Good Numbers No Cheers ! - Is this a forewarning?
 
Market kept the score board ticking with many surprises. Pre budget expectations are wild and high. Govt is taming market expectations but bulls aren’t willing to listen. Media headlines have turned super bullish "…12000's possible..No Bullstop…." Fund managers too are currently fully invested, the cash holdings are at an all time low at 1.5% -2%, however that ratio ranged between 9% -10% during demonetization. No wonder it is the current trend to be fully invested, but historically such signals flash when markets are hovering near the tops.
 
Stellar numbers from housing finance companies somehow were not cheered by the market. CanfinHomes reported 34% rise, DHFL reported 25% rise and Indiabulls Housing 25% increase in their respective quarterly profits. However the stock prices did not move up. If such numbers don’t rejoice market what else will? Such behavior of the market is a warning bell for bulls.
 
Events of the Week:
 
Rarely do mutual funds return money suo-motto but ICICI Prudential has come forward to return money and close down two of its small cap funds on the grounds that the valuations are high enough and no further opportunity are currently available for fresh investments. This is an expert advice straight from the mouth of a market expert- 'Markets are overheated'.
 
Technical Outlook:
 
The market is ridding the uncharted territory. Nifty50 has crossed the upper channel indicating a likely hood of throw over occurring. The rise of the market is with lesser and lesser volume. Soon the gravitational pull will bring the market back to the channel. Although Nifty50 is running near new high but small and mid cap indices are inching lower. This divergence often is a precursor to correction. Long traders should trail their stops tight near the low 11000 in Nifty50.
 
Nifty Today
 
Expectations for the Week
 
A lot is expected from the coming budget, everyone wants their share of pie but will it be delivered is a million dollar question? In order to remain globally competitive India too will have to reduce corporate tax rates akin to US, that being the case, given that this is the last budget, FM will really have to walk a tight rope in the interest of larger development of the country, the budget may impose a tax on long term capital gains which is hitherto tax free. Market will not like it, which may trigger a bout of serious correction.
 
Corporate numbers looks better largely due to low base of the previous year quarter but market has thoroughly discount such fact and therefore the reactions are muted. Investors should now partly book profits and wait for the budget. Any deep correction on account of disappointment in the budget should be used as an opportunity to buy. Market ended the week at 11069.65 up by 1.60%.

Nifty moving higher without broader participation
 
The market is zooming past its record with frenzy taking along with itself lesser stocks in its fold this time. Sensex and Nifty have set new life time highs. Sentiments are very bullish and so is media. Headlines appearing across all the mediums are all euphoric but silently somewhere super rich investors are ploughing bull market profits into buying stressed assets like Binani Cement.
 
But in the midst of all these excitements there is another silent killer eating away the power of bulls, this termite is nothing but rising prices of Petrol and Diesel which are at multi-year peak now. If this rising prices of fuels continue sooner the empire of bulls can come crushing down.
 
Events of the Week:
 
The earnings season just kicked off. Big players from the IT sector, such as Infosys Ltd and HCL Tech reported a quarterly PAT growth of 36% and 0.58% respectively. ITC and Hindustan Unilever ltd reported 17% and 28% PAT growth respectively, but this was largely on account of low base due to demonetization effect in the previous year. Players from the private banking sector, such as HDFC Bank, Yes Bank and Federal Bank, reported a PAT growth of more than 20%, maintaining their NPAs, a sign of revival in horizon. India’s biggest telecom company - Bharti Airtel, for the fifth straight quarter reported a drop in its profit by 29%. The growing competition between the companies of the telecom sector seems to have adversely impacted the profits but not the stock price courtesy strong bull market.
 
Technical Outlook:
 
The market has crossed the upper channel indicating a likely hood of throw over occurring. During euphoric phase market can for sometimes cross the channel but will eventually return. However runaway rally is not supported by volumes which mean a correction is on the cards. Friday’s record high has registered lowest volume of the month. Traders should tightly protect their long positions by keeping daily low as trailing stops.
 
Nifty Today
 
Nifty 50 Weekly Chart
Expectations for the Week
 
Results season is beginning to accelerate, but the way market is responding to the numbers from commoditized/cyclical companies is a warning bell. Thirumalai Chemicals reported 240% rise in Q3 profits, while Bhansali Engineering & Polymers reported 844% rise in its profits but the stock prices have negatively responded with heavy volumes on the down side. Sell on good numbers seems to be current mantra of the market.
 
However it would be early to draw conclusions because the earnings season has just started but investors are advised caution especially in the cyclical and commoditized businesses, the numbers might look good optically but investors should be cautious and not jump into the quarterly numbers bandwagon thinking that such profit growth rate will sustain. Investors should be very selective at this juncture and invest only in quality companies. Nifty 50 closed at 10894.70 up by 2% from previous week.

