Latest Indian Share Market Updates & News in Sep 2018

Investors need to switch-off their quote screens

Markets have become super-volatile and have converted the psychology of every market participantsinto fear. Greed and fear alternates in the market which are like the two sides of a coin. To a seasoned player, there seems to be nothing new as such instances of panic-selling often re-occur time and again. Since demonetization, the herd mentality had jacked up financials, banks and NBFC stocksto great heights on the pretext of financial inclusion and formalization of the economy. This led to the financials gaining disproportionate share in Nifty50 at 35% of the free float market capitalization which was unheard of in the past.

The reality finally dawned on the investors andthe financial sector has started to correct. For instance, DHFL has undergone a complete circle and is now close to its demonetization lows,although still above the lows of November 2016 which is not a cause of grave concern as is proclaimed in media. Similarly, there are other stocks that are currently available at reasonable valuations and give good opportunities to accumulate but somehow the market scare created by crowd behavior has overpowered rational thinking and has hijacked the sensibilities of investing at cheaper valuations. Investors should therefore make use of this opportunity to accumulate shares rather than selling.

Events of the Week:

US Fed increased interest rates by 25bps which now stands at 2.25% and they have further guided for a graded increase by the next year which might take the rates to the levels of 3.25%. Considering a 2% inflation in the US, rates at 3.25% could be a big barrier for continued economic growth. Next few quarters may be bleak for the global equities whichmight not witness sustainable bull markets, therefore, investors need to rebalance a part of their portfolio from equities to debt.

Technical Outlook:

The market seems to be deeply oversold and can rebound on any good news. Nifty50 has taken long term support at three-year trend line which makes the case of correction nearing an end. However, if the long-term trend line is broken than the situation will worsen. But for time being, it looks Nifty 50 has taken support at these levels.

Expectations for the Week:

Next month, hopefully will be rosier than the previous month as all the weak hands are out and the worst has already been priced in which is known to all. Things might only get better going ahead given the Q2FY19 results will start pouring in. RBI's 4th bi-monthly meet could create a knee-jerk reaction if they decide to increase interest rates by 0.25%. An increase in interest rates could trigger the rally which logically seems unlikely. If interest rates are hiked, the exodus of dollars would be controlled and the Indian rupee will start appreciating which could be the next trigger point for equities. Investors, therefore, should not panic and sell-off shares instead they should do the reverse and gather the courage to pump in more money into the markets by picking quality stocks or investing in ETFs for more stable returns. Nifty50 ended this week low at 10,930.45, down by 1.9%.

Highly Susceptible Market Spooked by Fears

Markets during the week had a very volatile period shaking even the strongest bulls on the street. The panic selling based on some news or eventsare, historically speaking, good buying opportunities. No fundamentals had changed either for Yes Bank or for housing finance companies such as DHFL for such 50% moves which occurred just on the basis of street expectations which are often irrational in the short-term because they are based on herd mentality. But such irrationality offers good buying opportunity of quality companies as the so-called fear is hypothetical and hence won't last for long. And once the fear subsides the stocks will rebound. As Warren Buffett had quoted “The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they're on the operating table."

Another such incident occurred this week!The regulator's mandate to cut AMC fees marginally by 0.25% on an average, although on the face of it may look negative for the AMCs but in a way has brought in a lot of clarity that atleast for the next few years the margin visibility looks intact. However, the decision to convert the upfront payment commission compulsorily to trail model should compensate for this negative impact. Hence, AMCs should not be sold-off just on the basis of this news.

Events of the Week:

The highlight of this week was by the Government who fired Bramhastra to clean up the public sector banks byway of merger.Three banks; Bank of Baroda, Vijaya Bank and Dena Bank will be merged by the end of this financial year which in the long run will give synergies, cost reduction and resource optimization. This will help them to reduce costs and compete with the private sector peers and regain market share. Although this is a long-term process but eventually the action will reap fruits.

Technical Outlook:

Nifty50 became hyper volatile this week penetrating the lower channel and later bouncing back by the close near the channel indicating that indeed it has taken support at the lower channel suggesting buying is emerging at such lower levels. It is time for bounce back for Nifty50 after such panic moves. Buy on dips should be followed by traders as currently it is no time to short.

Expectations for the Week:

All eyes would intently be on Jackson Hole the coming week where the US Fed is all set to hike interest rates by 0.25%. Although this fact is already discounted for in the market and may have a short-term impact but in the future, inflationary outlook seems to be deteriorating which could further accelerate the interest tightening process. Tariff wars will be the reason US Fed would be constrained to increase interest rates because the cost of goods sold in US to the consumers would be higher due to tariffs.Also, short term volatility will increase in the markets. Investors should now start accumulating quality stocks in their portfolio. Yes Bank, Housing finance companies, Oil marketing companies offer value at the current levels and should be accumulated from the long-term perspective. Nifty closed the week at 11143.10, down by 3.23%.

