FDI in Retail and in Aviation

I had written a guest post for Subhankar where I had tried to examine the pros and cons for FDI in Retail and in Aviation.
The post can be accessed at the below link:
http://investmentsfordummieslikeme.blogspot.in/2012/09/about-fdi-in-aviation-and-multi-brand.html

Markets give a breakout

The markets rallied about 4.1 pc on a surfeit of good news. Let us check where the markets are headed next. There was good news globally as well as locally.

Fundamentals:
1. The hike in Diesel prices was long welcome.More than cutting under-recoveries by about Rs 5 per liter, this will discourage the sell of Diesel cars. The break even point for Diesel cars will now be around 50000 kilometers. This will increasingly influence people to buy Petrol cars which will mean that there will be no under-recoveries as Petrol is DE-regulated.

2. The cap of 6 cylinders per family every year is another welcome step as a cylinder costing about Rs 750 was subsidized to cost about Rs 350 only. Anyone using more than 6 cylinders does not need a subsidy in any case.

3. FDI in aviation and retail is more than welcome. Airlines need capital to remove competitive. Even in Retail, it is all about consumers getting the best price. The prices which we get stuff at malls and big outlets are much superior to the Kirana outlets. Ultimately, the Kirana stores will have to match the prices to survive. The opposition to FDI comes from the trader community which has vested interests.

4. The QE-3 announced by US means that liquidity will continue to gush in for few more quarters. All asset classes will gain. Be it gold, equities.

5. If Gold closes above 1800 USD, then it has given a bullish breakout and I will buy on all dips.

Technicals:

1. The Leg 3 of C commenced from 5032. It has currently traversed about 371 points.

C3 -1 was 5032 - 5448
C3-2 was 5448-5216
C3-3 was 5216 and ongoing (5587)

The target for C3 should be minimum 5631. After a small correction of about 200-250 points we should hit new highs.

The target now is buy on all dips. It would be prudent to book profits around the previous high of 5629 and re-enter at slightly lower levels. For fresh investments, one should wait for dips to enter.

Markets head higher

The markets were up for the week by almost 2 pc. The gains mostly on Friday thanks to the ECB allowing unlimited bond buying. Let us explore if the markets can go up higher.

Technicals:

1. The 3rd wave up of the C leg seems to have commenced. Typically, the 3rd wave is the most powerful and begins with a gap up. We had a huge gap up on Friday.

C1 4770 - 5348 = 578 points
C2 5348 - 5032 = 316 points
C3-1 5032 - 5448= 416 points
C3-2 5448 - 5215 = 233 points
C3-3 should exceed 416 points which gives us a minimum target of 5631 which is the previous top also.

If the above wave count is correct then 5215 will remain the bottom for at least 3 months to come, that is till Diwali.

Fundamentals:
1. The large caps have moved first. Next week, I expect the mid-caps to rally.

2. The monsoon worries are behind us. There is o chance of a drought now and the deficient monsoons are down to 10 pc.

3. Shriram City Union is coming up with NCDs and one can invest small amounts in this. The rate of Interest offered is very attractive.

The market is now a buy on dips market. Every dip can be utilized to go long with a stop loss of 5215. Above 5400, the next logical target for the market is 5631.

Gold:
Gold will be in a fresh bull run after it crosses 1810 USD. Till those levels, I would be cautious on buying gold. Gold is currently trading at 1735 USD.
If one buys gold at the current moment and if this is only a corrective up move, then 1 can get stuck. The Gold prices in India have risen thanks mainly to a very weak rupee. Globally, the previous high for gold was 1910 USD.

The September Effect

I did an analysis of how the markets behaves in September for the past 11 years and the results are pretty startling.

1. In the early  past of this millennium in 2000 and 2001, the markets tanked very heavily.

2. The market has given very positive returns in 6 of the years.

3. Overall, 5 negative and 6 positive Septembers. Also, 1 has been very marginal negative year.

What can one conclude?

5258 was the August closing. Keeping a buffer of couple of percent, we can go long in the 5150-5200 band. 8 times out of 11 year, one would have made money with this strategy.

Support seen around the 5200 levels

The markets had a pretty dismal week. They closed down 2.4 pc for the week. What was more worrying that individual stocks took a bigger battering than the index. The index fall of 2.4 pc does not represent the true picture.Let us examine the technicals and the fundamentals governing the markets.

Technicals:
We are in leg C of the corrective up move.

C-3-1 was 5032 - 5448 = 416 points

C-3-2 can be retraced till 5289 (already done), 5240 or 5191. In the worst case we may see a dip till 5150.

We are currently testing the support line from the bottom made at 4770. This support line will act as a level from which the markets may bounce back.

We can say that the current down move is over only after a close above 5400.

Fundamentals:
The good rains in the month of August mean that the Monsoons are no more an issue.

The Parliament logjam over the coal issue will continue for the next week. After September 8th, if there is a Diesel price hike and reforms take place, then the markets should rally.

The proposed changes over postponing GAAR changes all hint to a positive change from the Finance Ministry.

The strategy now should be of wait and watch. Buy only on dips around 5150-5200 levels and buy high dividend yield stocks which provide one with a margin of safety.

In the early part of next week, I will do a feature on how September has been for the markets in the past 10 years.

Market continues to trade in a very tight range

The markets closed 0.4 pc higher for the week, continuing to grind up. The markets are moving up very slowly led by the front line stocks, Unless there is broader participation, the up move looks a bit difficult to sustain. Let us try and examine the technical and fundamental factors.

