Too Much Optimism Rings an Alarm Bell

NIFTY this week opened higher and continued the upward journey with albeit slower momentum. Stock specific volatility was the highlight of the week. Companies declaring results better than expectations posted solid gains in their stock prices but companies declaring not so great numbers also had a run up in the stock prices. Such a state of market represents nothing but too much optimism in the air for the future prospects. It's time for caution in the short term. Eicher Motors reported 59% growth in Q1 PAT, Asian Paints 19% rise, Bajaj Auto 2% rise, Bajaj Finance 53% rise, Yes Bank 33% rise, HDFC 38% rise in respective Q1 PAT numbers. Dr Reddy reported PAT down by 85%, Bharti Airtel 31% fall in PAT and Punjab National Bank PAT down by 85%. The policy actions seem to be percolating down at the ground level.

Key events of the week:
US FED kept the interest rates unchanged without hinting any roadmap for rate increase which will keep markets guessing when the rate hike will come. Cairn to merge with Vedanta in the ratio of 1:1 plus the deal for Cairn shareholders has been sweetened with 4 redeemable preference shares of Rs 10 each redeemable after 18months carrying interest at 7.5% P.A thus paving the way for consensus clearance. Constitutional Amendment for GST seems to be going through the monsoon session while the GST bill seems to be postponed for the winter session of the Parliament.

Technical Outlook:
Nifty50 is kissing the upper channel of regression lines drawn from the March bottoms. The upward momentum is losing the steam as can be observed from the MACD indicator. Greed is keeping the markets at the alleviated levels. However the sentiments can change from greed towards fear, overnight, causing corrections to begin. Traders should trail their stops on their long positions and investors should stay on the sidelines till the market comes to touch the lower level of the regression channel which comes at around 8300-8400 levels in Nifty50. Long term trend is firmly intact but short term is ripe for correction.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Stock Market is celebrating results of almost all companies arousing a feeling of discomfort, that too much consensus from bulls is an alarm bell for conservative investors and traders. Due to low base effect the results looks spectacular when measured in terms of YoY growth. Mid caps acted as if they were MiG Fighter jets, racing ahead with supersonic speed. Stocks like Bajaj Finance and Bharat Financial Inclusion jumped more than 10% post their quarterly results. The vibrancy seems to be translating in the IPO market. Dilip Buildcon will hit the market next week potentially inviting huge response. The pricing looks reasonable at 11 P/E however investors should invest with a horizon of one year for good returns, short term betting may not be lucrative. In general investors and traders should be cautious. NIFTY today closed up by 1.14 % at 8638.50.

Market in Wait and Watch Mode Awaiting Corporate Scorecards
NIFTY this week danced to the tunes of corporate results. The role of Analyst expectations and actual results were exposed in few of the results this week. Reliance came out with excellent set of numbers, beating analyst expectations by a wide margin but post the results the stock fell down although it opened much higher in early trades. This exposes the limitation of the analyst expectations and the actual performance on the street. Overall the results are in line and well discounted by the markets. Reliance posted rise of 18% in quarterly PAT, HUL posted 10% rise in PAT, HDFC Bank posted 20% rise, Kotak Bank posted 100% rise in quarterly PAT on back of lower base effect, ITC posted 10% rise in PAT, Ultratech posted 29% rise in quarterly PAT respectively. The Government is nearing the process of passing GST in the monsoon session of the Parliament, which will usher in a new era for trade and commerce in the country. Hope we see the GST becoming a reality soon.

Key events of the week:
Sovereign Gold Bonds this time were launched through the stock exchanges for deeper and wider penetration into the Indian Stock market. The scheme is a win-win for the country and the investors as interest at 2.75% p.a. will be earned by the investors plus capital gains tax exemption on redemption after 8 years are the key highlights of the scheme. The more investors subscribe to the bonds the lower will be the imports of actual Gold thus saving the foreign exchange which can be used for other productive investments within the country. Existing telecom companies have reduced the data charges by as much as 60% thus heralding the onset of competition in the sector due to entry of Rel Jio, expected anytime soon.

