How Retail Investors can Ace The Index

Enterprise Resource Planning (ERP) software system was a game changer for organizations across the globe. The use of these applications helps companies to streamline operations, automate business processes, manage core business functions, provide transparency, cost savings, increase efficiency, and so on.

In a nutshell, ERP solutions aid in the optimization of business performance, allowing the firm to access the information needed to improve its customer service. ERP basically aided in bringing a revolution in how businesses were conducted in the 1980s.

The business of investing in stock market is no different than running your company. It too needs an ERP system that would enhance the investors’ performances and remove discrepancies. This is where the concept of Capital Resource Planning (CRP) comes into picture.

The trading and investing community faces a number of obstacles.

Based on the survey conducted by Samco Securities and Nielsen, about 67% of Indian investors and traders are unable to generate even benchmark threshold returns. The survey reveals that 77% of investors were not even aware that they consistently need to outperform the benchmark indices.

Individuals manage their own money managers but often have poor performance management. This can be due to a variety of factors such as lack of a trading system, faulty performance measurement, acting on emotion in moments of greed and fear, relying on tips and financial influencers, excessive leverage, etc.

According to the study, about 65% of investors are unaware of their exact stock market returns. It might be attributable to the enormous number of transactions they made, not taking into consideration the length of time, capital gains and dividends earned, leverage used, and so on.

Individual stock market participants must run their trading accounts in a manner where they must consistently outperform the benchmark indices. If they are not being able to beat the markets, then they are left with 3 options:

1. Strive hard to outperform the market
2. Invest in index funds
3. Outsource to a professional fund manager

If traders/investors choose the first option here, then they should be able to compute true stock market returns since what can be measured can be improved!

The trading and investing community, like businesses, needs a system to truly evaluate its stock market performance. The performance tracker will allow them to measure their exact portfolio returns, allowing stock market participants to make better financial decisions in order to Ace the Index.

Technical Outlook

Nifty witnessed a gap up opening above 17,200 levels on 31st March and further accelerated the bullish momentum in the second half of the day and ended with the tall green candle on the daily chart. Nifty on the weekly chart closed at 17,359.75 levels and ended 2.45% higher, snapping a three-week losing streak.

On the daily chart, the benchmark was trading below its 21-day exponential moving average from the last fifteen trading sessions but was holding strong support and created a base near 16,900 levels. The bullish candle on Friday’s session showed a greater enthusiasm to close above its 9 & 21 EMA which is placed at 17,116 & 17,222 levels.

The frontline index on the daily chart is trading in a falling channel formation and currently is facing resistance near the upper band of the channel pattern. The breakout is now expected to fuel the current rally in the index.

Nifty stands at strong support near 100 EMA at 16,650 levels on the weekly chart. If prices fail to hold at a given level, then it's likely to see a further correction toward 16,400 levels. Only a sustained close above 17,500 levels is likely to trigger bullish momentum for 17,800 levels.

Expectations of the Week
The upcoming week is set to hold the first MPC meeting of the new financial year. This is a crucial one as it will determine the path for interest rate hikes ahead. The inflation rate has been stubborn for February 2023 at 6.44% above the RBI’s upper tolerance of 6%. Hence, there is a possibility of a 25 bps rate hike which may be the last for the meantime. On the other side of the coin, the rate hike decision will be influenced by the recent collapse of some global banks which has led the street to wonder about a pause in the rate hikes. The mixed sentiments and views regarding the RBI’s meeting will affect the markets and investors are advised to be vigilant and cautious in their investment decisions. Nifty50 closed the week at 17,359.75, up 2.45%./div>

Time to bring Long-term investing back into Fashion!

The past few weeks have been very volatile. Indian benchmark indices have corrected nearly 10% from all-time highs.

Since 1996, the BSE Sensex has had a drawdown ranging from a low of 0% to a high of 59.5% in 2008.

But, what is drawdown? Drawdown simply means the difference between the peak and its subsequent trough during a particular time frame. The below chart shows the drawdown and annual returns by BSE Sensex since 1996.

It has been observed that the average drawdown since 1996 is 14.2%, while on the other hand, the BSE Sensex yields an average annual return of 16% for the same period. The BSE Sensex has returned 11.6% on a CAGR basis. In fact, since 1996, there have been only 6 instances where the BSE Sensex has given negative returns.

One interesting thing to observe is since its inception, the BSE Sensex has given positive returns 31 times out of 42 years (74%) and a double-digit return 24 times out of 42 years (57%).

