Outlook For December 2014

So we are coming to the end of an exciting 2014. Stocks created record highs; much earlier than election results and much higher than anticipated levels [7200-7500 was my expectation]
The rally has gone almost 15% above 7500 levels. Record highs were recorded in almost all segments whilst some of the old front-liners retraced back much of their earlier levels.

The correction in October below 7800 was a red herring and now a lot of people are feeling left out of the rally. As I have been reiterating for the last 4 months, this is not a time to be brave and enter markets. These highs should be used to book profits in long term investments and cut net long exposure. Trail the remaining positions but don't rush to create shorts as well.

December tends to be a volatile month with large moves closer to 21st December [Winter Solstice]. 61.8% retracement of the rally from 7730 to higher levels comes to about 8100-8200 levels that in all likelihood will be tested before 2014 gets over. These shorts can be initiated when Nifty posts a close below 8480 odd levels [these daily levels are dynamic and will be updated in the Twitter feeds]. Similarly, for BankNifty, the corresponding level will be about 17950-18000 levels.

Also, there is remarkable complacency in markets overall and that is not a very good sign. The longer it takes to bring in a correction, the greater will be the ensuing one and  in all likelihood a fast and furious one. I wouldn't be surprised to see a revisit to 7200-7400 levels before Budget 2015. However, that is not going to help the trading plans for December.

For December 2015, the trading plan is simple; trail existing long positions and avoid creating fresh longs at this stage. Initiate shorts when appropriate levels come through. Whilst it is pleasing to see green symbols and higher levels on the ticker, one must also understand that the euphoria is excessive. The situation on the ground has not changed as well as what the indices indicate. This is indeed a major asset bubble as current prices are reflecting potential benefits over the next 3 years!

That being said, we cannot say that we are in a bear market anymore. Even the strongest of corrections over the next 2 years will likely keep the base in the 6k levels [+/- 100 points] All falls will be opportunities to buy. The baseline for investment levels have also gone up significantly

A view on frontline stocks

Axis Bank will have a new baseline of about 325 and SBIN about 180-190

Kotak Bank has been rallying like crazy and although technically the new base seems at around 680-700 levels, I would be wary of this stock. Despite the ING Vysya move, Kotak Bank is relying heavily on a corporate loan portfolio. We have already seen enough evidence that corporate loan portfolios go bust and / or get significantly restructured. It just takes a couple of bad portfolios to get impaired and then counters go for a tailspin. So as far as the banking space is concerned, I would still bet on the regular SBI, Axis, ICICI Bank in individual counters and BankBees ETF to invest when the next severe correction comes through.

Similarly, the new baseline for NiftyBees will be about 625, InfraBees about 180 and JuniorBees about 130. Give or take a few points here and there, investments at these levels will be lucrative over a longer term.

They say History repeats itself and the same can be expected on Nifty. It had a strong upsurge to record 6357 levels in Jan '08 followed by a 3 year correction. Once the current top-out process is done, a similar 2-3 year corrective phase can be expected. One critical point to note is that the next correction when it comes, will literally provide no safe haven like FMCG or Pharma or IT. It will be an across the board correction and this correction is much required. It will be healthy for the markets.
As I keep saying always, when a stock market top is nearer, the frequency and quantum of 'best time to be in equities', 'equities as most superior asset class' gets louder and louder in the media space. We have been in that phase for the last 2 months now.

Also there have been a string of IPOs lined up and a lot of disinvestment counters lined up in the PSU space. The government is strongly [and rightly] keeping sentiments high on bourses for better valuations and realizations. No matter how attractive the markets look at this stage, this is not a time to get into front-line stocks IMHO. Its all about booking profits and reducing net long exposure. There will soon come a time to re-enter equities.

On other asset classes, Gold, Silver, Crude and Real Estate are the most exciting places to be in at the moment. Gold had a 13 year bull market from 400 dollars to 1925 dollars an ounce, After such a long rally, a 2-3 year period of correction/consolidation is fairly logical. 2 years of correction / consolidation are through and we have about one more year left at the most. This is the right time to pick up gold in electronic format and SIP route. Most of the downside in dollar terms is already done and at the most about 15% downside in price can be expected [and this may or may not happen] Likewise, Silver has crashed over 50% from previous highs and there is very little downside left. Any price below INR 40k / kilo is attractive to invest with a 5 year horizon.