Technical Outlook:
Nifty50 is in no mood to correct deeply, but a sideways corrective pattern seems unfolding on the weekly and daily chart. On the weekly chart a feeble dark cloud cover seems unfolding but the same will get nullified if the market crosses above 8600 levels in Nifty50 after which the uptrend will resume again. However market is still facing resistance at higher levels. Market is balancing out between profit booking and entry of new players at lower levels. The undercurrent is strong and the long term trend is intact. Traders should buy on dip and investors can accumulate at these levels.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Stock Market is cheering mid cap stocks for posting good set of numbers but at the same time showing muted response to large cap stock results. Cases like Reliance Industries, ITC, HDFC Bank, Kotak Bank all posted good results but stock prices were muted. Suddenly the IPO market seems fizzling out, the first day listing premium of L&T Infotech surprising came down to negative 2% of the issue price which showcases nothing but the shallowness of the Indian Stock market. L&T Infotech IPO trades at 30% discount to its peers, we believe market will reward patient investors. Rainfalls are progressing well across the country bringing cheers to the farmers which will play an important role in reviving the growth for the country. Important bills lined up before the parliament, should they be cleared will further drive our markets into higher territory otherwise it may languish with positive upward bias in the short term. NIFTY today closed flat at 8541 same as previous week.

Market Flying High On All Round Optimism
NIFTY this week opened with a gap up of nearly 90 points in sync with bullish global market sentiments, and raced ahead to reach 11 months high. The inflation has started to rise mildly which is a positive sign that economy is leapfrogging towards growth. IPO market is buzzing once again, Quess Crop listed at premium of 57% indicating a massive wave of optimism running in the market. Such events attract more and more participants in the capital market which channelizes savings into productive assets for faster economic growth of the country. The Government is confident of passing GST in the monsoon session of the Parliament, which will give further impetus to the bull market in the long term. All eyes will now shift to the floor of the parliament as the Monsoon session will start from Monday.

Key events of the week:
India’s Newest Bank IDFC Bank bought the Tamil Nadu based Micro Lender Grama Vidiyal Micro Finance Ltd in an effort to jumpstart the growth in the parent bank. Indiabulls Group was raided by the Income Tax department, under suspicions of tax evasion when the promoters split their businesses, the respective stocks had a knee jerk reaction intraday but later recovered by the close. One of India’s Biggest Private sector Insurance company - ICICI Prudential filed DHRP a first mega Insurance IPO. Bank of England surprised investors by keeping Interest rates at 0.5%, catching many investors unaware, making it the best performing week for the Pound.

Technical Outlook:
Nifty50 is marching ahead fearlessly towards higher orbits of optimism. The same can be visible when parallel trend lines are drawn from the Feb-March low levels. Market is facing resistance at upper levels. Profit booking may emerge at these levels and market can enter into sideways zone of consolidation. The upward momentum has slowed down which calls for caution in the short term. The sequence of higher tops and bottoms indicates that the longer term trend is unequivocally up but in short term the market can enter into profit taking zone.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Good numbers posted by TCS did not cheer the markets, while the bad numbers from Infosys led to a sharp fall in the share prices, indicating that the market is poised for a corrective phase in the coming weeks. The corporate results in general are expected to post 8% top line growth and 6% bottom-line growth which probably has been discounted in the markets at current valuation. When good news is ignored & bad news is acted upon, a medium term top is likely being formed. While the long term trend of the market is still upwards, markets will rest & may even test 8350 levels, before continuing their upward journey, with the next big trigger being the passage of the GST Bill. NIFTY Today closed up by 2.62% at 8541.4

Monsoon Grace to Race India Ahead
Market opened the week with a gap up but could not hold on due to profit booking at higher levels. The focus has now shifted back to domestic factors with result season on the horizon and government readying for the monsoon session of the parliament. Indian bond yields are plunging dramatically indicating that interest rate reductions are on the cards. The fallout of Brexit is at least visible on the Real Estate Funds wherein UK based funds have suspended redemption requests on the grounds of liquidity constrains which though may be contained in a while, but if the redemption request spill over to the bond funds then that will rattle global financial markets for sure, as large part of the assets have junk bonds in their asset compositions which are by nature illiquid. Indian economy although not immune to global economic events, is far more resilient due to internal demographic strengths and political leadership of the new government.