Currently, we are amidst the global macroeconomic chaos of rising inflation, bank collapses, high-interest rates, etc. But one thing has always stayed constant – long-term investing.

Historically as well as statistically, it has been observed that long-term investing creates wealth. Warren Buffet, one of the greatest investors of all time, quoted, “Someone’s sitting in the shade today because someone planted a tree a long time ago.

How often do we think – Only if I had invested during the Global Financial Crisis of 2008 or the correction during the Covid-19 pandemic I would have made a fortune! Every past correction looks like a big opportunity but when we at the middle of one we get intimidated by the noise and forget our basics.

The same thing is happening yet again – the collapse of 3 banks in the US, the takeover of Credit Suisse bank by UBS bank, and an alarming high-interest rate with a not so bogging down inflation. Time to question ourselves are we yet again forgetting our basics?

Long-term investments are slow and with lesser risks knowing that the investors will get higher returns in a long-term perspective, such as five, ten, or even twenty years.

The table below shows the probability of loss of the BSE Sensex index from 1980 on a Calendar Year (C.Y.) basis. As can be seen from the table, the probability of loss decreases to zero in the longer term as the investment horizon increases.

Given the global macroeconomics, a significant positive trigger would be required to stop this corrective phase. Market participants can consider this as a buying opportunity to accumulate sound stocks with robust fundamentals, free cash flows, and less leverage for a longer horizon while ignoring the short-term hiccups.

Technical Outlook

The Benchmark index continued to trade in a bearish mode for the 3rd consecutive week but traded within the previous week's candles range and closed at 16,945 levels with a loss of 0.91% on the weekly closing basis.

The index has formed a bullish ABCD harmonic pattern at 16,850 levels and prices have retested their PRZ levels on the past couple of occasions. On the daily chart, the index is trading in a lower high lower low formation within the falling channel pattern which suggests bears are having an upper hand in the current technical formation.

In the previous week, the index drifted below its 50-week exponential moving average and continues to trade below the same. Similarly, the index on the daily time frame also finds a strong resistance near its 21 EMA which is placed at 17,280 levels.

Overall, the stance has turned bearish and Nifty stands at the strong polarity support of 16,800 – 16,750 levels, failing to hold which the index is likely to see a further correction towards 16,450 – 16,400 zones. Only a sustained close above the 17,300- 17,350 zone is likely to trigger bullish momentum toward 17,500 – 17,550.

Time for Caution as Bond Yields Reverse

March has been highly volatile spooking the markets and its participants. Meanwhile, the inflation numbers though declining, continue to be stubborn and sticky arousing pessimism. The solution to this is central banks will continue rate hikes which probably would have seen a pause. Sounds normal right?

Not really! Here’s where another hurdle in the process comes into the picture. The falling bond yields.

In the past few days, Silicon Valley Bank and two other banks have gone bust due to the steep increase in interest rates. Worldwide banking shares have witnessed sharp plunges on the street.

This has caused investors to take a flight of safety as they have flocked to the bond market resulting in high bond prices. Bond prices and yields are inversely correlated. The past week has seen an approximately 12% drop in the US 10-Year Government Bond Yield.

This is the biggest fall since the 2008 crisis, sending shivers down the spine. The economic and banking turmoil is enough to scare investors out of the equity market as evident in the recent fall of major indices.

This is where the FOMC meeting next week becomes even more interesting. The expectation for a rate hike has been revised from 50 bps to 25 bps post the Silicon Valley Bank collapse. The anticipation has deepened to no rate hikes as more banks collapsed.

Sharp falls in bond yields have led to sharp falls in equity markets too. You can notice the last two sharp falls in bond yields which coincided with sharp cuts in S&P 500.

Coming to Indian equity markets, they are expected to remain under pressure. If we take a look at the 200 weekly moving average of Nifty50, it is considerably lower compared to its stock price. The 200-Weekly Moving Average is close to 15,000 levels currently as against the Nifty50’s current market price of ~17,000 levels.

Every time the price has surged above the 200-Weekly Moving Average, it has come back to its mean. The pattern presents itself every few years where the price makes space from its mean. Eventually, it meets the average back with a heavy downfall.

The current situation of declining US bond yields could be a triggering point for the markets to revert back to their mean.

Technical Outlook

In the last couple of weeks, markets practically saw a one-sided selling activity which completely change the texture of the market sentiment to bearish. Nifty broke its past 7 weeks' consolidation range and closed at 17,100 levels with a loss of 1.80% on the weekly closing basis.

