Lack of Triggers for the Market

In the absence of any major decisive triggers for the markets, they continued to drift aimlessly losing another 1 pc for the week. Let us see if any triggers exist before the election results of the State Assemblies on the 8th of December.

1. The Talking Heads on Television continued to play games with tapering stoppage or no. This is a good game for traders. Short term movements of 100-200 points on either side are the norm.

2. FIIs have net bought 5600 crores for November so far and DIIs have sold 8200 crores. The markets have corrected by about 4.8 pc so far.

3. All eyes for any major swing will be on the 4 major State election results. As I see it, these results will have no major impact on the General Elections and are likely to favor the BJP in Rajasthan, Madhya Pradesh and Chatisgarh. Delhi should head for a hung assembly. The markets may take it as a thumbs up for the BJP and rise if the results favor the BJP. Worst case would be an equal split between the Congress and the BJP.

4. Technically speaking the markets have reached the 5 week low ema at 5996 and some bounce can emanate from these levels. If no bounce then the markets can touch lower levels, correcting the rise from 5701 to 6342. Levels in this case would be 5946, 5870 and 5829.Any fall below 5829 will be a harbinger of larger falls to come.

5. The area around 5850-5900 has a confluence of supports. They rage from the 200 DMA to the equality of last fall, to 38.2 pc retracement level of entire rally from 5118.

6. Pharma and IT stocks have led this rally and there would be no harm in booking profits in these sectors and taking the money home. Finally only the profits booked is the real profit. Rest all is illusory.

7. The bond yields are hardening at around 9 pc. At these levels, for a 2 year investment G-Sec funds are still a good buy.

Now, is the time to lie low and do detailed study to invest in quality stocks when the time is right.

Correction Continues

The market continued its correction, dipping further by 1.4 pc. Let us try and examine the pros and cons of  the market movement.

1. The markets are correcting gently, about 4 pc from the Diwali top. This could just be a bull market correction, looking at the slow nature of the fall.

2. The FIIs have been net buyers for all the trading sessions in November 2013. Only, when they start unloading will the markets have a major fall.

3. The major question is why are FIIs buying? It is not becuase of Narendra Modi but the continued avaailability of easy money thaks to Quantitiave easing. The battle is to attract money to India.

4. Jaet Yellen will take over from Ben Bernanke in Januarary and her statements indicate the divish stace of hers. If that happend then get ready for ovember to Februrary rally.

5. The markets have support around 5850 - 5900 levels.

6. The next major trigger for the markets is the State Election Results on December 8th. A BJP sweep (even if there is no material impact on 2014 elections) will lead to the markets zooming.

7. The Gilt yields continue to trade around the 9 pc mark. Only those with a long term view can stick to Gilts.

The markets are entering a quiet phase and it can be the lull before the proverbial storm. Buy on dips and stick to Quality stocks.

Correction in a bull phase

The markets dipped by around 2.8 pc for the week. The markets hit a new high for Diwali and since then have been correcting. Is it just a correction or is it something else?

1. The thumb rule is that the markets tend to react from the previous top. 6350 has been a sort of double top. It is natural that the markets react from here and then come back and blast through.

2. This has been an unusual correction, the large caps have corrected and the mid caps have rallied. This also means it should just be a correction before resuming the journey upwards.

3. The last meaningful correction was around 441 points. So if we extrapolate then we can correct till 5902.

4. Coming to fundamentals, what has this rally been riding on? Many talking heads claim it on the Narendra Modi effect. It is too early to talk about that. Elections are ot due till May 2014. A good 8 months away and anything could happen.

5. The markets have been rallying on easy money from abroad. The putting off of tapering, has resulted in flows of 3 billion dollars in October and November also about 1500 crores till date.

6. If tapering happens then the flows will stop and the markets will correct.

7. November to February is a period when the markets traditionally rally and hit a top in Feb-March. Let us see how this seasonality plays out this time.

8. The next major data point would be the State election results in December though that is not a relaible barometer for the National elections.

9. The G-Sec yields have almost touched 9 pc. Those ivesting for the long term can park their money here as a hedge when stocks correct to put the money back. The short term party is over though for Gilt funds. Oly those prepared to hang on for 2-3 years should invest.

