Latest Indian Share Market Updates & News in May 2019

Sell in May Could Indeed be Right

Markets celebrated re-election of the Modi Government by registering new highs but a few slots in the Modi 2.0 Cabinet failed to impress the Street which was a minor setback compared to the alreadyelevated markets. Media headlines are getting more and more bullish and brokerages have increased their year end target for Nifty and Sensex. Rollovers in derivatives are slightly better than the previous few months indicating the return of confidence. Volumes are just average which gives an indication that investors are not flocking in hoards to buy stocks and are waiting for a correction. FPIs and DIIs are net neutral which means that selling is also emerging at current levels. No doubt India is in a long-term bull market but corrections often occur giving an indication that bear markets have begun. But that may not happen soon unless global macros spoil the Dalal Street party. Market is ripe for a correction any time soon.

Historically, a good and healthy commodity market reflects a buoyant move of the stock market but given the current state of commodities - base metals and industrialsundergoing severe selling pressure, makes this rally a fractured one. Such divergences in the real economy (commodities) and financial markets (stocks) do not augur well for a sustained bull market in the intermediate term.

Events of the Week:

The role of market expectations manifested itself starkly on Page Industries on one hand and Sun Pharmaceuticals on the other. Markets are all about perceptions, no matter good or bad. Page Ind.was whacked by the Street due to below expected results which was a surprise given the strong history of financial performance. While Sun Pharmaceuticals didn't fall even after the Company reported a 53% drop in its consolidated PAT. Both these examples portray that perception surpass the true picture in the short term and stocks react instantly as per Street expectations. It was reaction to this perception that caused the stocks to react in peculiar ways.

Technical Outlook:

Nifty50 is flirting around life time highs, albeit with lower velocity and lower volumes. Sectoral divergence is visible in the market. Small and MidCaps have raced up faster but Nifty50 is lagging the broader market. Market is trading at the upper end of the Trend Channel leaving limited room for any upside now. Profit booking is expected to emerge at higher levels. Traders are advised to go short on weaknesses in sectors that are relatively weaker than Nifty50.

Expectations for the Week:

Next week is crucial for a mid-term direction of the market. Bond markets are very clearly indicating that yields are falling and bond prices are rising which means that there is every likelihood that RBI will cut interest rates between 0.25-0.5%. But whether this is sufficient to revive the ground level slowdown in the economy is the real question. US bond markets' behavior is also an indication that interest ratereductions are likely to come this year which means that bond markets are seeing a bigger threat of a slowdown in the US.It its nothing but emotions which is pulling people to the stock market now, hence it's time to be more rational and wait for the right opportunity rather than being carried away by the street mood. Nifty closed the week at 11922.80, up by 0.66%.

Emotions gone, now focus on rationality

The week gone by was historic in terms of massive volatility - Implied volatility and India VIX both had registered record highs but soon normalized reflecting the emotional sentiment of the Indian investors in the stock market.This was indeed very high compared to the other countries wherein two dozen countries had gone for an election in the last 2 years, but nowhere was there volatility as high as was witnessed in India. No doubt Indian elections were the biggest global diaspora witnessed across the globe. All said and done but in the end; markets will move based on earnings visibility, economic policies, global sentiments and how their impact will be on corporate earnings will be the real guiding factor for the markets in the long run.

Although Indian indices attained new highs certain sectors conspicuously were weak. FMCG, IT, metals and auto did not participate in the sentimental rally. That being the case, if these sectors cannot rally nowwhen everything is up when else will they! Therefore, these four sectors are unlikely to run-up.On the other hand, PSU banks were the star performers during this quarter giving an indication that their time has come in Modi era-2.

Events of the Week:

Time and again traders have made mistakes. Every time there is an emotional euphoria including this one, be it elections or any other event such as quarterly numbers, markets have behaved in an identical manner. When corporate or election results are as per market expectations, it is pointless to act on that very information which is already known to all. Everything has been already discounted for and therefore taking a contra bet could be far more profitable than going with the consensus.

Technical Outlook:

Nifty50 after scaling new highs on very high volumes is trying once again to test the immediate highs 12041 which will act as a strong resistance. Nifty50 is likely to be range bound with 12041 as upper resistance and lower support at 11600 or 11400. The market has historically filled the gaps which makes a case that soon Nifty50 will retest the levels of 11400-11600. Traders should take positions only after volatility falls further, currently the whipsaw losses can be witnessed on both sides of the trade, so better to avoid the markets.

