Latest Indian Share Market Updates & News in Dec 2018

New Year to Witness Bigger Populist Policies

The market had a surprise Santa Claus rally albeit with lower volumes, just being a bounce-back rally after witnessing a massive fall of 500 points in Nifty in the previous week. The current week was full of pessimism where markets all over the world in aggregate lost an eye-popping $3Trillion in the month of December and $13 Trillion Year-to-Date (YTD)! This Erosion is equal to the combined market capitalisation of China, Japan and India. Bigger concerns are emerging in the US markets on the earnings front. The year gone-by had seen a 25% increase in profits of S&P 500 companies which was mainly on account of buy-backs and such phenomenon is not expected to be repeated in the coming year. A normalised single digit earnings growth will soon be the reality however the repercussions of trade wars are yet to be expected in the year 2019 and thus the disappointment in the markets is expected to continue in the next year as well.

Even though analysts in US and even Mr Trump are suggesting buying equities, it would be too soon to say that the US markets have reached a bottom as bottoms are seldom made in a matter of few weeks. Currently, the US government shutdown is just another excuse for the markets to fall given rich valuations as the US markets witnessed a similar "16-day" shutdown in October, 2013 during which the markets kept inching upwards. This clarifies that the current fall in the markets is most-likely wrongly blamed on the "Government Shutdown", but the fall is more due to high valuations.

Events of the Week:

Populist measures are on a rise and still in a nascent stage. These measures although for the betterment of the masses would dent the corporate earnings. Government's clarification on DIPP (Department of Industrial Policy and Promotion) for e-commerce platforms (such as Amazon, Flipkart, etc.) will create a level playing field for lakhs of brick & mortar players and end a regime of discriminating policies which were slowly killing traditional businesses. Further, such moves are expected to be introduced in healthcare, agriculture and other sectors compressing the profitability of either banks or corporates. The election conundrum will further add to the pressure that is weighing down the markets.

Technical Outlook:

Nifty50 is slowly losing momentum on the upper side by forming smaller bodies, the indicators are still in the red indicating continuation of sell mode. The rally was not supported with volumes and therefore selling is likely to emerge at higher levels. 11000 in Nifty50 will act as a strong resistance level and therefore long positions should be avoided till the time 11000 levels are breached decisively. On weakness, traders can initiate shorts with levels above 11000 as stops.

Expectations for the Week:

The market is expected to continue being volatile with selling occurring at higher levels. International factors will likewise influence domestic markets. Macros are nonetheless favourable but political uncertainty, strained global geopolitics and brewing trade wars will act as a catalyst for the negative sentiment prevailing in the equity markets. However, given the strong macros, buyers are expected to emerge at lower levels and thus investors are advised to be very cautious in selecting the sectors and companies to invest in currently but wait for sharp correction.

Sectors to watch out for before Election:

In coming times of extreme volatility Infrastructure, road construction and cement companies should give attractive returns before elections because the government is in hitting mode as only last 3 overs (months) are remaining before Election Commission's Model Code of Conduct applies. The government is on the edge of giving nods to projects in road and infrastructure segment and orders to the extent of staggering Rs. 1 lakh crores are expected to be handed out to companies. Companies like KNR Construction, Dilip Buildcon, PNC Infratech and NBCC are expected to give good returns running up to elections. Nifty50 ended the week at 10860 up by 0.98% .

Year End global sell-off has just begun

During the week, Mr. Market was in a deceiving mood whereby the global market rout was ignored on the pretext that India has decoupled from the foreign indices. However, by the close of the week, reality dawned on the market as it cracked heavily and is likely to continue further, atleast till the year end. During the week, the banking sector especially the PSUs had their share of surprises - On one hand, farm loans of Rs. 1 lakh Crsappro. were waived-off and on the other, Government promised an infusion of Rs. 83,000 Crs to recapitalize the banks. This circular movement of capital may have economic repercussions, but PSU banks will eventually be at the losing end. Their new loan growth will be impacted which will cap the upside growth from current levels.Thus, stock prices are expected to head lower till the next year general elections as the fear of further loan waivers will haunt the sector.

The US Fed increased interest rates by 0.25% to a range of 2.25% to 2.5% for the 4th time this year. But somehow this time the market realityis totally different, the US bond market has been experiencing a continuous fall in the yields from 3.25% to 2.7% on 10-year Treasury -Indeed a big negative for the equities! Such declining interest rates indicate that the world is heading towards a slowdown and recession which is the reason why bond markets do not expect higher interest rates in the years to come. Dow Jones Industrial Average Index breached very important levels of 23,000 which is a "Laxmanrekha" for bear markets. Bear markets have just begun!

Events of the Week:

In the Indian markets, Government of India is in a tearing hurry to capture whatever it can from the equity markets either through OFS, dividends or buybacks. ONGC, IOC are a few Government owned companies that have recently announced buybacks.The balance figure of Rs. 45,000 Crs is the targeted amount that the Government still needs to raise which is a herculean task, this will eventually impact the equity markets' liquidity.

Technical Outlook:

Nifty50 has again turned lower after facing strong resistance at 10990 just off the 11000 mark, which is also a weak sign in itself. A big bearing body with markets closing near the lows of the day indicate that bears have pounced with vengeance. Global markets too are in bear grip which will lend support to the domestic bears too. Given the downward momentum, Nifty50 can reasonably find support at 10000 levels. Traders can go short aggressively by keeping the highs of the current week as stops.

