Too Much Pessimism means short term rally round the corner

During the week, selling pressure continued in frontline stocks. The jewels too came down debunking the myth that HDFC's and Bajaj's of the market only go up. The NBFC crises has now embroiled even these best managed companies wherein they have sounded caution on the asset qualities going ahead. Post elections, FPIs have continuously sold close to Rs. 12332 Crs in June and July. However, during the same period of the 1st year of Modi regime back in 2014, there was a net inflow of Rs. 27101 Crs. Markets alternate between bulls and bears and this time around too for the next 5 years, we will have an ominous beginning for the stock markets. There is a lot of pessimism and monthly expiries have been turning points for the market in the short term. Hence, there is likelihood of a deeper fall.

Moreover, liquidity infusion has taken another hit as the Government's plans to raise $10Bn sovereign bonds offshore has run into the wall. The much-needed liquidity to lubricate the economy has been delayed. The massive bet FPIs have taken by investing Rs. 8739 Crs in the Indian bond markets in July might go haywire due to this postponement of raising sovereign bonds. Ideally, this liquidity crises might continue till Diwali.

Events of the Week:

FPIs own around 80% of the assets in India which is an extremely large chunk in comparison to the sovereign funds and pension funds' ownership of assets in India. The Government's latest moves be it the excess tax or be it the postponement of borrowing plan from offshore bond markets, will largely affect FPIs decisions to invest in India. This will have a larger consequential impact on our stock market in the medium term.

Technical Outlook:

Nifty50 during the week continued to slide but the velocity has waned indicating that a bounce is around the corner. Indicators are showing extreme oversold conditions in the short term, in addition the market is likely to find buyers near its previous bottom of May lows. Profits can be booked on short positions and wait on the sidelines till clarity emerges that whether the movements in coming weeks would be a dead cat bounce or genuine bull market rally.

Nifty50 Update 26 July 2019

Expectations for the Week:

D-Street will cheer the interest rate reduction by the US Fed which may signal that slowdown is brewing in the economic scenario globally and the support from banks and Government will continue. This also screams out the fact that all is not well with the US bull market that is nearing its all-time highs. There is no statistical evidence that reduction in interest rates bring in a bull market. Infact, history suggests that there is a correlation between interest rate reduction and stock market falls. In any case, there are more risks in the equity market than in the past 5 years and investors are advised not to bottom fish. Although short-term markets can entice the bulls to buy insurance, real estate and private banks and financials which are currently moving higher. But nonetheless investors should must restraint their buying currently. Nifty50 closed the week at 11284.30 down by 1.18%.

Nowhere close to the Bottom Yet

Markets significantly weakened this week dragging frontline stocks along with it. Many sectors witnessed across the board weakness inspite of no big negative news. This phenomenon wherein markets seamlessly falls without any cogent reasons is a recipe for disaster looming ahead. Corporates across the board have plans to raise capital but through debt because they very well know that the current times are not favorable for raising equity capital as the mood of the market is seriously bruised mainly due to 1) Government's inaction to jumpstart the slowing economic engine 2) Lagging trust factor in money markets which isn't good for healthy economic activities. Moreover, IPOs are racking to raise around Rs 5000 Crs next month, but unfortunately, they might have to postpone or cancel the IPOs which on the face of it will be a big negative trigger for the markets.

Capital markets are highly liquid compared to the other markets and as the economy is thirsty for capital, everyone including the Government will try and sell shares in the secondary market to raise funds which is what the market is fearing the most. Hence, it is better to remain safe and keep money in debt for the time being.

Events of the Week:

Although optically, quarterly results may look better in AMC businesses like HDFC AMC ltd, but the underlying facts need to be studied before taking a plunge. AMCs will show a boost in their bottomline mainly due to SEBI's mandate of banning upfront commissions which will reduce fees and commission as an expense in P&L of these companies to a very large extent. But come next year, due to a larger base of PAT growth, these AMCs might not be able to maintain the same growth rate. Good numbers are sometimes deceptive.

Technical Outlook:

Nifty50 has broken a major uptrend line, signaling the end of the current bull market rally which began since November 2018. Downfall will accelerate further as more and more traders will shift sides and mount bearish bets. Market has entered long and protracted corrective phase which will test the patience of investors. Traders should wait and sell on rise.

Nifty50 Update 19 July 2019

Expectations for the Week:

Markets are currently hoping that good corporate numbers might save the current rout, but eventually there will be disappointment. Cement companies like ACC have delivered good numbers with a 39% increase in Net PAT for this quarter but nonetheless this is due to Government's peddle on past spending which may not continue in the future. Therefore, going ahead utilization of plants may come down and margins will contract which will cool down the rally in cement stocks. Markets in general will remain bearish. Investors should conserve liquidity and at the same time consider booking profits only in overvalued frontline stocks. Nifty 50 closed the week at 11419.25, down by 1.14%.