Marketbounce is deceptive investors stay away

As expected Mr. Market indeed corrected sharply making everyone question the 12000 Nifty target by Diwali. However, a swift bounce is natural when markets are trading at new highs. The Indian bourses were inherently overbought and therefore the correction was a but natural step for the markets to correct the overbought position and the scapegoat was none other than theDollar this time!However, this bounce should not be taken as a beginning of a new rally because corrections seldom have such a short period. Given that Fed meeting and global headwinds are key uncertainties, investors should not take this as a buying opportunity but should consider booking profits.

Crude oil fear is overdone and given the rupee's rally we think crude will no longer be a risk to the market in the medium term. Therefore, the most widely expected fear on the street may not be the oil ghost but global liquidity tightening by the US Fed would be the real threat which the bulls will have to tussle-with. Hence, markets should continue its corrective journey till reasonable valuations are reached.

Events of the Week:

The most popular and most talked about topic on the street was rupee/dollar. In social media too, the exchange rate was mocked across platforms. Bandh and strikes were organized for rupee's downward spiral. Exporters have complacent and are not booking the dollar and at the same time importers have increased their dollar hedges. All the above factors conclude thatfear has reached its pinnacle and therefore from here on, the rupee should rally giving a big sigh of relief to CAD. In a way this is positive for the markets.

Technical Outlook:

Market has bounced after taking support at 38% retracement from July lows. Not all sectors are showing tendencies to bounce but at the same time deeply oversold stocks are showing far stronger up moves than rest of the market. Currently there is no indication that this is a start of new rally and therefore there is every likelihood that whipsaws will continue. Market needs price and time correction before it can make new highs, hence for traders it is advisable to stay way from the market.

Expectations for the Week:

Markets will continue to trade in a whipsaw manner which would be a nightmare for traders to take any view on stocks or market. Although global headwinds are slowly subsiding but the high valuations should deter the investors to make fresh buys at the current levels. The tussle between FIIs and DIIs goes on, FIIs have continuedwith their selling spree whereas the DIIs have been net buyers this week.10-year bond yields have increased from 7.13% to 8.11% in just a span of 6 months which does not augur well for corporate profitability but at least it is good for the country as the rupee will stop its rout. Soon equilibrium will be reached which will give stability to the markets but till that timemarket will struggle to find their feet. There will be shorting opportunities for traders in FMCG and consumer durable sectors which can be a sell on rally while PSU banks and OMCs could be good buys on dip for traders. Investors should nonetheless stay away or consider booking profits on every rise. Nifty ended this week lower at 11515.20 down by 0.63%.

Journey towards correction has begun

Mr. Market has finally made a top this week and has started correcting to the local and global tailwinds primarily due to the strengthening dollar, growing current account deficit, inflationary expectations, global tightening and worsening geopolitical conditions. Stocks have been bruised and battered after making new highs and we expect further downward pressure as none of the above macro conditions are likely to subside soon. Not only India but all the markets across the world have started their corrective phase as the dollar continues to gain strength vis-à-vis the other emerging market currencies.

Uncertainty in the environment is likely to persist and the downward drift might not get dissolved soon. Fears, doubts and unpredictability have gripped the investors and this very uncertainty is a friend of the bear markets! Therefore, we believe that the indices will continue to remain under pressure and profit booking will continue till the onset of the quarterly results. However, the weak passenger vehicle numbers by auto companies for the past month also indicate that the economy is slowing down due to reduced purchasing power of consumers due to the ongoing currency depreciation. (As the rupee reaches new lows, the prices of petrol, diesel and other products rise, and the end consumer will have to shell out more from their own pockets)

Events of the Week:

Aurobindo Pharma rose by a 15% in past 2 trading sessionspost the news of acquisition of dermatology and oral solid division of Sandoz (generics) business of Novartis. It is going to be a $900mn all cash deal and the proposed deal is valued at a mere 1 times Price to Sales which shows that the generic business is cheaply valued. Indian pharmaceutical is the largest exporter of drugs to the US and this deal is a red signal for the Indian pharma companies which are currently trading at extremely high valuations of 3-4x their Price to sales. Nifty Pharma index has increased by 32% from its bottom levels of 8020 in June 2018 and such high valuations will cap the rally in this space from a medium-term perspective.

Technical Outlook:

Nifty50 witnessed sell off after facing resistance at the upward sloping parallel channel. On weekly chart an engulfing bear pattern is formed indicating that correction as expected has indeed begun. It is expected that markets will partially retrace the fall and therefore some short-term bounces can be expected but eventually it will fall. Traders should take this opportunity to exit long trading positions and may create short positions with proper stop losses in place.

Expectations for the Week:

In the coming weeks, geopolitical uncertainties might escalate further which will keep the markets under selling pressure and this might threaten the bulls. Typically, during bull market tops, markets punish the companies when they announce their expansion plans.Case in point being Balkrishna Tyres and Zee Entertainment Limited whose prices were hammered due to the capex/expansion plans announced by the respective companies. When the stocks are priced to perfection there is little margin of safety and therefore no sooner the company wants to venture into expansion the stocks get hammered because the risk increases. As the corrective phase is expected to continue, investors should wait for a deeper correction before investing and should seriously consider booking profits in some of the highly overvalued sectors such as FMCG, consumer durables and consumer discretionary, IT and partially pharma. Nifty ended this week lower at 11589.10, down by 0.78%.