For crude, one of the best indicators is statements from Goldman Sachs. In the 2007-2009 frenzy, when GS predicted crude to boil from 120 to 200 dollars, it moved slightly higher and then crashed below 90 dollars. Subsequently when it predicted crude to sink below 30 dollars an ounce, crude found a bottom around 40-42 dollars and tripled in 5 years. In the current scenario, I find it difficult to see crude below 65 dollars a barrel and within 12-18 months, it should be able to reclaim the 90-95 dollars per barrel mark. Any fall below 65 dollars is a golden opportunity to lap up more crude oil with a 3-5 year horizon.

To summarize, RBI policy will not really be a major game changer for December unless there is a major rate cut. As long as Nifty holds around 8480 levels and BankNifty holds 18k levels, shorts are risky.

On a side note, I had reviewed the long term charts of Asian Paints and had anticipated a top at 740 odd levels. The prices over the last 2 days have gone way beyond that. Since the time-frame was weekly / monthly, It is critical to see whether the stock closes weekly / monthly above 745. If this event does happen, then Asian Paint will be a complete game changer on the bourses as a weekly close above 745 indicates break-out of a 8 year weekly chart. And if it happens on a monthly basis, it will perhaps go on to become an equivalent of ITC / INFY / TCS / RIL etc with over 10% weightage on Nifty. Even in case of a strong correction, 550-600 seems to be the new base for Asian Paints!

Outlook For November 2014

So Nifty did spring that Diwali rally surprise and also moved ahead to post a close above 8025 levels. As long as Nifty stays below 8180 levels, especially on closing basis, there is a potential downside risk of retesting 7550-7650 levels once. This has been confirmed with 2 consecutive closes below 7800 levels and it is only a matter of time when the same happens.

The jubilant rally after Diwali has stumped many people incl me especially after giving 2 consecutive closes below 7800. Some may say it was because of additional QE by Japan or whatever - but the fact of the matter is most people expected a rally upto 8150 [incl me]. I had mentioned that 8025 is a crucial hurdle and should we get 2 consecutive closes above this, Nifty may top out around 8150 levels by Diwali and start the downward march. Now we are in completely uncharted territory on both Nifty and BankNifty. It is very difficult to hazard a guess as to where the top will be. Going by historical price patterns a potential top area is 8380-8480 zone. However, shorts at this stage are not recommended till the downtrend asserts itself.

The earlier resistances on the way up i.e. 7800-7925-8025-8180 will be supports on the downleg whenever it starts. Of these 8025 and 7800 will be the strongest supports followed by 7450-7550. As mentioned earlier, it is not a question of whether 7450 will come but a question of when. As and when the signals are available, I will post the same via Twitter.

Charts uploaded for review

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

One should remember that Nifty is poised to test 7440 levels prior to budget 2015. This confirmation has come with 2 consecutive closes below 7800. If we recollect the historical price movements, it was known that Nifty would make life-time highs with 2 consecutive closes above 6280. This happened, Nifty went to 6415, came down to test 5950 levels twice [5971 once and 5933 once] and then went on to make new highs and rally relentlessly. It took about 4 months to make new highs.

Most people got the current move wrong including me and did not expect any major move above 8150. [I got a royal double whammy in this move; was expecting 8350 levels provided 7800 is not breached on daily/weekly basis. That happened and then when I thought the Diwali rally will last upto 8150, markets sprung the surprise!!!]

From an EW perspective, an alternate view was that an Expanded Flat is a possibility. However, even with my limited knowledge, an Expanded Flat cannot be attributed to this upmove. If prices had just hit say 8200-8225 and reversed, that possibility could still have been there. But certainly a move well beyond 8325 cannot be classified as an Expanded Flat. It was a very powerful and impulse wave rally. With multiple banking and cyclical stocks making fresh highs, it is an impulsive wave.

