Latest Indian Share Market Updates & News in Jul 2018

Have New Highs brought Dollars in the hands of Investors?

Markets had witnessed a euphoric rally albeit a fractured one making everyone envy about not owning large cap stocks. Typically, this is called the 5th wave in terms of Elliott Wave theory when there is large divergence in the breath of the market. Factually only 54% of the total stocks are trading above their 200 DMAs, which is the second lowest in a decade post the 2008 top when 52% of the total stocks traded above their 200 DMAs. This further confirms the 5th wave theory. Many stocks did not participate in the rally and lagged the broader market; whether these laggards will move up eventually is a big question. But by the time the 5th wave ends, majority of laggards would have again gone south. One should therefore trade in laggards with stops as this seems to be the most sensible strategy in the current situation.

Companies this week posted some stellar numbers with JSW Steel delivering a net profit growth of 275% aided by strong demand, ITC showing robust 10% PAT growth after weak results over the past few quarters, Biocon showed strong growth of 47% in its net profit and Colgate Palmolive delivered a strong bottomline growth of 39%. These quarterly numbers were key triggers in the market making it touch new high this week.

Events of the Week:

Hindalco's acquisition of Aleris at about $2.6 billion was the talk of the town this week , might look rosy at first glance, but when looked closely, such high debt levels in a commodity-type business is always risky. Similar large ticket acquisitions such as Tata Steel acquiring Bhushan Steel and UPL acquiring Arysta LifeScience are all highly risky investments. Investors should maintain caution and not forget the similar hype during the Sunpharma - Ranbaxy acquisition, what happened to them post-merger is indeed history.

Technical Outlook:

Nifty 50 has broken all resistances and is in new price territory. The movement should last unless it reverses; if Nifty50 falls back below 11100 then it shall be a major reversal for the entire market. But till such time, bulls should remain long and buy on decline. Nifty IT index has lost its upward velocity and is therefore beginning to enter a corrective phase. Traders should focus on stock specific movements. For buy positions stop below 11100 should be placed as a matter of capital protection.

Expectations for the Week

The third bi-monthly monetary policy may do nothing to change the mood of the markets next week. This time around, interest rates are expected to remain the same given that inflation is under control and US interest rates are range-bound. The buoyancy in the market is expected for some more time aided by encouraging corporate numbers which will justify high valuations. At this euphoric stage, investors must avoid sectors such as IT, FMCG, commodity type cyclicals and private sector banks for sometime as they are trading at high valuations. While one must choose to enter realty, pharma, PSU Banks, cement, aviation and OMCs for a medium-term investment horizon. Nifty50 closed the week at new highs of 11278 up by 2.43%

Will Nifty Pass the Stress test of New High

Markets turned out to be extremely volatile this week taking even the experts by surprise as to which way the market is heading. Corporate numbers were not appreciated even after delivering robust set of numbers which is a cause of worry. HUL posted a staggering 19% PAT growth but the stock was down by 7.6% post results. Mahindra CIE, JK Tyres and Mindtree had all delivered great set of numbers but still the stock prices were hammered which throws an important signal that the upside is limited atleast in the near term. Although markets are likely to touch new highs to test the strength of the bulls but given the internal weakness it seems more likely that markets would recede from its high levels and make a failed top.

Currently, the sentiments are low which comes from the fact that IPOs are getting below average response. However, all that is going to change when HDFC AMC comes out with its IPO next week at an attractive value proposition. The euphoric response to such an IPO could possibly mark the top in Nifty. We do recommend subscribe HDFC AMC from a long-term investing perspective.

Events of the Week:

The Government is planning a breakthrough policy decision which will decrease the logistic costs for the economy which is currently as high as 16% compared to global average of 10% to 12%, by allowing truckers to increase the load factor by 20-25%. This may lead to a slowdown in CV sales and therefore some companies may be impacted but it is good for the long-term competitiveness of the economy.

Technical Outlook:

Nifty50 is likely to touch previous highs after a small consolidation phase. Still the indicators have not reached over bought levels which make a strong case for Nifty touching 11170 levels in the short term. Momentum is intact which should allow Nifty to test higher levels. Given the breadth of the broader market is weak; there is every likely hood that higher levels will not sustain. Traders should buy with today's low as a stop.

Expectations for the Week

Since the Parliament sessions are going on some amount of political conundrum could drive market volatility. It is expected that reforms agenda will get accelerated which would be positive for the markets in general. Investors must maintain a cautious stance, as the year ahead is heavily clouded by political drama. Contra bets in Metals, Realty and Housing Finance companies which are heavily beaten down can be good bets going forward. Quarterly earnings of a few companies such as ACC, Asian Paints, Ambuja Cement, Indiabulls Ventures, Hero Motocorp, JSW Steel would be important to watch. In general Investors should now adopt wait and watch policy before taking fresh investment positions. Nifty50 closed the week marginally down by 0.07% to close at 11010.20.

PM's "Make In India" - Will it benefit from US/China trade war?