Govt divestments dampening market moods
 
Market continued its upward trajectory on the back of huge liquidity and expectation of fireworks in the upcoming budget. Huge expectations are being built which is driving midcaps and small-caps companies crazy. In these euphoric times, government is acting contra i.e. selling shares when markets are greedy, Govt divested by selling shares upto Rs 1200 Crs in NMDC by offering shares at Rs 153.5/- when the stock price rose by 15% in a month's time. Sell on rise seems to be the mantra of government. Many of such disinvestments are expected in the near future which will dampen the already depleting liquidity in the market.
 
COAL India hiked its prices by 9% in a way to compensate wages hikes, however stock market gave thumbs up and the stock price rose up by 10%. But realistically, the price increase was to neutralize the wage hikes and nothing more by euphoric markets disregards inconvenient facts. The government took advantage of this situation and increased the prices of freight for coal too. This biggest threat of all these events will be on inflation. This will result into increased inflation in the near future thus clipping RBI's ability to reduce interest rates, a negative factor for market.
 
Events of the Week:
 
IDFC Bank and Capital First are rumored to be exploring merger. This is the second instance wherein earlier Bharat Financials and IndusInd Bank had agreed to merge. This highlights the fact that independently micro finance companies are finding it difficult to get low cost funds, which otherwise banks get in the form of current account and saving account deposits (CASA). Hopefully, this merger if it happens would be synergistic in the long term interest of all the stakeholders.
 
Technical Outlook:
 
The market is edging higher with lesser velocity. The momentum indicator measured by MACD is showing divergence with the price action indicating that Nifty is preparing for a correction but it is most likely to first touch the upper resistance of the trend channel at 10800 to 10850 in the near term. The current leg of the rally is nearing to mature and hopefully around the end of month would reach the peak on the trend channel. Traders should buy at the current price and keep a close stop loss at daily lows.
 
Nifty Today
 
Expectations for the Week
 
The quarterly results season has just begun. The market isn't rewarding inline numbers. TCS, IndusInd Bank and Infosys had reported -3.97%, 25% and 38% increase in quarterly profits on YoY basis respectively. It is expected that corporates will post slightly better numbers due to low base effect of demonetization in the previous year.
 
However to that extent at an aggregate level the corporate numbers will not seriously surprise the market as they are more or less discounted, barring a few exceptions in the commodities space. But the market will be keenly watching important policy announcements that the budget will deliver which will really decide the direction of the market in the near term. Investors should exercise cautious but at the same time continue SIP in only quality stocks. Nifty 50 closed the week up by 1.15% at 10681.

Rising Rupee is softening Commodity Rise
 
The market continued to have a bull run on the back of good output numbers by cement, steel, auto sales and firmed up recap plans by the govt for PSU banks to the tune of Rs 80,000/- Crs. In auto sector-commercial vehicles and two wheelers category posted abnormally higher numbers due low base effect of demonetization in December 2016.
 
Oil on the other hand is boiling which has resulted into higher prices for aviation turbine fuel (ATF), diesel and petrol prices this will result into stoking inflation. Such risks are not priced in currently in the market. For instance increase of 16% in ATF prices have not impacted the aviation stocks and are still enjoying the bull rally. Reality check is expected during the quarterly numbers by which time the stock prices should react. Rupee has risen to multiyear high which is in a way savings grace for the economy as higher prices in the commodities like oil and metals, to some extent, are being neutralized.
 
Events of the Week:
 
State Bank of India has reduced the lending rate by 30 bps and had increased the interest rate on bulk deposit rates by 100 bps sometimes back. This implies that the net interest margins (NIMs) will be compressed owing to pressure from both the sides. This is a far reaching move by SBI the leader in banking space, these footsteps may be followed by other banks going forward. This will impact profitability across the sector in terms of net interest margins and profitability will be under pressure.
 
Technical Outlook:
 
Market is likely to touch at the upper end of the trend channel. After a consolidation of about a week, the indicators are again pointing higher prices albeit with slower velocity. The higher top and higher bottom sequence is intact which should take market to higher levels in the near term. Rising volumes indicates that the market is entering into a phase of euphoric activities. 10370 should be kept as trailing stop in Nifty 50.
 
Nifty Today
 
Expectations for the Week
 
Given the amendment in the IBC - the mandate to keep liquidation value of the companies that are sent to NCLT as confidential, this would hence forth reduce the volatility of the companies that are being sent to NCLT proceedings.
 
In the mean time PSU banks are ripe for near-term rally. RBI notified Allahabad Bank for Prompt Corrective Action (which restricts lending mechanism of the bank), however still the stock price rose by 2% during the week, this indicates that the downside is capped, the worst is discounted and therefore for the time-being the rally should continue in the run up to budget.
 
Paper stocks had a dream run on the back of rising international prices this week. But investors should stay away from such cyclical stocks as any increase in the capacity will lead to reduced prices, consequently the stock prices too will fall sharply. Timing is very important while planning investment in these types of cyclical stocks: by the time media highlights the story, substantial move is already over. Investors should continue investing through SIP mode in sound and frontline stocks. Nifty 50 closed at 10558.85 up by 0.26%