Pain of Demonetization Moderating

Market opened the week with negative bias but in the middle of utter pessimism bounced back sharply by the close of the week an indication that the worst is actually behind us. When the market had fallen on the first day, adversely reacting to demonetization, total stocks hitting 52 weeks low were 157 when Nifty had made a low of 8002, but later when Nifty made a fresh low of 7916 just 92 stocks made 52 weeks low on the NSE, a loud and clear indication that the breath is slowly turning positive and that the worst is quickly being discounted. These are some of the times when pessimism in the real economy is creating a compelling case for lapping up good quality businesses at reasonable prices. Soon the market will digest the event and move on.

War on Black Money and World Wars an analogy:
Much has been said about demonetization, that it is a war to flush out counterfeit and black money out of the system, akin to world wars, to win over the countries by waging war against them. During World War I which began on August 1, 1914 the US govt had ordered the shutdown of the stock market, but when the trading resumed some four months later, Dow Jones Industrial Average Index opened 30% down and from there on, it was, one way up, it doubled in the midst of the continuing war, inspite of all the war talks and pessimism. World War II which began in September 1939 in which US finally jumped in, when the Pearl harbour was attacked in December 1941 the Dow Jones Index had fallen by 16% after the Pearl harbour attack, but even considering the day when the World war II first started, wherein US was nowhere involved, the Dow Jones was down by 33% even from that top. Post the war panics, in both the instances US market doubled in a matter of just one year. The current demonetization in a way is a war on black money and has made some stocks correct by 30-40% from the tops which make a super compelling case for investors to be in the market to take the advantage of once a lifetime opportunity to buy shares in India's great businesses.

Technical Outlook:
Market seems to be bottoming out at least in the short term, the velocity of the fall is receding, and the breath is turning positive. The correction of 50% from the top seems to be holding up the market and mostly likely it can act as a turning point for renewed up move in the market. Strong basing pattern has been made at 7900 and on the upper side market could face minor resistance at 8300, but eventually market will break upwards and move beyond. Short term traders should initiate long positions keeping stops below 7900 while investors can aggressively build their long term portfolio at current levels.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Market is changing its gear from fear towards hopes and optimisms. The peak in fear is behind us and so is the bottom. The other side effects of fear are also visible in dollars which is just kissing distance away from 70. The panic of importers suggests that the top for USINR is also near coinciding with a turn in the stock market. Companies such IBRealEst has announced share buyback program proposing to buyback huge 11% equity capital, such move suggests that the promoters the intelligent insiders are finding intrinsic value in their companies which is a good sign for the bulls betting on the beaten down sector. The open interest in Nifty futures are at yearly low indicating that fewer participants are interested in the market right now due to uncertainty but sooner they too will jump once the clarity emerges propelling markets still higher. Investors should take this opportunity to aggressively invest and build long term portfolios while Traders can initiate long with stops below 7900. Nifty50 closed the week up by 0.5% at 8114.30

Bulls are slowly Queuing up before Market
Market reacted negatively and opened lower after digesting intense social media heat both, for and against demonetization. Markets however later gained sanity and reacted calmly by the close of the week. Much has been commented on demonetization but no one denies the pragmatic outcome of the same. Banks have started to reduce interest rates. Private sector banks have reduced interest rates by 15 to 20 bps. In stock markets open interests have reduced dramatically in Index futures and are running on the lower side of the yearly averages. Volatility too is cooling down slowly which is good for the health of the market. Stocks that are banned in derivative segment stands at negligible level indicating a moderation in leveraged positions. Normalcy is creeping back into both the stock market and economy.

Past Demonetizations and effects on the Stock market:
It would be intriguing to know how the stock markets had responded during the 1946 and 1978 demonetizations. Culling from the RBI data of the stock prices which they maintain, post 1946 demonetization there was a massive fall in the stock market for the next 2 years but post 1978 demonetization stock market rallied massively for next 3 to 5 years. Thus stock market is altogether an independent animal with scant regards to demonetization if any. However such move should bring a positive shift towards cashless economy and combined with GST, corruption would most likely take a back seat and a new era of meritorious society should emerge.
Nifty Today