Expectations for the Week:

As the world enters for a festive year end, Indian markets are expected to head lower with scanty volumes and lower open interests, the risk-taking appetite is low. Additionally, global indices are more likely to disappoint than bring any cheers. Indian indices are currently in a race with their global counterparts similar to the rabbit and tortoise story wherein the US market is the rabbit and India is the tortoise slowly trying to catch-up. Thus, the selling pressure is likely to accentuate given that Indian markets will followand catch-up tothe international decline in stock prices. Investors are therefore advised to stay away and be on the sidelines for the time-being whereas traders can go short. Nifty50 ended this week at 10754 down by 0.47%.

Merry Christmas to all our esteemed clients

Markets always move against consensus

This week stock markets surprised everyone when there was no panic selling after Congress' win in the major states which proves that realities of economic dynamics always is the guiding factor and politics is only sentiments which has negligible shelf life. Post the rollercoaster ride, Indian bourses strengthened mid-week on hopes that economics of the country are robust, and markets are above politics. Nifty and Sensex recovered from oversold levels despite weak global headwinds, thus bringing in the necessary stability around these levels. Surprisingly corporate houses close to the ruling party did not experience a sharp fall which indicates 2 things - Either Mr. Market expects the ruling party to win 2019 elections or it has become mature enough to withstand the political noise.

On the other hand, Government's targeted disinvestment was around 89,000 crores out of which 32,000 crores has been achieved. Raising balance amount seems to be a herculean task given the current state of the market. An OFS is expected in New India Assurance, GIC, NMDC and NBCC which will keep the stock prices depressed not only for PSUs but for the broader market which will face a subdued effect as liquidity will be sucked out from the system. This will keep markets under pressure till the general elections next year.

Events of the Week:

Appointment of the new RBI Governor and Supreme Court's dismissal of PIL against Rafale deal should calm the sentiments of the masses. Coalition is the last thing that India Inc wants, hopefully public decisively gives a clear mandate is all that Mr. Market is waiting for. A coalition Government would likely impact the growth of the country; stability in the system is the key towards a growing economy. The Rafale deal could be a game changer in the political conundrum next year.

Technical Outlook:

Short term momentum is up but the strength is weakening by the day. Number of advances are steadily coming down which indicates that event-based rally will see profit booking at higher levels. Likely levels for Nifty50 on the higher side is 10900 and second target is 11100 which is nothing but 50% and 61% retracement rise of the entire fall respectively. Selling on higher levels will emerge, therefore traders are advised to be selective on going longs but on any weakness they should be ready to go short.

Expectations for the Week:

Markets are likely headed towards a broad trading range as the state election phobia is now over. Also, year end profit booking will keep the markets under check.Nonetheless some sectors/stocks have become very attractive given the negative narratives in the market which had plagued them and had seen a decent price correction in them. In the auto sector, there is Mahindra & Mahindra and Bajaj Auto whereas Canfin Homes and Indiabulls Housing Finance have become attractive for investment. Motilal Oswal and IIFL in the financial services sector while Godrej Consumer Products and ITC are available at decent valuations from the FMCG space. All these companies have enough margin of safety and are attractively poised for long-term growth. However, investors must take decisions after taking their individual risks and capital allocation into consideration. Nifty50 ended this week at 10805.45 up by 1.04%.

Expect Nifty to Head South by Year End!

Markets during the week refused to go up inspite of a temporary truce announced on trade wars between the 2 global powers China and US. If such pragmatic decisions couldn't take the markets higher, it was only logical that the global bourses would go lower. The fall was further accentuated with the arrest of Chinese Company Huawei's CFO and daughter of the Founder which led to panic selling across the board fearing further trade war tensions. Also, a sudden change of expectations in the interest rate scenario specially in the US is very surprising but bearish. Bond prices have started to rise giving an indication that US Fed will not increase interest rates atleast in the short to medium term due to looming recession and slowdown in the global markets because of trade war fears.

Due to this sudden change in the global interest rate scenario, equities will not be the preferred asset class for sometime unless the bond markets settle. RBI too has changed its stance from hawkish neutral to now dovish by keeping the repo rate unchanged in the current monetary policy meet. However, it announced a 1.5% gradual reduction in SLR from the Jan quarter which is a welcome step to reduce the liquidity tightness in the banking system. This all boils down to only 1 fact that rate hikes in the near future seem unlikely.

Events of the Week:

OPEC's might haveat last started to dwindle after decades of monopoly with Qatar's sudden decision to quit OPEC. Electric Vehicles revolution which is coming sooner than expected has shaken up the entire cartel. Their meet this week was expected to reduce the oil output by a massive 1 million barrels per day but has avoided any specific decision on the pretext of awaiting Russia's signal who is a non-OPEC member.Thus, the falling power of OPEC is a new normal for the world ahead and good for an oil consuming country like India.

Technical Outlook:

On the weekly chart, Nifty has formed a bearish dark cloud candle suggesting weakness in the medium term. Prices have broken the trend line on the daily chart giving a medium-term target in the range of 10100-10200. The fall will not be a straight one but will have intermittent rallies arising out of optimism, however eventually markets should find strong support around 10100-10200 levels. Traders are advised to stay away till the outcome of State election results on Tuesday, post which contra bets can be undertaken for short terms profits. Sell on rallies should be the strategy with appropriate stop losses.

Expectations for the Week:

Markets next week will remain extremely volatile due to the election outcome. It is hard to predict which party will win or lose, but in any case, markets will make extreme moves in the short term which will be irrational and therefore a contra position, if any, could be taken. November auto numbers came in this week with 2-wheelers delivering robust growth of over 20% plus and the passenger vehicles segment showing de-growth in numbers which also indicates that the purchasing power of the middle class is waning. This would impact the future growth outlook of this industry as a whole. Investors are advised to keep cash on hand and wait for panics. Ideally, 10,100 Nifty should be good levels for investment,which is expected post the short-term volatility and preferably by the year end. Nifty ended the week lower at 10693.70, down by 1.68%.