Vote-On-Account - What this year's interim budget means?

The Vote-On-Account has come and gone. Let us try and explore its implications. I had written a guest article for Subhankar which can be explored at the below link:
http://investmentsfordummieslikeme.blogspot.in/2014/02/all-you-want-to-know-about-vote-on.html

The significance of March

The month of February is almost over and the markets have gained around 1.1 pc. The markets have proven their historic Feb behaviour of significantly going below the Jan close and bouncing back to give a mild up move. Now, the month of March is historically a very significant one.

1. March 15th is the last date for payment of advance tax. Historically, March has low liquidity and short term interest rates spike up. This leads to withdrawal of margin funding and usually markets are lacklustre. more about that in next weel's post.

2. The opinion Polls are veering towards a NDA led government. At the same time opinion polls need to be taken cautiously. If a BJP led formation comes to power the markets will spike up.

3. A major correction is due, either before the elections or after the elections. The markets could go upto 6500-7000 and then correct or correct before reaching those heights. As time passes, the likelihood of a rise first increases.

4. If one takes into consideration, the Elliot patterns, then we should finish this correction around 5800-5900 before beginning the final wave up to coincide with the results of the elections.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896 """


Now this C wave could be broken into:


C-a 6358 - 5933
C-b 5933 - 62XX
C- b can be spilt into a 5933- 6106, b 6106-5985, c 5985 and ongoing to end at  6158 or 6264 approx.

So what could be our strategy now?

Buy at 5800-5900, quality stocks and be prepared to watch them go lower if the rise doesn't materialize.

The risk reward is better at 5800 than at 6200.


Followed by C-c finishing between 5750-5850.

Market continues sideways move; Vote on Account on Monday

In the absence of major triggers, the markets continued its side ways movements ending the week 0.2 pc lower. the next week is the Vote on Account or the interim budget. This is expected to be another non - event. Let us explore the key triggers for the markets.

1. The inflation number is easing up which means that it may be the end of rate hikes for the moment. Food inflation is coming down and this is a good sign.

2. The Government has made good money in the spectrum auction. this should lower Government borrowing and also ease the fiscal deficit. even though, the bonds yields are not reflecting, it means lower interest rates.

3. The FIIs continue to be mild sellers in the first 2 weeks of February. This also explains why the market has gone no where in Feb. The markets are down by 0.7 pc in the first 2 weeks of the month.

4. SBI results were poor and the PSU banks continue to labor under the bad loans. They are a bet only for those willing to wait for 3-5 years after which they may reward the patience handsomely.

5. As per Elliot, we are correcting the rise from 5700.

It was stated that,

"""
The range for the month can be 5850-5950-6200-6300. Feb can be a historically a very volatile month.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896 """

After a small up move, 1 last down move would be still pending.

All in all, a dull period for the markets. Time to lock into debt and fixed income instruments.

The Februrary - April Seasonality phenomenon

The markets have a strange tendency of repeating the cycles. There are 2 famous cycles, 1 is buy in November and Sell in Feb. Another is buy back what you have sold in Feb back in April. let us explore the Feb April cycle.

1. If you consider the lowest price of the Nifty in April, it is aalmost always 5 % cheaper than the highest price In Feb. what this means is that almost always you can get prices of stocks cheaper in April, than in Feb and March.

2. In the previous 2 election years of 2004 and 2006, there have been massive crashes after the election results in May. The markets always give 1 buying opportunity in the April to May period.

3. In the past 2 years, the trend has slightly changed with the prices being marginally more expensive in April than in February.

The question which arises is should we book profits in Feb itself or wait till March.

1. In the past 4 years, the budget has not brought in any unpleasant surprise. This has lead the markets higher in March.

2. This year there is only a vote on account on Feb 17th, which will not influence the markets in a major way.

Also, in the past 4-5 years, the market has deviated from the tendency to make a top in Feb-march but later during the year.

Key takeaways:

One can gradually book profits and take some money of the table. There should be no hurry to jump and buy.
Buying should be done only in quality stocks at the right price.

How have Markets historically fared in February?

The month of January is behind us and the markets lost about 3.4 pc for the month. we had said "It should be buy on dips and if the statistics are correct, then 1 dip should come to around 6000-6100 levels which would be the time to buy quality stocks." and the dip did come.

1. The month of February is not a very positive month on the upside. so, the upside is typically capped. This may be due to the fact that every year the budget is on 28th February.

2. In the last 13 years, month of February has always gone below the Jan close. which means that 1 dip will come for sure.

3. 9 times out of the last 13 years, the low has been substantially below the Jan close (more than 2 pc below). This implies we will see 5950 at least once this month.

4. Similarly, the highs have also been 2-3 pc higher than the jan close. so, on the upside this gives a range of 6200-6300.

5. On the lower side 5850-5950 comes into the picture.

The range for the month can be 5850-5950-6200-6300. Feb can be a historically a very volatile month.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896

Correction sets in, RBI policy to set the tone

The markets formed a Doji last week signalling indecisiveness. The markets corrected on Friday giving up all the gains of the previous week. The RBI policy is key on Tuesday to see if the rates will be hiked. The markets are just meandering waiting for a trigger.

1. The FIIs have not bought big time in January and that may be the reason for the markets not making a very big up move.

2. With the tightening of liquidity, with the QE tapering, all emerging markets currencies are weakening. India has not weakened as much as the other currencies.

3. The Q3 Results are out of the way and that is 1 more trigger less for the markets.

4. The opinion polls are suggesting a BJP victory in May. I will post a more detailed write up on how to play the elections on Wednesday.

