Ready..Steady and Pause

Markets seem to have achieved a sort of mini-euphoric phase given the relentless rally of about 3 months without any significant correction. Various polls suggest 90% of people are bullish that markets will touch new highs by Christmas, FPIs have increased their bullish bets on Indian equities whereas net purchases till the third week of November totaled to Rs. 17,548 Crs. Moreover, IPOs are frantically getting oversubscribed; new ones are also buzzing and ready with the same energy. Ideally, these are euphoric states which make 'herding' more conspicuous; buying when markets are going up. Nifty rollovers too, were at a high of 3 months average. It's needless to say that this is the time to be cautious and book some profits off the table when euphoric factors are visible.

Moving on to a specific sector, a breakthrough was resolved in the Pharma space wherein domestic drug industry agreed with government's proposal to allow a 30% cap on margins of non price-controlled drugs. This eventually took away obnoxious pricing decisions out of the hands of Pharma Biggies which is a big negative for free market economy. Had this event transpired at the sector peak, pharma stock prices would have crashed. But the fact that it occurred when this sector is already down led to a neutral reaction by these stocks. This certainly gives an indication that a major bottom has been formed in the sector and it would be safe to play cards on stocks which are hitting 52-week highs, because if such restrictions in profitability could not take the prices lower, what else would.

Events of the Week:

Steel sector was in limelight wherein companies have indicated that they have already raised prices by Rs. 500 per ton and a price increase of Rs. 1,000 per ton is underway. But the steel prices have already increased by 20% in the international market and in high beta stocks, prices have already risen by 50%. Hence, when such events become talking points of D-street, it can best be assumed that it's time to move out of the sector, book profits and re-enter at lower levels.

Technical Outlook:

Nifty50 has a made a failed double top a powerful pattern to signal that correction has set in. Nifty Private Bank index has made a clear double top whereas, Midcaps and Small Caps Indices are diverging with the current rally in Nifty50 indicating overall weakness in the market. Momentum indicators had already weakened a few days ago, but now with a strong down move, the market is expected to head lower. Traders may short Nifty50 with a Stop above 12180.

Nifty50 Update 29 November 2019

Expectations for the Week:

RBI Monetary Policy Committee (MPC) would meet next week to review interest rates and given the inflationary trend, there is likelihood that a 25 bps rate cut may not follow but in order to tackle slowdown, rate cut is the only tool available with the RBI, thus it will be a tough call for the MPC to take. But US Fed is not expected to reduce the rate this time given the recent commentaries by Fed Chairman. The buoyancy in the bourses will bring in more IPOs which could benefit retail investors but will impact secondary markets in terms of liquidity which may lead to a correction in overheated stocks. Investors should calm their nerves and wait for a correction before investing. Nifty closed the week at 12056, up by 1.2%.

Stalemate to continue on D-Street

Markets during the week tried to break the hard ceiling of 12100 levels but inspite of Reliance's above average stock performance, Nifty couldn't break this magic level. Infact, Nifty small cap clearly reflects the current state of the market which is in a corrective phase since the beginning of the month. The current correction also conclusively proves that the bigger uptrend is still ahead and this is just the first correction after the corporate tax rally. Markets are undergoing sectoral rotation and the auto sector is awaiting an up-move once there is some clarity on the scrappage policy. At the same time, Government's non-strategic disinvestment in listed companies might create selling pressure in the near term. It is better to avoid the disinvestment bandwagon from a trading and investment perspective.

In the international turf, US markets seem to be hovering near lifetime highs and are unperturbed by the political skirmishes, given the fresh testimonies proving that the US President might have misused the power of his office for political gains. Eventually, this may lead to impeachment but the overhang till that time may keep the US and world markets on a tender hook.

Events of the Week:

The ones considered untouchable "The Telecom Players" have again sprung to life in the minds of the market participants though management and business realities are still very bearish given the accumulated losses and huge debt which might take a very long time to come back to healthy levels. But in the market, turnarounds happen overnight which isn't the ground reality and therefore this sector will emerge as the biggest underperformer for weeks to come. Traders and investors may place bearish bets accordingly.