10. This is a good time to clean up one's portfolio. If junk stocks rise, sell them without thinking twice. Ultimately only quality value stocks matter.

Market on the upswing:Happy Diwali

The markets continued their solid performance and gained another 2.6 pc to close above the previous 2013 high. We look all set to challenge old highs and how the markets react from there will set the tone of the markets.

1. The PSU Banks joined in the party this week and now one needs to see if the beaten down sectors join in the party or the rally fizzles out. Sustained closing above 6357 will herald fresh new territories to be conquered.

For this Diwali, I would strongly reccomend Godrej Properties trading around Rs 370. It recently came out with a rights issue at Rs 325 and the promoters hold about 75 % stake in the company. It comes from the house of Godrej, one of the best run management in the country.

They have premium projects across the country and the safety net comes in the development of huge Vikhroli land bank. The Godrej group has mandated that all real estate development of Godrej group companies has to be through Godrek properties only. They are also getting into the lucrative redevelopment market in Mumbai.

The Vikhroli model will isulate the compay from any downsides. They build huge towers instead of current factories which are leased to IT companies. They get huge rentals while the ownership remains with the Godrej group.

This is a safe low risk bet for those who want to take a bet on the real estate segment also.

One could also look at Larsen and Toubro, India's premium infrasturcture compay. if the economy has to revive, L&T will benefit.

Wish you a very Happy Diwali and enjoy your Mahurat trading.

Correction possible, but markets in an uptrend

The markets had a mild correction for the week, correcting about 0.7 pc from the previous week close. Overall, the markets are firmly in an up trend. Let us see what the pre-Diwali firecrackers are in store, if any.


1. This is a liquidity based rally and no mistake should be made about this. Once, the plug is pulled for whatever reason be it ease of tapering or hung parliament, the markets will collapse.

2. 1 leg up from 5118 is over at 6142 and the correction from it ended at 5701. If we are in a third wave up, then it can be a fast up move from 5701.
The first leg may be over at 6252 and we may correct to 6042, 5977, 5912. The up trend will be over at 5811.

3. The market rally is taking Pharma and IT stocks to new highs. We should wait and watch for the other stocks to join the party.

4. As I see the election scenario building some kind of Modi wave is surely building up. If that happens, then the markets will zoom upwards.

5. The 4 states which goto elections in November, their results will be out on 8th December which will be the key deciding factor for the rally.

Markets tend to rally in November to Feb period. If that is the case, then the markets may see new all time highs. The current scenario is that I am not putting in fresh money but selectively looking to book out profits.

A safe strategy remains to invest in fixed income and lock in the rates.

Alternatively, one can buy good quality stocks so in case the markets fall then one can always average them out.

All set for new highs but.....

The markets continued to inch up higher by 1.5 pc to close at 6189. They are now within touching distance of 2013 highs and very near to all time highs. It looks like the scenario of 6500-7000 is playing out.Let us see what we can do in such a scenario.

1. The markets are close to all time highs but the broader market is down. When I look at my portfolio very few stocks are close to their highs. It has been driven up on the back of IT companies especially TCS.

2. Every rally has gotten narrower. This could either mean we have a sudden collapse one day or as we gather momentum, the broader market picks.

3. If we look at my older posts, the targets of 6500, 6800 and 7300. The broader markets may well pick up. The rupee seems to have to stabilized around 61-62.

4. The level of 61-62 is significant as it makes exports very competitive and at the same time the burden of imports is not too high. The CAD is shrinking and gold, silver imports have fallen.

5. The results have been surprisingly resilient and I do not recall seeing any particular poor result. The best results are out of the way ad the results declared late are usually the poorer ones.

6. The markets may get into a festive mode and continue rising. The FII money is back ad thanks to the shut down drama the quantitative easing ball has been further kicked down the road.

The strategy remains to stay invested and book profits at higher levels. It may not be too prudent to buy stocks now especially if one is not a too nimble footed trader.

Equity is just 1 of the asset classes and may not be perfect one to invest always. There are several tax free bond offering nearly tax free interest of about almost 9 pc. One can think of locking in the money in those too.