The 50–week exponential moving average which was acting as a support level has been breached this week and the price closed well below its average. The trend looks negative as the momentum oscillator RSI (14) has broken below its previous support levels and presently reading in a lower low formation with a negative crossover on the cards.

The daily chart index has formed a bullish ABCD harmonic pattern at 16,850 levels and in addition, a positive divergence is also spotted which indicates the probability of bounce back at current levels. The bounce back can be short-lived as prices may face strong resistance at higher levels. Technically the structure has turned bearish and Nifty stands at the strong polarity support of 16,800 – 16,750 levels, failing to hold which the index is likely to see a further correction towards 16,450 – 16,400 zones. Only a sustained close above the 17,300- 17,350 zone is likely to trigger bullish momentum toward 17,500 – 17,550 levels or even higher.

Expectations for the week

The coming week is scheduled to hold its first FOMC meeting after the collapse of three banks. While inflation saw a dip, it remained uncomfortably higher than the tolerance band. This has initially raised murmurs of a 50 bps rate hike, the current bank dynamics might change the same. Therefore, this meet will be closely watched as market participants try to read between the lines regarding inflation, GDP and unemployment. At the moment, global markets will continue to remain vulnerable to any macroeconomic shocks. Meanwhile, Indian markets, just like their global peers will trace the steps according to the global market scenario.

It is Time for Private Capex to Come Back

India’s remarkable infrastructure journey is a tale of its capital expenditure (Capex) story. Since its Independence, India has spent $14 trillion on infrastructure development. In the Union Budget, the government allocated a mammoth Rs.10 lakh crore for Capex. The segment has seen an increase in allocation for the 3rd consecutive budget. Yet we witness private capex has remained tardy despite the government’s efforts.

Nonetheless, now it’s the time for private capex to come back. But, why do I say so?

The government’s enhanced focus on policies like Gati Shakti along with National Infrastructure Pipeline (NIP) has resulted in record levels of order flows for all the major infrastructure players. India’s move to generate 50% of its energy from renewable sources to achieve carbon neutrality has opened massive opportunities with private investments kicking in this space. It is right to state that private capital expenditure has rebounded and is poised for a resurgence.

Even the Prime Minister of India Narendra Modi reiterated a few days back "I would also call upon the private sector to increase their investment, just like the government, so that the country gets maximum benefit from it"

There has been a slowdown in the rural economy dampening the overall capex cycle. Yet, with the economy picking up, businesses are optimistic that the order intake will grow due to the pent-up demand in rural areas. This would enable manufacturing firms to add fresh capacity leading to a rise in private capex.

As can be seen from the above chart, the capacity utilisation has rebounded to 74% for the manufacturing sector. In spite of the global macro-economic headwinds, domestic demand has continued to be resilient.

After witnessing a dip in profitability in the last 2 quarters, the Nifty50 companies have announced a great Q3FY23. The internal accruals have been used to pare off debt and deleverage their balance sheets. Having a healthy balance sheet & strong profitability makes capex feasible for private companies. This in turn bodes well for the capex cycle.

Financial sector, metals and cement industry could benefit from the capex cycle boom. However, it remains extremely important for investors to validate where the company is making its investments. Investors must cautiously consider the company's capital allocation and financials especially if the debt is taken along with its investment strategy.

While evaluating for companies to invest in, investors need to keenly watch growth prospects, healthy order flows and excellent execution in the capex space.

Most Global Central Banks in their latest meet have slowed down the pace of their rate hike, a maximum of 25 bps increase has been witnessed except for few European countries. India & USA both slowed its repo rate hike to 25 bps from 50 bps in the previous meet.

Technical Outlook

The Benchmark Index started this week with a bullish note, but bulls got arrested near 17,800 levels and prices tumbled down towards 17,412.9 levels with a loss of 1.03% on the weekly closing basis. The index has formed a bearish engulfing candle stick pattern and prices have closed below its short-term averages (9 & 21) EMA on the daily scale. Prices on the daily chart are trading within the falling channel pattern and have to find the overhead resistance near the upper band of the pattern.On the Nifty chart, the lower high lower low structure indicates bears are in control of the trend. The momentum oscillator RSI (14) has again found resistance near 50 levels and has hooked down from there.