Expectations for the Week:

Markets had a very vigorous week and therefore sufficient rest will be needed before it can find new pace. Volatility will eventually come down and rationality will prevail. Benchmark indices might not give any direction next week but could face mild downward pressure and Indian markets will finally align with the global mood. As of now, a wait and watch approach should be followed by markets atleast till the Monetary Policy and Budget announcement by the newly elected Government, which might be a game changer. Investors must ideally avoid large caps as they are in the overvalued zone while selective beaten down mid and small caps could be bought into. Nifty50 closed the day at 11844, up by 3.8%.

Battle of Thrones to begin Next Week

Markets consolidated this week after assimilating the US-China trade spat in a more matured manner.Surprisingly India had mirrored global markets since the beginning of May this year, therefore, irrespective of the election outcome, save and except one day knee-jerk reaction, Indian markets will continue to mirror global financial markets going forward as well. This beingthe scenario there is no point guessing who will come to power because post the election results next week, markets will continue to chart its course of action reflecting the global move. Across the world, foreigners have sold stocks in respective countries and Indian markets have faced the same fate. This reflects the global shift of risk appetite. Nonetheless, the fall in May has got nothing to do with volatility in number of seats,as speculated by the "political analysts".

The speculation that MSCI India's rejig is likely to include 52week high stocks such as InfoEdge and RBL and remove 52week low stocks such as VodaIdea and Cadila is doing the rounds. Indices are nothing but good measures of a consensus view. Therefore, from a contra-investing perspective higher returns are likelyto be made in VodaIdea and Cadila compared to InfoEdge and RBL from a 3 to 5 years investment horizon. But this strategy is only for investors having huge risk appetite.

Events of the Week:

Bajaj Finance has truly delivered outstanding numbers given the great franchise, in Warren Buffett terms, that it has built of 34.5Mn customers. Existing customers have contributed 67% to the business and there has been a 33% rise in customers from 26.2Mn to 34.5Mn which acts as a double accelerator for delivering a 57% growth in its PAT this quarter compared to the previous year. But in general, corporate numbers were not encouraging given the liquidity crises and status quo situation due to the elections.

Technical Outlook:

Nifty50 has started its upward journey after correcting 61.8% of the rise since mid-February. Due to the election outcome event the movement of the market is quite rapid, which can be advantageous to Intraday traders if they are on the right side of the market. Nifty50 is expected to touch 11700 -11800 by next week if such momentum continues. However, given the expected volatility it is better to stay on the sidelines and take a reactive trade rather than take a predictive trade. If market moves in extreme direction, we recommend contra bets with proper risk management.

Expectations for the Week:

Next week is going to be the most happening of the year wherein all eyes would be glued to not "stock quotes" but "vote quotes." Speculation is that NDA is expected to gain upwards of 300 seats and if it does the best scenario is that markets will test 11800 and thereafter correct. However, a negative surprise would cause a 1-time massive knee-jerk reaction and markets can tank upto 10500-10000 levels. It would be profitable for traders to take contra bets on either side and investors should ideally be silent spectators and let T20-20 pass-by while at the same time, if panic sets in, keep a shopping list ready with companies from sectors such as financialization, consumption and FMCG which are reasonably priced. Nifty50 ended the week at 11407, up by 1.33%.

Sell in May Could Indeed be Right

Mr. Market had a rough week with the indices witnessing a steep fall. The Indian bourses also became vulnerable to the US - China trade spatwhich made global markets fearful andled to themassive fall from highs of 11856. Any depreciation in the yuan will further put pressure on the rupee as the dollar keeps gaining strength among the trade tussle. Globally there is extreme amount of weakness in the macros and on the home front too, the political scenario is heating up in the last lap making market participants wary of taking any major positions. The crack in the market had its effect on the political analysts too who started betting on lower NDA numbers taking hints from the market's rocky behavior. However, just a few weeks ago, the very same analysts predicted a comfortable NDA win since the markets were rising upwards with full throttle. This just proves the wavery mind of the political analysts which dances with the Stock Market volatility before the actual outcome. Hence, investors must form an independent viewof their own and not blindly follow third-party opinions.

