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.

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