The overall trend remains in a bearish mode and a sell on the rise is advisable. The support for the Nifty is placed at around 17,250 – 17,200 levels and resistance is capped at 17,650 – 17,800 levels. In case the Nifty50 breaches 17,200 levels, then 17,000 would become the next support zone. A strong break above 17,650 will indicate a strength to move higher.

Expectations for the week

Given the renewed hawkish stance from Fed, the market volatility seen this week is expected to continue into next week. The release of the highly anticipated US inflation data will make the following week crucial for global markets, as it will gauge the outlook of the possibly faster rate hikes. Back home, the inflation reading climbed back beyond the RBI's upper tolerance band to stand at 6.52% after falling for two consecutive months below 6%. Whether this continues or not will be avidly awaited. Investors are advised to remain prudent and continue to remain invested in fundamentally sound stocks for the longer horizon. Nifty closed the week at 17412.9, down 1.03%.

Why Indian Equities are underperforming in 2023?

After a rock solid 2022, the calendar year 2023 has not started on a positive note for the Indian markets. As can be seen from the below graph the Indian equities outperformed the major global indices last year but its performance in the current calendar year have been rather disappointing.

Most Global Central Banks in their latest meet have slowed down the pace of their rate hike, a maximum of 25 bps increase has been witnessed except for few European countries. India & USA both slowed its repo rate hike to 25 bps from 50 bps in the previous meet.

The global central banks slowed its rate hikes as they anticipated the slowdown in inflation to continue. However, the latest January Inflation print came-in as a shocker. India’s CPI inflation stood at 6.52% in January 2023 from 5.72% in December 2022, this acceleration was primarily due to a high food inflation. On the other hand, the USA CPI inflation stood at 6.4% in January 2023 from 6.5% in December 2022, although the USA inflation cooled down but the pace of slowdown is not encouraging. These inflation prints points out that core inflation in both USA and India still remains high and sticky. The markets are thus absorbing the fact that the Fed and RBI could remain hawkish for longer than they previously expected. The Bond market too is in action with the Indian 10-year bond yields touching the 7.4% levels highest since November 2021, causing more pressure on equities.

In the month of February, the FIIs outflow stood at INR 11,091 crore. There are several factors which are keeping the FIIs cautionary. The outperformance of Indian equities over its peers in 2022 making it relatively expensive, the year of multiple state elections followed by Central elections in 2024 and the re-opening of China resulting in migration of funds.

Apart from the global and economic factors the Oct-Nov-Dec 2023 quarterly performance of the domestic companies have been a tad underwhelming. 13 of the Nifty 50 companies delivered a negative net profit growth and 3 posted neutral growth.

Q3 GDP data has recently been announced and there is a clear indication of a significant slowdown in private consumption. The inflationary pressure and the global spillovers on Indian exports are major headwinds for the country’s growth in the short term.

The above-mentioned factors have kept the Indian Equity markets under pressure and could be a reason of a sustained underperformance going forward in the Calendar-year 2023.

On a brighter side, in the last three months, the Nifty 50 Index has fallen by 5%. This fall makes it the 11th time since 2002 that the benchmark has fallen for three consecutive months. The interesting data point from these falls is that on all the previous ten occurrences the market bounced back and delivered a positive return in the next month. This makes an interesting case for an optimistic end to the month of March.

Technical Outlook

What investors fail to understand is the sensitivity of owning lottery stocks. They present a very small probability of achieving a large payoff. These stocks are frequently the buzz of the town and are quick to respond to news and events, making them extremely volatile in the market. If the investments do not perform as anticipated, these lottery stocks can be a risky affair.

It was another volatile week for the market as prices were indicating a mixed reaction and were hovering near the 17,300 – 17,400 range. On Friday’s session, index finally rebounded from the PRZ zone of the Bullish ABCD Harmonic pattern which was formed at 17,255 levels and witnessed a strong rally and closed at 17,594.30 with a weekly gain of 0.74%.

For the past 5 weeks, the prices are hovering marginally above their 50-week EMA which is placed at 17,458 levels on the weekly scale. Index has also formed a Hammer like candle stick pattern where prices have shown strength from the lower levels and have formed a tail at the low and upper body closed near the high. The momentum oscillator RSI (14) on the daily chart has formed a triple bottom pattern at around 30 levels but is facing an overhead resistance at 55 levels. Technically, Friday’s bullish candle has shown optimism amongst the traders but the index needs to cross 17,800 levels on the higher side for a shift in the momentum. On the lower side, 17,350 and 17,250 will act as an anchor point for the index.