Technicals:
1.We are in leg C upwards which started from 4770. C1 was 4770-5348, C2 was 5348-5032. The picture is very clear up to this point.
C3 began at 5032. This up move has extended up till 5448. A rise of 416 points without any meaningful correction.
C1 was 578 points, and hence it is unlikely that this is entire C-3 C-3 has traversed a distance 416 points so far. This could mean this C3 - 1 which is about to end. In this case, we would have a retracement extending up till 5191 and 5240. In worst case it may go down to 5115.

This up move has been slow and grinding. The leg A saw many mid caps move up when we moved from 4532 to 5629.

The rally of the mid caps is still to come which may imply 2 things. This rally has legs to go much higher till 5800-6000 or this is just distribution which is going on.

Whichever way one looks at, it doesn't make much sense buying stocks so close to resistance levels around 5400 levels.

The Strategy should be to buy on dips close  to 5200.

Fundamentals:
1. The monsoons are looking up. Punjab and Haryana which was rainfall deficient has also received heavy rains. Punjab, the farming is irrigation based so the rainfall will help the Rabi crop. The monsoon deficit has reduced to 14 pc overall and looks the worst is behind us.

2. The policy paralysis continues and has been factored in.

3. The Parliament is in session till September 8th and I expect no fuel price hikes till then.

The Strategy is Buy on Dips and stay out of the markets till the dips come.

Nifty fails to clear the Resistance Area

The Markets gained another 1 pc to close the week at 5366. The markets have now posted 3 weeks of gains. Let us see what next for the markets.

Positives:
1. The FIIs have continued to buy in the markets. They have bought on each and every trading day of the month. They have bought about 6500 crores in addition to the 10000 crores of stocks which they have bought in the month of July.

2. The Mutual Fund related reforms announced by SEBI, the IPO norms all will added to the positive sentiment.

3. The new Finance Minister is one who understands the Capital Markets and I expect the positive sound bytes to continue.

4. The Monsoons are staging a late recovery. This will add on to the positive sentiment.

Negatives:
1. There is 1 big negative. The Crude oil prices have risen to 113 dollars to a barrel. With a weak rupee and government unwilling to raise Diesel prices, it means that the fiscal deficit will continue to rise.

Technicals:
We are in leg 3 of the C wave which started from 4770 with targets in the range of 5700 to 5900.

Leg C 1 was 4770- 5348 = 578 points
C 2 was 5348 - 5032 = 316 points
C 3 - 1 is 5032 - 5398 and ongoing.

I expect a dip to 5150-5200 levels, buying at these levels can lead to very good short term profits.

I also expect the markets to continue to remain positive at least till Diwali this year.

Will a poor Monsoon affect your portfolio?

This year, monsoon rains have been conspicuous by their absence. While
a few parts of the country have received excess rainfall, that has
been the exception than the rule. Drought-like conditions are
prevailing in many parts. In other parts, rainfall has been scanty to
mediocre.

By all accounts, rainfall will be below average this year. What will
be the effect of a poor monsoon on your investment portfolio? In this
month’s guest post on Subhankar's blog, I look at a few sectors that may get
negatively affected by a poor monsoon and a few that may not do too
badly.

------------------------------

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The monsoon this year is likely to be deficient. Which sectors and
stocks will feel the impact? This is a burning question in the minds
of investors. Let us try and analyse the impact of a poor monsoon.

Read more at:

http://tinyurl.com/mobugobu

Market tests the Resistances and retreats

The Markets gained around 2 pc overall for the week. They tested the resistances of 5378 and retreated back. These are very key levels for the markets.

1. In the last rally in Feb-March, the markets hovered in the rage between 5300-5400 before breaking out. I expect the same to happen this time.

2. Looking at the wave counts we are in the C leg of rally from 4532. Just to recap, C1 was 4770 - 5348.

C2 was 5348 - 5032

C3-1 was 5032 - 5378 = 346 points

We should now in C3-2 wave which should test 5246, 5205 or 5164. Only below 5100 would did this entire rally be terminated.

The rally of C3 would be decisive as usually the 3rd wave would be the most powerful. This wave has targets of 5610 and if 5629 is broken then 5766.

What should be the strategy?

Buy on all dips, preferably closer to 5200 with part booking around 5600.

The monsoons have picked up and the drought is not going to be as bad as was previously expected. Surprisingly, the markets have performed well in the years where there has been poor monsoons in the last one decade,

At current market levels, the PSU banks are a dark horse. Some of them are available of a dividend yield of around 6 %. Even if their bad loans increase, they will still be able to pay out dividend which was paid in the previous years. This is because dividend payout has been 25-30 pc of entire profits and the government expects the dividend income from the PSU banks.

The Sugar sector and the PSU banks are amongst my favorite themes currently.

Markets at critical resistances

The Markets gained over 2.3 % to close at 5215. The markets are now heading into a cluster of resistances which will determine if the up move continues or we are going back into a trading zone. Let us try and examine each of these factors.

Technicals:

1. The Market is in the Leg C of the corrective up move started at 4532 in Dec'11.
C1 was 4770- 5348
C2 had 3 legs A, B and C
A was 5348 - 5169
B was 5169 - 5257
C was 5257 - 5032
C3 commenced from 5032 and we are near the end of the wave C3 -1.

This is one wave count.

Another could be C2 - A 5348 - 5032, B from 5032 - max 5284 and C to re-test 4950 - 5032.

How does one really play this?

5300 is the outer limit beyond which we will test 5450-5630. Buy either above 5300 or in the area 4950-5100.

The week should start on a bright note with the global markets hitting the highs.

Fundamentals:
1. The Monsoons continue to be weak which should help the sugar sector.

2. P Chidambaram has taken  over as the new FM and its time makes a move on the policy front. Else we are likely to remain in a sideways market.

Bottom line: Buy above 5300 and also below 5100. In between enjoy the rains. For those interested in individual stocks, we have the Cherry Picks by Lakshmi and myself.