Latest Indian Share Market Updates & News in Jul 2017

Intermediate Top in place, market ripe for correction

Markets opened with euphoric moods cheering CCI approval of Voda-Idea merger, despite telecom being 'No Touch' sector after Jio's feature phone launch, the market still cheered this news event by pushing up the stock prices. However later by the close of the week reality dawned in the telecom stocks. The week was hectic wherein stocks were adjusting to the quarterly numbers. Few of the companies that reported quarterly profit growth were Yes Bank 32%, Rel Capital 15%, HCL Tech 6%, ITC 7.4%, Federal bank 26%, Maruti 4.4%, Indiabulls Housing 25%, Indiabulls Real Estate 32%, HDFC Bank 20% respectively. Some that recorded lower numbers were Asian paint (20)%, Bharti Airtel (75)%, Axis Bank (16)%, Blue dart (52)%, ONGC (10)% respectively. Newspaper stories are super bullish currently "Stocks at New High..", "Journey to 10000..", such headlines almost always appear at the top and never at bottoms. The feeling of "I am left out" was visible throughout the week which certainly happens at or near the top. Keeping emotions under control and not getting carried away in such euphoric phase of the market, but waiting patiently for fear and despondency to re-emerge and then invest would make investors a lot richer, rather than investing at the current levels.

Events of the Week:

A fourth of the country’s trucks are sitting ideal either due to efficient fleet operations due to no octori check posts or lack of demand for transporting untaxed/taxed goods, but whatever be the case such massive ideal capacities is the precursor to post GST regime. Many more disruptions are expected and the immediate fallout would be on the financiers and CV manufacturers.

Technical Outlook:

In weekly chart, it can be observed that Nifty 50 had moved up 2200 points in the previous rally of 2016 and the same extent of up move of 2200 points has occurred currently,  this makes a high probability setup that markets have reached an extreme on the upside. Some of the sectoral indices like Auto have made double top, while indices like Power, Oil & Gas and PSU Banks have made lower tops and have started moving down albeit slowly. Mid cap and Small cap indices are showing clearer pattern of fatigue. Although long term trend is still bullish, but market is ripe for correction as all the past up moves that have occurred since January 2017 in the Mid Cap index were to the extent of 21 days, and similar time duration currently coincides during the present up moves, hence there is every likely hood of profit booking to set in as early as beginning of next week. Short term traders may book profits at current levels or trail the position at 9750.

Nifty 50 Weekly Chart

Expectations for the Week

RBI is scheduled to meet in the coming week the market would keenly await action on rate cut front. Low inflation, good monsoon and strong Rupee are compelling reasons for a 0.25% rate reduction case. Rate cut would strengthen market sentiment which otherwise seems faltering as of now. In many cases excellent numbers are used as an opportunity to book profits in overvalued stocks and bad numbers are seen as an contra opportunities to accumulate stocks eg Idea Cellular, company reported losses still bulls evinced solid interests. Currently valuations and sentiments both are running high which makes it much harder for the investors to refrain from making fresh investments, but doing hard things is all that is required in order to build sustained wealth. Investors should hold on to their investments but refrain from fresh buying, selectively they can also book profits.  NIFTY50 closed the week at 10014-50 up by 1%.

Markets moving higher on liquidity flows

Markets opened at all time high but mid week faced a sell off due to hike in effective GST rate on Cigarettes, Government revising the taxes at pre GST levels, this led to sharp fall in index heavy ITC which pulled down the indices intra week low but later recovering by the close of the week. Wipro at last, from the front line IT companies announced buy back for up to Rs 11000/- Crs,  HUL reported 9% PAT increase, Ultratech 15%, Reliance Ind 28%, RBL Bank 45%, Bajaj Finance 42% and Bajaj Finserve reported 22% increase in their respective quarterly net profits. Overall, the sample results are in line and slightly above market expectations. The earnings so far are good for underlying bull market to consolidate further and move higher. Stock price behaviour of ITC on the bourses bring out one thing that the market responds over excessively to the short term events and therefore this creates an opportunity in the medium term to profit out of such over reactions. When GST was implemented on 1st July, the stock price of ITC rocketed 8% in the opening to Rs 350 in a single day and when GST rates were increased to pre GST levels by the government the stock price dived by 8% to Rs 280 levels this week.  It is so obvious that taxes are a pass through, and increase or decrease does not directly impact the profitability, but such irrational behaviour of the ITC stock price is always an opportunity to do the reverse of what the consensus is doing.

Events of the Week:

Government does a smart move by avoiding liquidity suction from the financial markets by mandating ONGC to acquire 51% of its own stake in HPCL for nearly Rs 28000/- Crs thus completing 40% of the divestment target for the current year and at the same time creating no adverse effects in the stock market. The additional divestments that are coming during the year will be through ETFs further softening the divestment for the stock markets. These silent steps are extremely positive for the stock market. Reliance Jio’s launch of feature phone at zero effective cost will seriously dent and undermine the telecom and cable TV industry in the country.

Technical Outlook:

Nifty50 has kept the underlying bullish trend intact. Series of higher tops and bottoms are intact. The extent of up moves in the previous rallies coincides with the extent of current up move and therefore there is every likely hood of profit booking coming in at higher levels. Buy on dips should be the strategy for traders in the short term with tight stops at 9750. Traders holding long position can keep a trailing exit at 9750 in Nifty50.

