Market Analysis for April 2019 - 2

The markets closed up approx 1 pc to just below 11760. Let us look at the factors moving the markets.

1. The corporate results coming in are good. Heavyweights like Infy, TCS and HDFC Bank have posted good results. This is supporting the markets.

2. The FII flows in anticipation of Modi winning are robust. This is helping the markets move up.

3. The markets are now very close to the psychological level of 12000. Markets tend to correct from such milestones like they corrected last year from 11172.

4. Technically, on the weekly scale the RSI has scaled almost reached a reading of 70 which usually triggers some correction.

5. Right now, till May 23 I expect the markets to maintain a range of 11500-12000.

6. The monsoons have been predicted to be normal by IMD. Skymet has predicted below nrmal monsoons.

Overall a dull period for the markets, waiting for the outcome of election results. The markets seem to be factoring in all the good news. Any disappointment on the election or monsoon front will lead to correction.

Market Analysis for April 2019 - 1

Posting after a break and if we refer my last post of September 2018, the post was pretty much correct in terms of correction. We had a good 15 pc correction.

The correction was from 11760-10004.

In today's post, I would like to focus on the post election scenario and how things can play out.

A very key indicator is the P/E ratio for the markets. Anything above 25 is perceived as a bubble territory.

The current P/E is 29.13 and the index is at 11643. This also means that with every 400 points movement in Nifty the P/E increases by 1.

Let us look at this old chart I have posted.

https://money-manthan.blogspot.com/2009/08/2-of-most-important-and-basic-analytic.html

This means we are in bubble territory already.

Now, there can be 3 scenarios post elections:

1. A Clear BJP Majority in which case there will be euphoria and we can expect the markets to go up another 1000 points or so. A top can be expected around 12500.

2. NDA win with a weakened majority. In this case, a correction can be expected. We can expect 10000-10500.

3. Unlikely but possible,opposition lead coalition. This would initially lead to a sharp correction much like in 2004. This will take us back to 9000-9500.

What is the bottomline in all this? The earnings have to catch up with the Nifty. In the best case scenario also there is limited upside and it would be prudent to book profits if not before elections but definitely post elections.