Technical Outlook:

Nifty50, Nifty mid and small caps are clearly making a corrective pattern along with majority sectoral indices which are also moving sideways. Trading in such a phase causes whipsaw losses which all the more confirms that a correction is underway. Midweek, Nifty50 made a doji with over 30% increase in volumes in the cash market which further confirms that FOMO buying is over. Traders should ideally avoid trading during such low volatility corrective phases.

Nifty50 Update 22 November 2019

Expectations for the Week:

Markets are likely to remain lackluster the coming week. Movements will occur based on news and events that are likely to transpire from the Government in terms of economic policies, disinvestment and international geo-political events. In the short term, bourses overreact to news which makes contra betting a profitable proposition. For instance, the real estate package announced a few weeks earlier has thereafter led to a decent correction in realty stocks taking them even lower. This provides good contra opportunities. Statistically, November is a bullish month but the month end going ahead looks rather quiet and dull. Nifty50 closed the week at 11914.4, up by 0.2%.

Markets lack conviction but searching for reasons to rise

During the week, markets inched higher on positive sentiments supported by good earnings performance by large corporates and the steadily improving geo-political situation. Any negative news was largely ignored which asserted that bulls have currently taken reins of the market. However, the breadth and open interest are not supporting the positive rhetoric which certainly isn't going to support the current levels and a correction is likely in spite of the overall optimism on the Street. But this vibrancy and rosy optimism is not visible at the ground level. Moreover, on one hand consumer inflation is expected to reach monthly highs while on the other hand GDP is expected to be around 5%. Such disparity in the economic factors and market sentiments often lead to prolonged corrections in the stock market.

A major jolt to the deep-rooted players in the telecom industry by the Supreme Court's verdict directing to pay billions to the Government, has largely been disregarded by the market in spite of Co.'s themselves raising the question of their survivorship. Certainly the stock prices are not reflecting these grave realities. Such circumstances distinctly reflect that Mr. Market is currently mesmerized by the optimistic outlook but the reality is far from what the market imagines it to be.

Events of the Week:

The long drawn Essar Steel insolvency case got its much needed closure today and the ruling gave the ultimate discretion to the Committee of creditors on distribution of funds which largely consisted of PSU banks; creating additional liquidity for the banks. This would certainly have positive cascading effects on the overall economy while Government's burden would reduce in infusing capital. Other pending resolutions would follow swiftly and in turn rejuvenate credit in the economy especially through PSU banks.

Technical Outlook:

Nifty50 is entering sideways to narrow range, consolidating the gains made since September. Prices are likely to remain volatile intraday but the close is expected in a narrow range. Breakouts tend to fail during corrective phases and therefore traders are advised caution. Stock specific actions will remain in limelight during the corrective phase. Traders should buy on decline with protective stops.

Nifty50 Update 15 November 2019

Expectations for the Week:

Since the result season is almost over, Mr. Market will take cues from international factors namely US-Sino trade deal, Trump's impeachment and the nitty-gritty of long awaited Saudi Aramco IPO. Lack of positive triggers may certainly keep markets dull and rangebound. Stock specific movements will be more prevalent than movements in the market as a whole. Investors should wait patiently for corrections to unfold which may take longer time. This is best formulated by Warren Buffett that 'The stock market is a device for transferring money from the impatient to the patient.' Profit booking can be considered for sectors that are richly valued. In general, markets will unlock opportunities at reasonable levels in quality businesses. Nifty closed the week at 11895.30 down by 0.10%.

Finally, the Correction has Begun

Market continued its anemic rally on expectation of securities transaction tax cut but later rejoiced on announcement of a relief package for the long forgotten real estate sector by our Hon'ble Finance Minister. The rhetoric in the market seems positive, sentiments look bullish which is fueled time and again by Government's announcements, but inspite of all that markets are yet to touch new highs, but somehow there is an inherent fear on the Street. Bank Nifty currently has the lowest open interest since the last 12 months and open interest in Nifty50 is also low from its previous peak this year. This suggests that although market seems buoyant but people are afraid to commit money at this level. FPIs are buying at an average of Rs. 550 Crs a day unlike DIIs who are selling by an equal amount. Certainly, in the short term, all does not seem well for the bourses although in the long term, market is building up its structural runway which could support a bigger bull market ahead.

India's largest passenger car manufacturer Maruti Suzuki's parent company Suzuki Motor has guided for lower sales growth from India considering the bottom up reality. Since, automobiles are assumed to be a proxy to gauge the purchasing power of consumers, it can be reasonably concluded that although stock markets are near their all-time highs, at grassroot levels the story seems to be distorted as there is a lot of pain left.

