Pessimism Assimilated Market Ready for Short Term Rally
 
After Monday's fall market crawled sideways inspite of bearish sentiments running throughout media during the week. The headline about 'rising US bonds yield, LTCG Tax implications, PNB fraud and the consequential collateral damage there from, low rollover for the next series, foreign investors adding bearish bets' etc all led to fear in the market. Around 30% lower open interest in the current new series all but indicate one thing that in the short term too much permission has been loaded and therefore it's time for some reversal.
 
FMCG, IT, Pharma and Real Estate seems to have made decent corrections and therefore offer value at the current juncture from a short term perspective.
 
Events of the Week:
 
The hard work to recover money from the stressed assets by RBI and Govt is paying off, Tata Steel is likely to offer Rs 35000/- Crs cash plus 12.5% equity stake to lenders for acquiring Bhushan Steel ltd. This will entail reversing of earlier write offs by the PSU banks and therefore will straight away add to their profits. Similarly JP Infra has received offer from JSW group for Rs 9900/- Crs which is also believed to be very aggressive. Given such developments that are yet to be discounted, PSU banks will move up sharply once they crystallize such recoveries.
 
Technical Outlook:
 
Earlier we had noted that "In near term the market is expected to test the bottom from where a rebound is expected." Market indeed tested the levels of 10300 a double level from where the lift off happened. The rise in the market is followed by rising volume and therefore it can be safely assumed that the market will rest 10630 on the higher side. Buy on dips should be the strategy for traders. Shorts, if any, should be exited.
 
Nifty Today
 
Expectations for the Week
 
Enough of negative publicity in the PNB fraud case has percolated down on the street. The same is therefore extensively discounted and behind us. Considering the size and scale of the Indian banking system PNB event can't stop the country's growth prospects per se. This will soon be forgotten and market will move ahead as some value has emerged for short term buyers.
 
Market had across the board battered the stocks coming out with numbers irrespective of good or bad. Now the market will recognize such companies with appropriate price action jump. Pvt sector banks had been unnecessarily punished behind PSU banks rout but will now offer good buying opportunity. One need to keep an eye on US markets which is expected to stabilize in the near term but the longer term trend is still under pressure. Nifty 50 closed the week at 10491.05 marginally up by 1.04%.

PSU Banks linen Repelled Bulls Away
 
Market crawled up during the week but gave up the gains by the close of the week, inspite of positive global sentiments, principally due to home grown PSU banking mess being denuded by Punjab National Bank. Generally such mess comes out during bottoming cycle, which PSU banks are passing through. Worst seems to have been discounted in the PSU banks but positive triggers are awaited.
 
The combined net profit of 1395 companies which have declared their results for Q3FY18 were up by 10.6% (YoY), the combined net sales went up 14.6 % (YoY) which was the fastest growth in last 13 Quarters. Bull markets generally make a top when the numbers are great and bear market forms a bottom when the numbers are ugly. Indeed the market seems to have discounted the fact that good numbers are due to low base effect but going ahead whether such growth numbers would be delivered? Markets currently don't thinks so and hence the price correction seems deepening.
 
Events of the Week:
 
Lessons from Ben Graham were refreshed when Warren Buffet acquired shares in beleaguered Pharma sector by acquiring for the first time Teva an Israeli pharma company. This acquisition is a pointer to all value investor's that it is time to lap up pharma companies. All major Indian cos too have reported decline in profits. Sun Pharma reported 75% decline in profits after adjustments. It's time to accumulate good pharma companies in the portfolio. Trump's America First and Modi's Make in India policies are spearheading both the countries to create local growth and employment. Indian Govt has increased import duty on sugar to 100% from 50%, initiated steps to attract back home, all the futures trading that were happening in the Singapore Exchange. Although these steps are inward looking but these should help the country generate employment the most important agenda of the govt.
 
Technical Outlook:
 
After a period of high volatility the market is consolidating and adjusting to new reality. Oscillators have turned deep oversold and therefore are ripe for a bounce. Ideally a double bottom test should give courage to the market to rebound from oversold levels. In near term the market is expected to test the bottom from where a rebound is expected. Buy with stops should be adopted by the traders once the market tests bottom.
 
Nifty Today
 
Expectations for the Week
 
Indian banking system is keenly awaiting the outcome of biggest steel defaulter account, Essar Steel whose deadline for submission of bids are over and the result is keenly awaited. Reserve or the liquidation amount was Rs 22000/- Crs and total debts stood at Rs 78000/- Crs. If aggressive bidding emerges then the negative gloom surrounding PSU banks would subside.
 
The biggest worry for worldwide equities is the expectation of rising interest rates; Indian bonds are also falling in line with global clues. Stabilization of bond market is key to equity revival, otherwise bears will pounce stock market. It is better to play safe and stick to only quality stocks. Nifty 50 closed the week at 10452.30 marginally down by 0.02%.

Indian bulls have lost to Global bears
 
This week market opened negative mirroring global clues; correction in developed markets was led by US where Dow Jones slipped more than 6.5% this week and erased 10% from the high, the fastest fall in recent times. Indian market too acted in concert with the global rout. All major markets from Europe to Asia have all wiped off on an average 10% of the market caps which resembled the orchestrated fall similar to 2008 global meltdown.
 