No Relief in Sight for Mr. Market

Markets started the week on highly disappointed sentiments and Nifty registered the biggest one-day crash since last few years. Although pundits had claimed Budget as the reason but actually the weight of high valuation itself had caused such a dramatic decline in the index. Nifty currently trades at a P/E of 29x which is at its all-time high. Under such circumstances, when the Budget didn't give any immediate short-term growth boosters, naturally the markets had to react negatively. The auto and consumption stories seem to be tumbling like a falling pack of cards and macro factors are at the very core of this issue. Lack of sufficient liquidity to buy consumption products on credit or EMI and the changing dynamics in the auto space from internal combustion to electric are all adding to the already grieving economy.

Moving to the IT sector, TCS came out with its quarterly result for this financial year with a 10.8% YoY growth in bottom-line and a 11.4% growth in revenue. The Company has kept its run rate intact albeit with slightly lower margins but largely it is on track to deliver consistent growth for the foreseeable future. Being the leader, it has set the tone for the sectoral expectation this result season which seems to be inline with market expectations.

Event of the Week

DHFL, DLF , ADAG group stocks and others were successful in fighting the resolution plan with lenders. Piramal Enterprises planned to raise Rs 1500 Crs through NCDs. Given that such transactions are taking place, it can be reasonably presumed that the liquidity pain is easing, and sanity is returning to the credit markets. Markets are also awaiting the Supreme Court verdict on Essar Resolution Plan. If the outcome is positive, this will further boost sentiment and ease liquidity.

Technical Outlook

Nifty50 after a steep fall is consolidating, readying itself for the next leg of fall. However, the current consolidation can continue for a longer period given that the result season is under progress. The current support is very crucial, the break which may signal the beginning of a larger downfall. Levels of 11400 seem to be very crucial, a decisive penetration below would lead the market much lower. Traders may initiate short on rallies or short if market breaks below 11400.

Nifty50 Update 12 July 2019

Expectations for the Week

Global factors, the biggest being oil politics and unfolding of events on the Gulf could have a negative bearing on Indian bourses if the situation worsens. Fed Chief Jerome Powell is implying a rate cut at the next Fed meet at the end of this month over concerns of softer business investments due to trade wars and weak inflation. On the home ground, result season is quickly unfolding and company specifics could be key triggers for the next week. Results to look forward for next week are HDFC AMC, Federal Bank, Reliance Industries, HDFC Bank and many more. Investors must stand on the side lines with caution and not get into risky stocks which have high debt or high promoter pledge. Avoid auto and consumption sectors for now. Nifty closed the week at 11552, down by 2.2%.

Budget Has Changed the Trend of the Market

Markets moved at a slow pace leading to the Budget, however the Street seemed disappointed post the announcement. Holistically, the Budget was truly wholesome, rational and long-term goal oriented. Nirmala Sitharaman has stressed upon measures to improve inclusive growth, reduce income inequality, build digital ecosystem, create a cashless economy and bring about a transparent and honest regime. There were certain hard-core punches which will change the dynamics in certain industries.

But what surprised was the move to increase public shareholding in companies from 25% to 35%, this is probably the biggest wealth transferring move in the interest of larger good of the country, but from the stock market perspective there will be overhang of supply and markets at large will face the repercussions. This will change the demand supply equation in the capital markets and a number of large cap companies with a high promoter shareholding will face the brunt.

February 2019 budget was short-term oriented, given the pre-election compulsions, whereas post-election the focus has shifted towards India's long term growth dynamics. 100% FDI in insurance intermediaries will aid the insurance companies to boost premium growth and get a spot on the global financial map in order to mobilize global savings as insurance is highly underpenetrated with exposure to ~3.5%-4% in India.

Event of the Week

June car sales shrunk by double digits for the 3rd consecutive month in a row and Government's recent budget doesn't seem to be rosy from an auto company's perspective either. They will have to shell out more and put fresh capex in order to roll out electric vehicles as the Budget evidently took steps to boost EV plus the proposed development of new metros will further dent demand for the autos especially the passenger vehicle segment. This will be a huge negative for auto companies.

Technical Outlook

Nifty50 finally has turned down and made a lower top for the first time indicating a likely change in the trend. The market has resolved the state of confusion and finally turned sharply lower which will now take the market all the way down to 11400, the gap which had remained unfilled. Sell on rise should be the strategy for traders in the short term.

Nifty Today

Expectations from the Week

With the most awaited event finally over, its overhang will continue the next week as the offshoots of certain implementations will be visible in the capital markets. As the divergence between Nifty and Nifty Midcap/ Small cap indices in June is way above the past few years, there is higher likelihood of a larger correction in large caps compared to the broader indices. A higher correction is therefore in the making and investors must ideally look for booking profits in large cap companies as the process of mean reversion has started, years of out-performance will now be followed by under-performance. Divest and avoid autos and highly valued companies having high promoter holdings. Nifty50 closed the week at 11811, up by 0.19%.