5. If we look at the Technicals, 6130 is a strong support and till we break it, it is just a minor correction.

I had said last week,

"6130 - 6358 and beyond this 5900 and 6420 are the key breakout points to watch out for."

This statement holds true. We touched 6358 and came back within the range. The markets will continue meandering in this range unless we get some meaningful triggers.

The RBI policy may give a short term move. It all depends on whether the lower fiscal deficit will encourage the RBI Governor to hike rates to tame inflation especially when the growth forecast has improved.

Good Results, Lower Inflation lend a support to the Markets

The Q3 results so far have been average to good and the markets have not reacted adversely to the Results. In the week gone by the markets have gained 1.5 pc to close higher. Over the past few weeks, a few fundamentals have changed to support the markets. Let us take a look at them.

1. A key takeaway of the results is the superb performance by the IT sector and average performance by the Banks.

2. Inflation has fallen due to lower food prices and becuase of that there may be no rate hike in the January RBI policy. As a result of which bond yields have come down 8.62 % for the 10 year G-Sec.

3. The Gilt funds have give a good rise in the past few weeks. A lower interest rate regime also means that this is the last option to lock into tax free bonds.

4. Politics now remains the only major uncertainty for the markets. The Government is looking to borrow less this fiscal ad the rupee has stabilized in the 61-62 range.

5. All this implies that the markets will continue to meander in the 6130 - 6350 range as seen last week also. unless we have a major breakout or breakdown this range will continue.

6. 6130 - 6358 and beyond this 5900 and 6420 are the key breakout points to watch out for.

7. The markets may continue to drift in the absence of major triggers. The US Jobs data was poor which also implies that the taper will be at a slower pace giving support to the emerging markets.

8. The FIIs have continued to support the markets albeit at a lesser pace with purchases of 1874 crores so far.

In a nutshell, it is basically wait and watch and add quality stocks at declines. I feel we may still get a small buying window before a final rally.

Good Infy results fail to cheer the markets

The markets were down 0.6 pc for the week. Infosys Results were good, the stock went up and the markets corrected in the second half. Let us see what can drive the markets in the coming week.

1. Infy seems to be getting its groove back with Narayanamurthy back. They look to be at the upper end of the guidance for the full year which is a good news.

2. In the month of Jan, The FIIs have been net sellers for 3 days and interestingly the DIIs have become net buyers. The FIIs have purchased only 271 crores worth of shares so far and the DIIs have purchased about 3500 crores worth of equity.

3. The Technicals remain unchanged from last week and I expect 1 dip before a rally towards 6500-6800.

4. The political scene is fast changing and what seemed like a wave in favor of Narendra Modi is fast fizzling out. If the current trend continues we may be in for a hung Parliament and markets will tank in May.

5. The focus of the markets will now be on Q3 results. we seem to have got off to a good start, we need to see how the next set of results are.

6. The corrections have been shallow and the markets are building a base before the next up move. The year has not begun on a very good note.

7. The trade deficit has improved thanks to the curbs on Gold and Silver imports.

8. The RBI policy may not hike rates as the IIP data was poor.

All in all the markets have still not got out of the holiday mood and till they break out of the 6130 - 6358 range expect the markets to be range bound.

Markets wait for Triggers

This week the markets went down by 1.6 pc on the basis of rumors of the PM resigning and also due to the Technical factors. The inactivity in the markets will soon come to an end with the Fund Managers returning from vacations and also with the Results season kicking in.

Lets look at the market from Technical Factors first:

1.  The markets have fallen from 6415, the high made on the day after the election results. The markets had corrected to 6130. The markets then retraced 80 pc of the fall to reach 6358. Now, technically this fit in well. The next leg down can go up to 6073 to achieve equality with the previous fall or can go down till 5896.

2. Now, the previous fall in November was from 6342 to 5972 a net fall of 372 points. In this case, if we go below 6045, then this will become a larger fall then the previous fall and will point to a deeper a correction.

3. 6050 becomes a solid support for now and any fall till that level will only be a correction.

4. A rough labelling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

Fundamentals:

1. Fundamentally, there is not much change. The Q3 Results will drive the markets sentiments. RBI policy in mid Jan will tell us if there are going to be any further rate hikes.

2. The CAD has almost reached 94 % of the target in the first 8 months. The Finance Minister is still confident of meeting the target. Let us see how he manages to do that.

Overall, I feel after a dip, there will be 1 final euphoric rally which will take us to new all time highs.

How have the markets fared in the month of January?

The year is drawing to a close and we are nearing the key months of January to March. Typically, markets usually top out in these 3 months and if they dont top out then a major crash is seen in the month of May. Let us see historically how the month of January has fared for the markets?

1. The month of January usually sees the closing price of December violated at least once. Last year was an exception.1 also gets to see a price which is substantially lower than the closing price of December. With 2 trading sessions to go the closing currently is 6314.

2. The month of Jan has also seen huge swings on the downside with falls of 16 and 10 pc respectively. The gains have been 8 and 12 pc respectively.

3. When the month of December is positive, Jan is usually negative and vice-versa. Last year however was an exception to this rule.

4. Out of past 13 years, 6 have been positive January moths ad 7 have been negative. The years when the month has been negative, the degree of fall has been much more than the degree of rise when the month has been positive.

5. The average gain has been 5.5 % when the month is positive and the average fall has been 6.4 % when the month has been negative.

So what should our strategy be?

It should be buy on dips and if the statistics are correct, then 1 dip should come to around 6000-6100 levels which would be the time to buy quality stocks.

In the meantime, fixed income offers 9.01 pc tax free returns for the NHB bonds. Gold can be avoided at the current point of time.