What this also tells us is that one should not rush to build shorts. 8425 levels is the basic pattern target. It has steam to go further up also but we are in a frenzy area. The rally is in the terminal stage and will fall at some point of time. The fall will be fast, furious and relentless just as the case was with the fall from 8180 to 7730. However, one should wait for the correct confirmations to emerge and then go with that trend.

November and December are both likely to be highly volatile months. Remember that most FIIs have to close their books as per the calendar year and hence they will need to book some profits and repatriate earnings back to their home bases by Christmas holidays. So both the pending upside and profit booking will be rapid towards the end of November with a consolidation in the middle phase of November.

Silver and Gold are time and again giving good opportunities to buy. Over a 5 year horizon, silver will retest old highs and likewise for gold. This is a good time to book profits in equities and move funds to fixed income, gold and silver. Gold had a relentless rally for almost 13 years and hence a pause / consolidation for a couple of years is fairly logical. Likewise silver [in dollar terms] has crashed almost 60% from its life-time highs. Eventually, they will come back to normal levels if not inflated and one must make use of current opportunities to buy.

MCX Crude should be able to find a bottom support at 4800 a barrel. [note that MCX crude prices are following support/resistance levels of Nifty in the 2010/2012 period]

5600 broke, it came down to 5200; 5200 broke it came down to 5032; 5032 broke and now its hovering around the 4911-5032 mark. So the logical support for MCX crude comes to 4800 and if that also fails [unlikely] then it will drift further to 4400 levels. Difficult to go below 4400 a barrel in rupee terms as necessary market steps will be taken by OPEC.

Enjoy the upside till it lasts; don't rush for shorts. However, be prepared for a fast and furious fall prior to budget 2015 and enjoy that ride as well!

Outlook For October 2014

So we had an extremely eventful September; in the first half, Nifty went on to make new highs and in the expiry week gave up all the gains of the last 6 weeks or so. I was expecting Nifty to stage a pullback from 7925-7950 levels which did happen once only to fall back again. The most critical support is in the 7800-7850 band from where a strong bounce is expected. 2 consecutive closes below 7800 or 1 close below 7800 on a weekly basis sets the stage for a deeper correction to 7400-7500 levels. This seems unlikely as of now in October series considering the run up [anticipated] for the Diwali rally.

As mentioned in my previous post, a weekly close below 7800 will imply that the bull party for 2014 is over. The eventual fall from the current euphoric levels will lead to 6900 levels on Nifty, most likely in the second quarter of 2015. However, I doubt whether the deep correction will set in before the Diwali rally [which mutual fund houses need to be able to distribute stocks into and get the retail suckers in for infusing funds!] As long as 7800-7850 levels hold, I personally will still look for opportunities to go long.

Some of the ripe opportunities

Asian Paints in the 580-625 band for target of 675 with SL EOD < 575
Axis Bank in the 360-390 band for target of 435 with SL EOD<355
LT in the 1375-1400 band for target of 1650+ with SL EOD<1450
SBIN in the 2150-2350 band for target 2650+ with SL EOD < 2100
Tata Steel in the 400-450 band for target 560+ with SL EOD<385

BankNifty was expected to stall in the 15400-15600 zone which has not happened. It now has opened for a deeper correction to 14680 levels though it may not happen in one go. A meaningful rally in BankNifty will be from the 14680 odd mark [give or take a few points]

The Nifty and BankNifty charts should help illustrate these points

Nifty Daily

 Nifty Weekly

 BankNifty Daily

 BankNifty Weekly

Now coming to the sectors and so called defensives and safe bets. Overall, in terms of fundamentals, the entire market space is trading in excessive valuations. All sectors are over heated with likely asset bubbles and at some point of time, when the deep correction unfolds, all counters will go for a tailspin. So it is critical to look at where the logical supports for some major themes will be

IT:
This has been a darling sector for the last 18 months, thanks to the equities rally overall and a weak rupee.