Technical Outlook:
Market is continuing it's long spell of corrective phase wherein it has already corrected 50% by price and 38% by time of the entire move. Market is currently at the most critical juncture taking support at 8000 Nifty levels. The resistance and support line passing through 8000 levels has acted as strong resistance last year and now therefore as per the law of alternation it should now act as a powerful support this time. Short term traders should initiate aggressive long positions keeping stops below 8000 for a quick rally while investors can selectively build their long term portfolio at current levels.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Market is limping towards normalcy. The emotional epitome of greed and fear seems to have abated and all the external macro factors have almost been discounted. The massive fall in the stock prices on fears of slowdown seems to be overblown from stock market's perspective. It is well know that markets are a six monthly forward discounting machine. Any negative events whose effects are to be felt within one or two quarters are almost always discounted. Thus there is nothing that investors have to worry regarding the effects of demonetizing high value notes, as it is already discounted in the market. The recent swift fall therefore creates a compelling opportunity for buying great businesses. Recall Warren Buffet's purchase of Coca Cola shares during the 1987 stock market crash which eventually turned out to be the highest return generator in his entire portfolio. Investors should take this opportunity and start purchasing shares for their long term portfolio while Traders can initiate long with proper stops for low risk high reward trade proposition. Nifty50 closed the week down by 2.68% at 8074.10.

Extreme volatility to recede but slide will continue
Market witnessed its biggest roller coaster of the year throwing opinions and statistical projections haywire. Short term traders betting on the direction of the market widely went wrong when the victory of Trump made the markets to rise after dismal opening. "Always Follow Mr Market" is the moral of the story from the entire Trump episode. Volatility across asset classes had increased world over on the outcome of US election results. It seems like Indian market is likely to decouple at least in the short term with the rest of the global peers in the light of demonetization of higher value currency notes. Dow Jones has raced ahead to make a new high but Nifty is struggling. In the mean while results season is nearing an end, Lupin and Sun Pharma reported stellar performances by posting 58% & 117% rise in their respective Q2 profits. The effects of demonetization of the currency will be felt in the third quarter spoiling the growth party but at the same time creating opportunities for the long term buyers.

Key events of the week:
With the impending GST implementation on hand, government is trying to ring fence the entire system by cleaning up the mess of the parallel economy by demonetizing high value currency notes. It is estimated that some 7 Lac Crs are expected to come in the main stream financial system which will not only create multiplier effect lubricating the economy but will also boost earnings of BFSI sector. Demonetization of currency will further push down inflation which will create a compelling proposition for the RBI to reduce interest rates rapidly.

Technical Outlook:
Market has entered a long phase of corrective pattern trying to correct the entire rise from the March bottoms. Market hit the 50% retracement mark at 8000 Nifty level intraday mid week but closed substantially higher. 8000 levels in Nifty, now, therefore will act as a solid support for the market on the lower side. However a 38% retracement level which comes to 8200 could also act as a minor support. Traders should refrain from creating long positions and Investors should stay on the side lines till a capitulation in the correction is reached.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Market is headed for uncertain times, no one will know until January what policies the new President of the US will pursue towards IT, Pharma, heavy Industries and export oriented units in which India has a meaningful stake and at the same time back home the shortage of money in the system will impact the spending pattern of the consumers in the short term plus the overhang of harvest season, any shortage of money in the system will seriously dent the purchasing power of the common men in the economy causing significant impact in the corporate earnings. However the expectation of interest rate reduction from the RBI and fear of US interest rate hikes should counter balance each other, but the air of uncertainty will keep the market under pressure. Traders and Investors should abstain from creating long positions at the current juncture. Nifty50 closed the week down by 1.63% at 8296.30.

Market to witness biggest volatility of the Year
Market started the week with lacklustre moods but nosedived mid week on reported lead of Donald Trump in the US Presidential election. Quarterly results of corporates were encouraging, manufacturing PMI hit a robust 22 months high but still our stock market did not cheer. It seems our market has caught the cold of US elections. US accounts for 23% of the world GDP and 37% of the global financial stocks. Any adverse policy initiative by the new President in the financial power house of the world is the real worry perceived by the markets across the globe. US stock markets too are trading at their 100 day lows. FPIs have sold shares of around Rs 5000Crs in October while DIIs bought shares worth Rs 8000Crs. Passenger vehicle sales have moderated -Maruti reported just 2% increase in sales in the month of October a trend that needs to be now closely watched for early signs slowdown.