Events of the Week:

Titan's stock price adjustment from the dismal quarterly performance was an apt reality check for the market. Though the company has reduced its growth guidance by almost 50%, the stock still trades over 73x its earnings. Such super rich valuations sooner or later will reach reasonable levels. Hence, investors should remain safe by avoiding companies which are extremely expensive from a valuation perspective.

Technical Outlook:

Nifty50 has reversed from the upward sloping parallel line forming a bearish candle on the daily chart and shooting star in the weekly chart indicating correction times ahead. The divergence of Nifty and BankNifty in the previous week which earlier had hinted of correction has been confirmed this week with the Nifty and BankNifty both showing weakness by the close of the week. Traders can short both Nifty and BankNifty with Friday's high as stops.

Nifty50 Update 08 November 2019

Expectations for the Week:

Mr. Market is in the last leg of earnings discounting season. On the profitability front, numbers looked exceptional but the topline growth of India Inc. was average to below average. But inspite of all this, Nifty has still not crossed new highs. This being the case, hopes of market climbing and sustaining beyond 12000 levels looks dim. Investors can consider booking profits in FMCG, consumer durables, consumer discretionary, insurance sectors and wait for a correction before investing further. Nifty closed the week at 11908, up by 0.14%.

Don't be aggressive, be cautious now

Markets during the week witnessed a sudden bout of optimism as hopes of tax relaxation in equities cheered the Street. Investors ramped up buying of stocks but this indeed poses a risk in short term as such tax reductions are unlikely to happen immediately, and even if they do happen, it will be in the Union Budget for 2020-21. Since the runup in the market was too fast in a short span of days, there is every likelihood of a swift correction in the near term. Moreover, the Government has already reached92.6% of its budgeted estimates for India's fiscal deficit in 2019-20.Therefore, the next 6 months will certainly be challenging for our bureaucrats in order to raise timely resources. It is quite likely that a massive amount of government divestment along with asset monetization might impact the secondary market. Positive sentiments in the market may reverse quickly near the highs of the market. Warren Buffett has rightly said that as an investor, it is wise to be 'Fearful when others are greedy and greedy when others are fearful'. Hence, jumping the gun at such overbought levels is not a wise idea as Mr. Market always tends to behave contrary to consensus views.

Corporate numbers have certainly not disappointed the Street given that revenue growth has happened albeit in single digits and profits have escalated due to corporate tax cut gains. However, it is surprising that statistical economic data for September 2019 suggests that core sectors have dropped 5.2% which apparently is the worst in 14 years; this indeed gives out a contrasting view about the economy. If such numbers are to be believed, there is every likelihood that the next leg would see a correction in near term because things do not change overnight at the ground level but stock markets can very well change quickly through swift price actions.

Events of the Week:

The Fed trimmed interest rates by 25bps for the third time this year which was a non-event for the Dow Index. An alteration in Fed's statement brought out that "further cuts would emerge if economic outlook changes materially" which is a negative for Mr. Market. However, at this point in time what poses a major threat is the outcome of POTUS's impeachment enquiry which has the ability to rattle global equities including our sand create turmoil in the short run.

Technical Outlook:

Nifty50 is losing its velocity on the upside making it ripe for a correction. Oscillators are showing weakness which is not a good sign for the bulls. Nifty and BankNifty are showing divergence. BankNifty is not participating in the rally which means that the rally is a fractured one which will see selling at higher levels. Traders should book profits and exit from their long positions and initiate short positions on weakness.

Nifty50 Update 01 November 2019

Expectations for the Week:

We believe that Mr. Market would turn volatile in the weeks ahead as it will witness profit booking at higher levels, markets will also see a churnout of large caps with inflows in select midcaps. Certainly, the bitten down sectors may witness an upmove and the ones which saw a good rally may linger around at current levels. Since there is an environment of uncertainty, investors should pick stocks with great caution. Pharmaceuticals, metals and mining, agriculture, are some beaten down sectors which should be considered from an individual stock picking perspective. These are available at cheaper valuations and hence are good avenues to look at. Pvt Banks and Financials should be avoided currently. Nifty closed the week at 11890, up by 2.6%.