Nifty 50 Weekly Chart

Expectations for the Week

Market will keenly await any surprises if any by US Fed which is scheduled to meet on 25th&26th July. Markets are moving higher backed by immense liquidity and good set of numbers being announced by the companies. Sentiments are approaching at high levels and therefore the risks of sudden reversal have also increased. Any adverse clues from the global markets will have ripple effects in India too. Market will witness stock specific movement based on financial performance of the company, companies reporting growth in their profits will be rewarded by higher stock prices and those reporting negative growth will be punished. Not all companies report growth and therefore one has to be very selective while trading in results season. For investors these are not times for fresh investments when markets are at new highs, however for traders these are good times to play the market momentum.  NIFTY50 closed the week at 9915.25 up by 0.29%.

Hysteria visible in some pockets of market

Markets opened firmly piercing new high levels in Nifty50 with continued optimism running in newly listed IPOs. The week was dominated by recently listed IPOs seeing frenzied buying inspite of being richly valued at the time of IPO. One indicator that precisely measures the market sentiment is the 'First day IPO listing Premium' which gauges effectively the extent of bullish sentiments. All the recent IPOs like HUDCO, Eris LifeScience, CDSL, AU Small Finance bank which were offered at rich valuations due to the underlying matured bull market still witnessed manic buying post listing and bulls further bided up the prices by upwards of 50%, which is a clear indication of hysteria emerging in the market. Such market behaviour is a cause of worry for investors in the near term. However domestic liquidity of at least Rs 5000/- Crs every month in the form of SIP money will keep the going easy, but when the sentiment turns, which eventually it will, the market will see a sharp correction. Massive volatility in Friday's market action in the above mentioned newly listed IPOs is a precursor as to what will happen when the entire market is in grip of hysteria. Such times are now near.

Events of the Week:

Supreme Court has given respite to Restaurants and Bars serving liquors by permitting State Governments to denotify highways within city limits thus approximately giving relief to 70% of the Bars in India. The stock prices have already discounted such a fact.

Technical Outlook:

Nifty50 is advancing with gap ups every day an indication of frenzy. Some of the sectoral index like Auto, Infra are showing divergences and have underperformed the current rally indicating weakness in them in the near term. By Friday closing, Nifty had developed a Hanging Man pattern which tentatively indicates a pause. Traders holding long position can keep a trailing exit at 9750 in Nifty50. Positional traders and medium term investors can keep a trailing exit at 9640.

Nifty 50 Weekly Chart

Expectations for the Week

The results season have started, TCS reported drop in quarterly profits by 5.9%, whereas Infosys reported 1.36% increase in profits. TCS numbers were not great, stock was down, Infosys numbers and management commentary was encouraging still the stock was down today despite opening in positive territory. Stocks are expected to turn volatile just before and after the results, as this time due to run up to the GST, many companies' number would not be strictly comparable. Nifty50 is trading at 25x trailing earnings, which is not cheap by any standards. Sentiments are approaching extreme levels, there is little margin of safety at current levels. For investors these are not times for fresh investments, but for traders these are best times to make money as the market momentum is swift and fast. Trading momentum will be very rewarding provided it is done with strict risk management. NIFTY50 closed the week at 9886.35 up by 2.28%.

Market at Critical Juncture - Global cues to Guide

Markets opened with wild optimism to celebrate birth of GST, with stellar performance coming from ITC which led to gap up opening in Nifty50. However later during the week prices of stocks like ITC, CenturyPly, Kajaria Ceramics etc the likely beneficiaries of GST cooled down by the close of the week thus discounting the impact atleast in the short term, however stocks in the footwear and auto ancillary kept the momentum. Auto manufacturers announced the first GST bounty by announcing price reduction in the passenger car segment ranging from 3% to 7%, whereas CV and tractor manufactures announced price cuts in the range of 2% to 7%. The price reductions plus interest rate reduction which is expected in the month of August would add a double bonanza for the sector. Government is working hard on reducing the impediments and educating the masses on GST which hopefully will bring results, but the short term will certainly be challenging for the industry and for the markets too.

Events of the Week:

RBI’s mission to ‘Cleanup PSU Banks’ has gone for a toss. Gujarat High Court has stayed the proceedings of Essar group in the Bankruptcy court on the grounds that were not contemplated by RBI. All other 11 companies will follow the suit and get their insolvency proceeding stayed, a big blow to recovery.  The combined equity infusion in all of the PSU banks are estimated at Rs 48000/- Crs by RBI but government has only budgeted Rs 10000/- Crs. Entire PSU banking stocks will remain range bound till clarity on recovery and capital infusion emerges.

Technical Outlook:

Nifty50 is currently poised at tipping point which will either propel it to higher territory if the levels of 9720 are validly surpassed but if the upper resistance holds good then a downward drift can take the Nifty50 back to 9450 levels. Many of the sectoral indices are still in correction mode and therefore the odds are that Nifty 50 too will move lower to sideways corrective pattern. Traders should enter long only if the upper resistance of 9720 is surpassed decisively.

Nifty 50 Weekly Chart

Expectations for the Week

First red flag has been raised against GST by FMCG player namely Reckitt Benckiser indicating that sales are being impacted, exporters are doing nothing on lack of clarity of refund rules. Government needs to address many of the GST hiccups quickly. The quarterly results season will have subdued performance as old inventories were being sold to the consumers but new inventories were still stationed in manufactures godowns. Hence the Q1 numbers to some extent will be an aberration from normal performances. Sectors like Pharma and Microfinance are offering value buys at current levels. The market cap of HDFC Bank can buy all of the top six pharma companies in India an equation seen never before in the history. When such superior companies having strong earnings visibility are bought, huge wealth can be made by the investors, but in order to buy pharma companies investors must go against the majority opinions which are all negative.  In short term global cues will guide the market. No new investments should be done except in pharma and microfinance sector at current juncture. NIFTY50 closed the week at 9665.80 up by 1.52%.