoons have also picked up in the last part of the Monsoon season. With low inflation, monsoons out of the way, the RBI will definitely cut rates by at least 25 basis points.

This makes the 7700-7800 region a very strong buying zone. We cannot catch exact tops or exact bottoms. The Risk reward ratio becomes very favorable around 7700-7800 levels to buy.

Fed Rate Hike to be out of the way this week

1 of the major drag on the markets have been the timing of the Fed Rate hike. This event would be out of the way this week, at least for next 3 weeks. Let us see how the markets react to this.

1. The shadow of whether the Fed will start hiking interest rates in September or December will be clear this week. If they do hike, then we may witness some knee jerk reaction or if it gets postponed to December then a rally. The fear is if the US starts offering higher interest rates then the money will move out of emerging markets.

2. The second event for September is our own rate cut. 25 basis points is almost factored in and for the markets to have any meaningful reaction, the rate cut would have to be about 50 basis points. I think the RBI Governor will watch the events unfolding in the US this week before making up his mind.

3. Technically, the markets seem to be close to some kind of bottom. either we have already made the bottom or 1 more down move is pending at 7200-7500 levels.

4. The technical picture is we may rise to 7950-8000 before 1 more down move to 7200-7500 or the bottom has already been made. The FIIs continue to sell and have sold stocks worth 6700 crores so far in September. This looks like pausing only once the Fed gives some clarity.

5. The Bihar elections, the results of which are due by November 11th are 1 more key trigger. If the BJP wins then it is a massive boost to the markets. If the BJP wins, the fear is the Opposition will become more aggressive in blocking legislation.

6. I have been getting repeated requests for a follow on series to the Rising Sun theme, so I am proposing to come up with a series of Stocks for the Long Term, a set of 5 to 8 stocks to be bought at current levels (out of these at least 5 would be new picks).

 Please do let me know in case you are interested. My email id is nish.stockid@gmail.com

I plan to close this by tomorrow.

Follow Up to Rising Sun Series

I have been getting repeated requests for a follow on series to the Rising Sun theme, so I am proposing to come up with a series of Stocks for the Long Term, a set of 5 to 8 stocks to be bought at current levels (out of these at least 5 would be new picks).

 Please do let me know in case you are interested. My email id is nish.stockid@gmail.com

Market near Support Levels

The Nifty continued its fall and fell about 4.3 pc and closed below its previous week's low. This is considered bearish but at the same time there is a glimmer of hope. Let us see what the future lies for the markets.

1. I had a comment on my previous week's post "Why do I feel the markets will rise to 10 k in about 1-2 years time when it is falling everyday"

My answer is this is a passing phase. The question is when the dust has settled which economy will emerge stronger. If you look at currency depreciation, India has been the least amongst all emerging market currencies. Low Oil prices have helped immensely in making cash available to the Government. Coal Block auctions has ensured both the State and Central Governments have enough cash flows assured. We have strong foreign exchange reserves.

The seeds of the next bull market always lie in the current bear scenario. Well run companies will always bounce back when the market improves. The FIIs have pulled out about 23000 crores in the last 1 month or so. Yet we have fallen 1000 points on the Nifty. In earlier days, it would have been much worse.

2. Technically, the 7450-7500 zone is always a strong support zone. There are 3 reasons for this:

a. The first leg of the fall was from 9119-7940. This is 1179 points.
This fall has begun from approx 8655. This leg will achieve equality with previous fall at 7476.

b. The high which the markets hit when the election results were announced is at 7563. This is a crucial support level.

c. If we consider the whole rally from 5119 to 9119 about 4000 points, then 38.2 pc retracemnt comes to about 7591.

So many supports are difficult to break and hence a 400-500 points bounce at the very minimum is very likely.

Also, if the markets extend their fall then the next support levels are at 7119 and 7145.

All in all, he old adage goes buy when everyone is fearful and sell when everyone is optimistic could not have been more truer than today.