This is the weekly chart of CNXIT. It has been in a secular bull run from the lows of 2008 from an investor's perspective. It is currently hovering around the 11100 mark and may test 12k levels soon from where a significant correction is expected. The technical supports for this are in the 7k to 8k zone which will come at some point of time within the next 12 months or so. When it is oscillating in the 7k to 8k mark, is the time to lap up technology shares.

So, the new bases for TCS will likely be the 1400-1800 band, INFY in the 2400-2800 band, Wipro in the 350-400 band. Does that imply these stocks won't correct below these levels. For all you know, they may but from a longer term investment perspective [3-5 years], corrections below these support levels will just be aberrational blips.

Pharma:

This is the CNX Pharma chart that has again been in a secular bull run for a prolonged period. As can be seen in the graph, the run up of 2013-2014 has been much higher than usual and will correct sooner than later. The base for CNX Pharma is around the 8000-8500 mark now where one should accumulate. This implies a 20%-30% correction in names like Lupin, Sun Pharma, Cipla etc from the peaks whenever they come. Any fall below 8k levels in CNX Pharma will just be a blip.

One can see a similar pattern in the FMCG space as well. Names like HUL, Nestle, Dabur, Britannia have all rallied significantly. They are all due for a 30% correction from current levels which will be opportunities to buy. One hears calls for 50%-60% correction due to the fact that most have doubled or tripled but that seems very unlikely. These are products that have definite consumption in a lot of categories and an exponentially growing market due to high population. All though perpetual growth of 5%-10% will be challenging due to the base effect and margin pressures will be there due to high marketing expenses, this is a segment one can comfortably bet on in the long run. If timing the buy is challenging, just go for an SIP on the consumption theme as it tends to give a CAGR of 15% to 18% in a 5 year period.

The automotive and related categories' space is the one which is in most over-heated territory. The most common themes are related to the fact that more and more people are buying cars and the fact that commodity prices are falling that is helping the bottom-lines of companies. What is missing in most analyses is that only 1 out of 4 car models launched actually becomes a hit. With more and more car variants and brands coming up, it is very unlikely for any particular variant to sell more than 100,000 cars per year. Gross margins at manufacturing level are around 6%. At some point of time, the discounts due to lower input costs will have to be passed on to the customers and there will be a lot of margin pressure due to marketing expenses and competing to generate business volumes. Most vulnerable to a severe fall are the tyre companies like CEAT, Apollo, MRF, JK Tyres etc. I have no clue as to how much more they will rally but this segment is sure to crash by at least 50%. As far as counters like Tata Motors, M&M, Maruti are concerned, they are also due for a 20% to 30% correction from current levels. Of course those falls are buying opportunities.

To summarize
The short-term upto Diwali seems bullish and an assault at 8350-8400 levels likely by bulls [A weekly close below 7800 negates this view or 2 consecutive daily closes below 7800]

The medium term is bearish and Indian equities are very highly priced. Valuations are excessive and a correction is likely. The fair value of Nifty IMHO is around 6600 with all the positives of the new government, low price of oil, government divestment in PSUs etc etc. However, as we all know, stocks never trade at fair value. They trade at excessively high or low levels. This upleg that I am talking about is in its terminal stage. Once the Diwali rally and distribution is complete, Nifty is expected to slowly drift down to 6900 with stops at 7600, 7400 and 7200.

The long run is still bullish for India and 5950-6280 zone is the new base for Nifty just as 4800-5200 was in 2011-2012. Corrections beyond this new base will just be temporary aberrations. For instance in the severe correction post-Lehman Brothers, the logical stop was around 3800-3900 for Nifty. It didn't stop over there and went well below the 3k mark. For somebody looking at the chart on hindsight [moi included as I entered the market in 2011] the bars below 4k levels are mere blips and the numbers statistical aberrations. Same is the case for the fall below 4800 in December 2011 which was troned out within 2 weeks. The investments made in such periods of mass hysteria and bloodbath tend to be the most rewarding ones in the long run!