India's bellwether such as Reliance Industries led this massive fall this week. However, the main reason for the large-caps cracking is none other than the euphoria which buoyed the rally in the first place.Fact that massive selling is happening in front line counters means that smart money is exiting for reasons best known to these companies. When the entire street is bullish on biggies is when an investor should take a contra stance. As Warren Buffett rightly says "Be fearful when others are greedy and be greedy when others are fearful."

Events of the Week:

Earnings season is in full swing and numbers are pouring in from all sectors. However, if looked at the results reported till now, in entirety, the pick up in corporate profits is pretty subdued this quarter but nonetheless certain companies are trading at their premium valuations. On the other hand, there are companies such as Vedanta whichreported a de-growth of 5% in its bottomline, ICICI Bank and BSE also reported a double-digit de-grwoth in their PAT but are fairly valued compared to its peersinspite of poor results.

Technical Outlook:

Nifty50 swiftly slipped after making a failed attempt to make new highs. Consolidation near the double top formation eventually resolved to lower levels thereby indicating that 11000 can be a reasonable target to expect before this month end. Current levels are around 50% retracements, where the market is expected to spend some time before slipping lower to 11000 levels. Sell on rally should be adopted by traders. Volatility is expected to increase which also makes the possibility of stops hitting faster and therefore stops must be farther than the usual levels.

Expectations for the Week:

The important question next week would be - Amongst the trio: US China tiff, Political outcome orQuarterly results which one will dominate the markets and swing the bourses accordingly in their favour. It's a tough match between the trade war and the elections while the Company's numbers have taken a back seat.Volatility will remain at its peak as the battle intensifies. Some important results to look out for the next week would be ITC, HDFC Limited, Honeywell, Hindalco etc. Investors must continue to keep a watchlist of quality companies for their portfoliosespecially in the mid cap space to buy if there is sudden panic in the market. FMCG is one sector that is showing value currently and systematic investment approach must be adopted on a basket of stocks. Nifty closed the week at 11278.90 down by 3.70%.

US Fed's Pause to benefit Indian Equities

Markets during the week showed extremely divergent behavior. While the small cap index Nifty 100 was down by 1.5%, Nifty 50 was almost flat with a downward bias. Even Nifty 500 index which covers 75% of the market cap was sideways. Sectorally, weakness was visible in the auto sector which is the biggest barometer to measure the mood of the masses. Given the precipitous fall in April's auto numbers such as passenger vehicles, two wheelers and tractors, the stock prices of these auto players should have tanked. However, despite the headwinds, these companies have stood their ground and haven't fallen drastically. This is solely because of the impact of "Global Liquidity."

Given the US Fed's status quo stance on the interest rates atleast for this year, global liquidity will flow into emerging countries like India where they can capture growth @7.5% whereas US is expected to grow @ 2.5%. This will also lead to massive dollar inflows which can take the rupee to touch levels of ₹ 65 - ₹ 66 per dollar by this year end.

Events of the Week:

Just when we thought the NBFC crises is taking a breather, the condition has resurfaced. With rating agencies downgrading Reliance Home Finance and Reliance Capital's long-term debt, the market became wide eyed with fear. This debt implosion could have further cascading effects if RBI and the Government do not act quickly. Hopefully post elections things should be under control. Nonetheless, such turbulence is not reflected in the stock market yet.

Technical Outlook:

Nifty50 is hovering near its all time high neither breaking highs nor breaking lows. Though small cap indices have cracked but Nifty50 is still resilient indicating that eventually the highs will be breached and Nifty50 will move into a new price territory. However, in the intermediate period, till such time breakout is not registered, it is better to avoid trading. Decisive break above 11,900 should be used as an opportunity to go long or break below 11,550 should be taken as an opportunity to go short.

Expectations for the Week:

Markets are expected to remain choppy the next few weeks due to the quarterly numbers of companies and the result outcome overhang. Among the various sectors, IT is expected to witness some cool down as it has run up a lot. Private sector banks and cement companies especially Ultratech and Shree Cement can also experience some profit booking while PSU banks led by SBI can bounce back. Small and midcap space is more likely to experience an uptick as the sentiment towards the likelihood of yet another term by the ruling party is building stronger. On the commodity front, avoid metals as the commodity prices internationally are correcting. Investors should start looking for stocks in small cap space and keep them on their watchlist till the election outcome on May 23. Nifty 50 closed the week at 11712 down by 0.35% compared to the previous week.