Gilt funds are also attractive but the rate of higher interest rates remains. 1 should be prepared to take short term losses if investing in gilts.

US Shutdown, looming debt-ceiling and their effects on the Indian market

Since the beginning of this month, the US government has been in partial shutdown. That means all government services and activities barring a few emergency and security services have come to a halt and government employees have been asked to proceed on unpaid leave. Why?

I had written a guest post for Subhankar which can be accessed here:
http://investmentsfordummieslikeme.blogspot.in/2013/10/us-shutdown-looming-debt-ceiling-and.html

Infy surprises, US deadlock continues

The markets continued with their upward march to end the week with a gain of 3.2 pc. Infy had surprisingly good results (My unscientific analysis went for a toss) and the markets looked to be in a festive mood.

1. The IIP results came out after market hours. They were poor but that mainly due to poor Capital Goods data. The Capital goods data was very good in previous 2 months so normalized.

2. The US Gridlock needs to be resolved by by Oct 17th. India is a winner either ways. The longer the gridlock continues, the longer the easy money will be available.

3. Janet Yellen is a dove. She will not pull the plug on easy money so far. Enjoy the rally as long as it lasts.

4. 6142 if the market crosses then we are all set to challenge 6229 and then 6357. The figure of 6142 needs to be closely watched.

5.This will tie in with the pre-election rally, some experts are projecting. There can only be 1 rally, pre-election or post election rally.
This also points out to hung Parliament next year.

We live in interesting times. 6100 is not a time to make fresh entry ito the markets. Time to gradually book profits as we go higher. we all get chances to buy at lower levels.

Couple of months back, markets did visit 5118. The markets are always going to remain here and we all with get fresh chances. Impulsive buying can lead to losses and regret.

Waiting for Triggers

The markets gained 1.3 pc to close at 5907. The markets rallied smartly on Friday only to give back all the gains. The markets are currently awaiting fresh triggers. Let us try and examine what they could be.

1. The Results season is upon us.Infy Results will be upon us on Friday 11th October. They will set a trend for the markets.1 non scientific observation I have made is Infy Results usually on a Friday are quite bad. Lets see if the trend continues.

2. The US Government shutdown is still going on. If not resolved by Oct 17th, the debt ceiling will be breached leading to further problems. The markets are awaiting resolution to this problem.

3. The Rupee has strengthened to about 61 and if this continues then the stock markets will continue to do well.

4. Technically, the Nifty must clear the 5950-6000 range convincingly to go up.

5. October is a long series and it has often been seen in such long series, the markets are dormant over a period of time.

6. The bonds seem to be settling in the 8.5 % to 8.7 % range. Real recovery will not start until the bond yields come down to 7-7.25 pc range and the interest rates begin to fall.

The 3 options posted in last week's post still hold good.

From here, where the markets can be anybody's guess. There are 3 options:

a. Straight up from here (Least Likely)
b. Correct to 5500 levels and then rally up
c. Continue with the long term correction.

Options b and c have equal likelihood of occurring.

Sideways Market awaits H1 Results

The Nifty closed about 3 pc lower for the week. After a massive 1000 point rally from 5118, the index seems  to be cooling off as the breadth becomes narrower and narrower.

1. The news flow seems to have been exhausted for the markets. After the rapid movements of August and early September, the indices are cooling off which is a good sign.

2. From here, where the markets can be anybody's guess. There are 3 options:

a. Straight up from here (Least Likely)
b. Correct to 5500 levels and then rally up
c. Continue with the long term correction.

Options b and c have equal likelihood of occurring.

3. If it is just a correction, targets are 5751, 5630 (significant number) and 5510. Below 5323, we could conclude that the rally is over.

4. Fundamentally, nothing has changed. In fact the rupee has strengthened and is now at a level where exports are competitive and imports not as expensive as 68.

5. All fresh buying should be held back till we hit slightly lower levels or if previous highs are taken out.

6. The Results season will again dictate the market direction. The Q2 Results will not be very good for many companies (except IT companies). This is because the maximum brunt was felt in Q2.

7. The FIIs flow while they have been positive, they have been buyers in small quantities.

The markets seem to be in for a quiet time. Maybe, the lull before the proverbial storm.