Key events of the week:
Ultratech finally grabs the crown assets of JP Associates for Rs 16,000/- Crs creating a win-win for both the companies. Ultratech is set to become the No 1 cement producer in country and JP Associates will reduce its debt flab, creating room for growth in the company. Cabinet clears massive redevelopment of three colonies in Delhi which will create immense opportunities for companies like NBCC, Kajaria, Cera, Asian Paints, Berger paints and entire cement and consumer durable companies. Beginning of shakeout in the telecom has began - Tata Tele to close down some of its CDMA bandwidth operations which are coming up for renewal, an indication for early exit of the company from the telecom space.  

Technical Outlook:
NIFTY50 is entering into a sideways correcting pattern after a sprint of 500 points run in a short time span.  Resistance towards the upper end of the parallel channel is strong. Internal strength of the market is intact though it is likely to face profit booking at these levels. The series of higher tops and higher bottoms make a compelling bull case for the long term investors to remain tightly invested and should add on every decline. Traders should also go long after waiting for ‘correction by time’ to be over or else if Nifty50 crosses 8400 levels then longs can be initiated without waiting for correction by time to be over. 
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Market is expected to rest a while before beginning its upward ascent; however a close above 8400 levels in the Nifty would be a buying opportunity for positional traders. Primary market has started to buzz again after a long time. IPO of L&T Infotech is expected to garner record breaking over subscriptions. FY 16-17 is expected to close with approximately Rs 15,000/- of new money raised from the capital markets which is nowhere near the whopping fund raising done during the peak of bull markets in the year 2007-08 wherein record amount of Rs 40,000/- Crs were raised. Going by this standard the current bull market has a long way to go before culminating into a final bull market top. There would be all round frenzy, ecommerce and online businesses would line up for IPO’s and that would probably be the ultimate bull market top which is years ahead. Investors should aggressively allocate towards equity components in their savings portfolio and sit tight. Nifty ended the week down marginally by 0.06%. Nifty today closed at 8323.

Market on Its Course To Newer Highs
Market opened the week in positive territory on hopes of Bremain but to everyone’s surprise Brexit happened. Market opened with a big gap down, but recovered smartly intraday and later by the close of the week ended with net positive gains. The underlying bullish forces are so severe that all such fears of global turmoil were brushed aside by our market. First day listing premium another indicator of bullishness was visible in the listing of Mahanagar Gas Ltd which listed at 25% premium over its issue price. This is an unequivocal indicator of bullish underlying strength. Even the UK market to everyone’s surprise touched 52 weeks high within days of Brexit a signal loud and clear to the entire world that ‘All is Well’. Indian economy is turning out to be one of the most resilient economies in the world.

Key events of the week:
Government finally rolled out 7th Pay Commission recommendations amounting to a whopping 1 Lac Crore which will further lubricate the economy in the spending- investing cycle. Two wheelers, real estates, consumer durables and consumer staples should do well in the medium term. Cabinet creates a level playing for online and offline retailers by amending Shops and Establishment Act to allow shops to remain open 24 X 7 subject to certain rules. National Mineral Exploration Policy cleared by Cabinet will open up huge untapped potential of up to 90% hitherto not explored, to the private sector for exploration and mining, a big milestone in itself.

Technical Outlook:
NIFTY50 is poised to march higher in the coming weeks as key resistances are breached by the strong underlying bullish forces. During the panic of Brexit Nifty took the support right at the lower end of the channel, which has reinforced the significance of the validity of such channel going forward. The internal strength of the market is intact though it is likely face profit booking at higher levels. The series of higher tops and higher bottoms make a compelling case for every correction a buying opportunity. Traders should buy on dips and investors should invest regularly in quality front line and mid cap stocks.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Market had a hectic week with lot of volatility and therefore some amount of sideways to profit booking is expected in the coming week. The Monsoon session of the Parliament will start from July 18, the quarterly results season will start in a week’s time all these events will the set the tone of the market going forward. IPO of Quess has been overwhelmingly subscribed upwards of 144 times. Market is awaiting IPO of L&T Infotech which is offered at reasonable valuation and which should be subscribed by the investors for handsome listing gains. There is tremendous vibrancy in the market. Investors should be overweight on equities and accumulate good quality shares while traders should wait for dips to buy. Nifty ended the week up by 2.95%. Nifty today closed at 8328.