Key events of the week:
Govt has quickly arrived at consensus for the GST rates which are progressive in nature and will tax the rich more and leave more purchasing power in the hands of the lower income group which will be positive for rapid economic expansion. SUUTI has sold Rs 4000Crs worth of L&T shares announcing the beginning of the larger stake sales coming in the market to suck the liquidity. US Fed has kept the rates unchanged for now but strongly indicated that the hike is coming in December.

Technical Outlook:
Nifty50 has entered a long phase of corrective pattern potentially trying to correct the entire rise from March bottoms. Ideally a price correction of 50% which corresponds to 8000 Nifty50 level can be expected but a 38% correction at 8200 Nifty will also offer a good entry point. Support of 8500 has been breached which signals that the correction will be prolonged and will take time for the new impulse move upwards to restart. The series of higher tops and bottoms has been breached thus breaking the uptrend which was in place since last eight months. Traders should exercise restraint and wait for the clear opportunity to emerge for long trades.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Decent corporate results, lowering of the interest for housing loans by 15bps from HDFC, ICICI, SBI etc, increased PMI index all but failed to lift the market sentiments. This is an indication of deeper corrective forces operating in the market. The outcome of an important event in the US has global repercussions and therefore the market will wait and watch before moving substantially in either direction. Pharma sector seems to be mired in long drawn battle with the US authorities either for USFDA issues or from Department of Justice (DOJ) for allegedly cartelization in the generics. Traders should sit on the fence and watch the US election melodrama. If Trump wins the market will spook down which will offer a good buying opportunity. On the other side if Clinton wins the market will trade positive but will still face resistance at the higher levels. Investors can selectively buy a set of diversified domestic and consumption related stocks for long term. Nifty50 closed the week down by 2.36% at 8433.75

Market to witness biggest volatility of the Year
Market started the week with lacklustre moods but nosedived mid week on reported lead of Donald Trump in the US Presidential election. Quarterly results of corporates were encouraging, manufacturing PMI hit a robust 22 months high but still our stock market did not cheer. It seems our market has caught the cold of US elections. US accounts for 23% of the world GDP and 37% of the global financial stocks. Any adverse policy initiative by the new President in the financial power house of the world is the real worry perceived by the markets across the globe. US stock markets too are trading at their 100 day lows. FPIs have sold shares of around Rs 5000Crs in October while DIIs bought shares worth Rs 8000Crs. Passenger vehicle sales have moderated -Maruti reported just 2% increase in sales in the month of October a trend that needs to be now closely watched for early signs slowdown.

Key events of the week:
Govt has quickly arrived at consensus for the GST rates which are progressive in nature and will tax the rich more and leave more purchasing power in the hands of the lower income group which will be positive for rapid economic expansion. SUUTI has sold Rs 4000Crs worth of L&T shares announcing the beginning of the larger stake sales coming in the market to suck the liquidity. US Fed has kept the rates unchanged for now but strongly indicated that the hike is coming in December.

Technical Outlook:
Nifty50 has entered a long phase of corrective pattern potentially trying to correct the entire rise from March bottoms. Ideally a price correction of 50% which corresponds to 8000 Nifty50 level can be expected but a 38% correction at 8200 Nifty will also offer a good entry point. Support of 8500 has been breached which signals that the correction will be prolonged and will take time for the new impulse move upwards to restart. The series of higher tops and bottoms has been breached thus breaking the uptrend which was in place since last eight months. Traders should exercise restraint and wait for the clear opportunity to emerge for long trades.
Nifty Today
Nifty 50 Daily Chart

Expectations for the week:
Decent corporate results, lowering of the interest for housing loans by 15bps from HDFC, ICICI, SBI etc, increased PMI index all but failed to lift the market sentiments. This is an indication of deeper corrective forces operating in the market. The outcome of an important event in the US has global repercussions and therefore the market will wait and watch before moving substantially in either direction. Pharma sector seems to be mired in long drawn battle with the US authorities either for USFDA issues or from Department of Justice (DOJ) for allegedly cartelization in the generics. Traders should sit on the fence and watch the US election melodrama. If Trump wins the market will spook down which will offer a good buying opportunity. On the other side if Clinton wins the market will trade positive but will still face resistance at the higher levels. Investors can selectively buy a set of diversified domestic and consumption related stocks for long term. Nifty50 closed the week down by 2.36% at 8433.75