Thursday, October 22, 2015

The Stalemate continues

Markets continued to remain sideways in the last week and the 3 trading sessions this week. The result season is always flat and I believe the things will remain the same till Bihar results are out November 8th.

1. The Results season sees stock specific movement and that is what is happening currently. The markets are not going anywhere and are at a key resistance level.

2. The markets need a trigger and that trigger could be the Bihar election results. Win or lose, the markets may slide post the results. BJP winning is a bit of a long shot and even if that happens the euphoria may vanish soon. In March 2012, the UP elections triggered similar reactions where even though SP won, the markets corrected when it was clear that the Congress would not be able to play king maker.

3. The Technical Indicators are flashing several warning lights. Technical models are irrespective of fundamentals and as the days go by I am getting more and more convinced that we will visit 7200 first. Technically, first we have to clear 8350 then 8500-8600.

4. Globally, right now the story is China but then these stories keep coming back. I do not thing a rate hike will come in December this year. The Rate hike will get pushed to next year.

5. The FIIs have bought in large numbers in the past 10 days and that is what is supporting the markets. It just needs some trigger for the gun to be pulled.

6. It is a time to be very careful. The mid caps have gone up and same was seen last November. Fresh money should not be put in right now as the risk reward is most unfavorable right now. Buy above 8600 or wait for lower levels of 7200-7500.

The time frame also fits in for the traditional November to Feb rally to take place. Many years I have seen tops around the Diwali week, The current levels of the markets are most unfavorable for any long trade. Going short has its own pitfalls. We wait and we watch.

Sunday, October 11, 2015

Bihar elections will be decisive turning point for next 6 months

The markets rallied 3 pc over the week and exit polls for Bihar have turned up interesting probabilities. Various polls have given contrasting views and the next 1 month till the results on November 8th are the key. Let us explore the possibilities.

1. 1 poll gives the BJP a narrow majority while another poll gives the JDU led alliance a clear majority. It is very clear that the elctions will be closely fought and the BJP may just lose the elections. The reason is BJP won 38 pc of votes in the Lok Sabha and they need to win more to win. All State elections that have followed the Lok Sabha elections, their vote share has been less than the Lok Sabha.

2. The votes have polarised and it is too close to call. If BJP loses, in a knee jerk reaction the markets may go down but if the BJP reaches out to other parties and get key legislation cleared then the markets will rise.

3. I am clear about 2 things in mind. Within the next year the markets will visit 7200 and 10500 once. Which comes first is anybody's guess.

4. The Results season will see markets in a range typically with stock specific movements. The markets thrive on surprises and one may just see the markets surprise.

5. Now, is the time to wait and watch or invest in fixed income schemes. These rates are going to stay low for at least next 2 years.

6. The FIIs have started buying and that is shown in the markets moving up. Wait for 8200-8350 to be taken out clearly before further moves.

October is a month of caution.

Sunday, October 4, 2015

End Game of the Downmove begins

The RBI came out with a bumper surprise of 50 basis points rate cut when most would settle for 25 basis points or even the fear that there would be no rate cut. The markets were up 1 pc for the week and let us evaluate what the implications could be.

1. The 50 basis point rate cut took everyone by surprise but the markets did not flare up.Nifty has rallied up 175 points or approx 2 pc since the announcement. This also implies anything lesser and the markets may have fallen further.

2. With the Rate cut out of the way, US Fed rate hike postponed  to maybe December the immediate major triggers are over for the markets. The next triggers would be the corporate earnings in second half of October and the Bihar election results on November 8th.

3. The rate at which fixed deposit rates have fallen, its going to be a tough road ahead for small savers. This may be the last chance to lock in at decent rates in Postal schemes which are still offering 8.5 % returns. ICICI Bank has reduced FD rates from 9.5 % in March to max 8.25 %. So, the transmission of rates has already happened for FDs.

4. Technically, the markets can rally up to 8200 and then fall one more last time or fall from current levels and bottom out between 7200 and 7500. Another possibility is markets may rally straight away from current levels. I would rate this probability as the lowest of the 3.

5. In the months of August and September the FIIs have cumulatively sold 31000 crores of shares and DIIs have purchased approx 27000 crores of shares. The markets have fallen about 584 points in same period. This points  to 2 things, the markets will not oup without FII support but at the same time impact of FII selling has reduced. A sell figure of 31000 crores by the FIIs have resulted markets in falling on 7 pc. In earlier times the fall would be much more in percentage terms.

6. All stocks do not bottom out at the same time. Some stock bottom out earlier than others. So, looking at where there is value these stocks can be added even at current levels.

Bottomline: Buying time is here or almost here. One cannot time the markets. So, one can starting adding to the portfolio now.