The quarterly earnings of companies have been showing signs of revival as the effect of GST is seen to fade away. A sharp rally particularly in the pharmaceutical stocks on the back of positive earnings reported by Cadilla Healthcare and Cipla seem to have boosted sentiments intra week but eventually the effect faded away.
 
The monthly data for automobile sales volume saw a strong performance for commercial vehicles and tractors. Farmer friendly budget and government's continuous push to increase farmers' income may see good performance in coming months especially in the tractor segment. The two wheeler segment also displayed a commendable growth. Eicher Motors showed a 23% growth in revenue for its December quarter in-line with market estimates. The moot question is whether this high growth caused principally due to low base effect of demo, sustain? May be the market is unwilling to believe and that could be one of the reason market is adjusting to the lower expectations in the future.
 
Events of the Week:
 
For the 3rd consecutive period, RBI kept the rates unchanged in the current Monetary Policy and signaled a hawkish stance. The inflationary pressure is slowly building up and the expectation of further rise is a cause of worry. There is an inverse co-relation between interest rates and equities. High inflation and interest have the lethal combination to kill the bull market.
 
Technical Outlook:
 
The violent fall of the week most likely indicates a change is larger trend of the market but the same is not confirmed yet. Only lower top or double top will confirm the change in the trend. Nifty has for the time being found support on the lower trend line and therefore is likely to bounce for a while. Once the trend line is broken the market can be said to have entered the bear zone. Traders should ideally wait for the market to settle down, as a matter of safety periods of high volatility should be avoided.
 
Nifty Today
 
Expectations for the Week:
 
In the coming week results of some major companies are expected but market mood has completely changed at least for the time being. Howsoever the numbers have been, Mr Market has hammered them all. How the US market recovers and bounces will be the key event to watch.
 
Will the US downtrend continue to grip the entire globe or will this be just a temporary correction which will reverse? The best way to react to such a situation is not to make any decision in haste but wait for the bounce to happen. What will be the depth and breadth of the market during the bounce will be an important indicator to know whether this would turn out to be a normal correction or a beginning of a larger bear market. Nifty Closed at 10454.95 down by 2.84% from previous week.

At last the Bulls have given in to the Rising Interest Rates
 
Market witnessed historic volatility on the eve of budget week. Law of alternation was at work in the market. Last two time's budgets had made a bottom but this time the budget has made a top for the year. Lot of global headwinds will scare away the bulls keeping the market under pressure.
 
The only competitor to equities is debt, which is slowly becoming attractive. The FED's rising interest rate spree in the US is expected to again increase the rates by 0.75% this year. Back home the biggest bank, SBI, has increased the interest rates on bulk deposits by 40 to 150 bps, this is the biggest worry. What was the need to increase interest rate? Liquidity squeeze? Historically equities underperform when interest rates are rising and this time too the same correlation will hold good, the beginning has surely started.
 
Events of the Week:
 
This was the last budget of the govt but election echoes were clearly felt. Far bigger than MNREGA was announced by the govt in the form of social security to 10 Crs poor families by giving them protection to the extent of Rs 5,00,000/- health insurance cover per year. Just like other developing countries where health care costs are soaring, govt has intelligently played the election card by conquering the support of half of the population by giving them medical relief in case they need it. It may not be good from finance market point of view but is certainly good for the under privileged section of the society.
 
Technical Outlook:
 
The market after staying in the overbought territory has finally turned down with vengeance indicating a possibility of a larger correction. The volumes are increasing with every fall. Time and price correction should ideally lead the Nifty 50 to test the lower trend channel at 10250. The previous runaway rally was not supported by volumes which meant that the fall was coming, however increase in the volumes now in the falling market indicate genuine delivery based selling happening in the market. Traders can go short on rise, however long positions should be avoided for now.
 
Nifty Today
 
Expectations for the Week:
 
We were continuously raising the red flag for the bulls since last few weeks that markets are overvalued, lot of euphoria, across the board good numbers are actually signs for the investors to exit and book profits. No wonder following the herd (media consensus, expert opinions, news paper headlines etc) always inevitably makes one repent and the same mistakes are repeated time and again.
 
Market will seek clues from the US markets as to how the bond markets are unfolding and how equities are reacting to such bond market movements. 10 year US bond yields are hovering at yearly highs which if kept rising, will seriously dent equities across the world. Indian markets too will follow such signals.
 
Quarterly numbers are largely in line, cyclicals are posting great numbers due to high underlying commodity prices, FMCGs and other consumer oriented industries are posting excellent numbers due low base effect of the last year, all these are known and therefore well discounted in the market. But market is genuinely worried about the high valuations, bigger appetite of the government to suck away the money from the Investors, tight liquidity conditions in the economy etc. One should be very selective at this juncture and keep the buying list ready. Once this mayhem is over time to accumulate will re emerge after a long a time, sit on cash currently. Nifty 50 closed at 10760.60 down by 1.23% from previous week.