Market has rejoiced this week with Nifty deceiving market participants by nearing all-time highs but the broader market was still lagging in its movement. Certainly, this is not a healthy sign. During strong bull markets there is convergence, all stocks and sectors inching higher however current scenario is opposite. There is large divergence, majority stocks are showing lackluster performance barring a few large caps. Eventually this divergence will lead to convergence when even the small and mid-cap counterparts will catchup and the heavy weights will come lower. Thus, currently one needs to approach market sector wise and disregard the movement of Nifty50. Being patient and remaining invested in small and mid-caps rather than jumping the boat on the pretext that grass is greener on the other side by switching to large-caps would be a bad idea. Convergence will happen slowly and eventually momentum will gain.

Trump's trade war is a blessing in disguise to Make in India campaign of India's Prime Minister. Currently, China exports electrical machinery equipment ($500Bn), computer and machinery ($382Bn), furniture bedding and lighting ($89Bn), clothing and accessories ($146Bn), medical apparatus ($70Bn) and plastic articles ($70Bn). All these sectors might benefit if Indian companies quickly capitalize and capture the vacuum created due to tariffs. China being our traditional competitor, the tide is turning in favor of India. Companies such as L&T, ABB, Siemens, Lakshmi Machines, Century Ply, Greenlam, Havells, Wellspun India, Supreme Industries, Nilkamal, etc. can become attractive bets. There might be huge opportunities for the Indian investors to capture.

Events of the Week:

TCS did a fantastic job of posting excellent growth of 23% in Q1FY19. This positive surprise reiterates the fact that US' intervention to slow down India's IT engine has failed. The company posted a robust set of numbers igniting growth hopes for the entire industry and its players. Although markets are at new highs, inflation and IIP numbers could be an early warning signal to an impending larger correction in the market. However, further confirmation is required to verify this trend.

Technical Outlook:

Nifty50 has broken a minor hurdle and moved higher nearing the previous highs. But it looks like upper resistance is very strong given the fractured nature of current rally wherein many sectors are lagging behind. Strong weekly close means that Nifty50 will attempt to test its previous highs. Buy on dips should be the strategy for traders.

Expectations for the Week

The result season has just begun. Currently market is in a state of wait and watch. However, it seems that the mood of the market is on the improving trajectory given the way markets have responded to new IPO listings, post IPOs prices have slowly mover higher which suggests that the sentiments are still nascent and there is room for improvement, otherwise during hysteria new IPOs listings go crazy. Stock prices are expected to move higher and gain momentum as the result season unfolds. On a sectoral front, FMCG sector is challenging all valuation benchmarks and has moved higher, but restraints should be exercised, and investors must not get carried away with the herd mentality, they should be avoided. From a long-term point of view, OMCs, realty, cement, textiles and infrastructure look attractive given their reasonable valuations. NIFTY50 closed the week at 11018.9 up by 2.28%.

Small and mid-cap shares have bottomed out!

Nifty continued to trade in choppy waters signaling the ongoing phase of correction. However, Nifty is just a mirage, the real action is happening in small and midcap indices which have most likely made a bottom and are ready to move higher. Negative sentiments had whacked down these small and midcap shares by around 25-30% and in some cases by almost 50%. Herd mentality of the market has brought down even good quality small and midcap shares to reasonable levels and the same should be bought for higher returns in portfolio.

On the other hand, IT shares are at the other end of spectrum. The IT index have increased by 36% in a year and since the earning season is ahead, IT shares will most likely disappoint given that the sharp run-up will not keep pace with the earnings growth of around 10% YoY that is expected in general. Therefore, we expect some amount of correction in this sector as we enter earnings seasons next week.

Events of the Week:

This week all eyes were on the 41st AGM of Reliance Industries which unveiled the group's ambitious plans for a fibre-based home broadband service. Mr. Mukesh Ambani stated that this plan will be rolled out across 1,100 cities and will target close to 50 million homes. Moreover, the launch of Jio was just a trailer, the array of services which Reliance now wants to deliver/cross-sell to the last mile consumers are huge and varied across many sectors which hitherto are serviced by brick and motor establishments; these will now be catered through Jio's digital platform. Some companies will clearly be disrupted operating in the vertical of cables and distribution. Reliance might come head-on with Amazon and Netflix of the world in the future and hopefully should create huge shareholder wealth.

Technical Outlook:

Nifty 50 is still in sideways trading band giving no clear signal. However Nifty Small Cap Index is clearly showing that the market is sitting on support levels and is ready to move higher from oversold levels. Market is near its lower channel of 2 standard deviation corrective channel which makes a compelling case that prices are likely to move higher than go down. Nifty Small Cap index has completed 61.8% correction from its December 2016, demonetization lows to February 2018 highs which is a healthy price correction. Traders can go long at current levels with current weekly lows as stops.

Expectations for the Week

Markets are awaiting and fearing the outcome of trade-war between US and China but realistically $35Bn of purported tariff goods is insignificant when seen from a larger scheme of things (Total imports $506 Bn). This fear will create an opportunity for investors and traders to lap-up shares and take long positions. Sectors that are likely to rise in this earnings season are Cement -Ultratech and Shree Cement, HFCs -Indiabulls Housing Finance and Canfin Homes, Realty -Indiabulls Real Estate and Godrej Properties and Infrastructure -KNR Construction and Dilip Buildcon. Additionally, sectors that are expected to underperform are IT, Metals and FMCG. Investors must follow a buy on dips strategy and accumulate quality stocks in their portfolio for a long-term horizon. Nifty50 closed the week up by 0.54% at 10772.65