Take for instance SBI; any price below 2000 levels is a good buy. The carnage may go all the way down to 1450 or even 1225 levels - doesn't matter. In a period of 3-4 years, it bounces back to 2450-2650 levels. It has been almost 3 years now that it has not been able to breach the 2750 levels with volume and momentum. Whenever that breakout comes through, it will go on to post new highs, higher than 2010 levels also IMHO. The more it falls below 2k levels, the more should one buy the counter as long as it is part of front-line indices. Many a time, people don't manage to hold their nerves enough to go through the tide [moi included] It is just like picking shirts and trousers in a sale. The same shirt in May in the retail store costs 3500 rupees whilst in the July End of Season sale costs 1800 rupees. Most shoppers are smart enough to understand that it makes more sense to add on to the wardrobe collection in July or January End of Season sale when one can buy 2 shorts for the MRP of 1 shirt. So how is picking stocks different? The other challenge during downtrends is that people have a tendency to hunt for names that will double or triple or quadruple and end up picking counters like Educomp, Opto Circuits, Suzlon etc with the logic being they have already corrected 80% or 90% from their peaks. That according to me is the wrong approach. What is important is to see the market capitalization and the core strengths of the company that make the frontline indices like SBIN, AXIS, LT, TATA STEEL, Tata Motors, M&M, HUL, ITC etc


Last but not the least, the above summary is the broader picture from an investment perspective. This no way helps the trading perspective. From a trading perspective which is much shorter time frame, Nifty is still bullish on the monthly time frame. The fact that it closed below 8025 levels on 26th September keeps Nifty weak in the daily and weekly time frame.  As long as 7800 holds, bulls are in the game but staying below 8025-8080 will likely see some sell-offs elongating the pain for bulls. For the first half of October, expect Nifty to consolidate in the 7800-8080 zone and build a base. [These levels are dynamic on shorter time frames and will be updated via Twitter feeds on the top left hand space] A breakout of 8180 levels on upside will vindicate the bullish stance given in the previous post. A breakdown of 7800 levels on downside will mark October in favor of bears

Immediate Support levels
7800-7850-7880-7925

Immediate Resistance Levels
8025-8080-8125-8180

Prices closing above or below these points can turn resistances into supports and vice versa

Gold and Silver are at good accumulation levels for the longer term. Crude Oil (WTI) should find an intermediate bottom in the 90 dollars per barrel mark.

Wishing all of you a profitable October and greetings for the festivities.

Nifty Cracks 8000 - What Next?

Well the fall from 8180 has been sudden and there is a lot of blood bath on the tickers.

This is my take away on the basis of charts for the next 10 weeks. On a daily level, how the trade will pan out is almost difficult to chalk out but the overall path IMHO goes this way

For safe traders who missed the boat last month. 7950 levels is a low risk entry point and the next one will be around 7825 levels.

Regardless of what the media says, this is a technical correction and a very healthy one. Unless Nifty closes below 7800 [especially on a weekly basis] current levels seem extremely tempting to go long.

Options won't be a good bet due to the uncertain paths on daily basis. Cash or futures will be a good bet. At current levels, 1 lot on Nifty futures will lose at the most 150 points [7500] per lot and when averaged at 7825 [if it comes] another 25 points taking the overall risk in 2 lots Nifty futures to 8500

Initial upside is 8180 followed by 8400 levels i.e. 300-350 points per lot on upside. Very few times, such low risk high reward plays come into the picture.

Corresponding support on BankNifty would be around 15700-15800 levels from where another attempt at 16500 can be expected.

Beware of The Tech Bubble

Global stock markets have been rallying significantly over the last 3 years courtesy cheap money policy adopted by most central banks. One segment all over the world that has seen great moves has been the IT sector. We are seeing a lot of 'billion dollar' valuations for a lot of businesses and a huge spurt in dot coms similar to the 1999-2000 mania

There is no doubt that a lot of these technologies are indeed beneficial to people and technology will continue to improve productivity and efficiency as we move forward. What is really disturbing is the mania and asset bubbles that are being created in the name of a technology wave. Particularly in India, IT has been a darling for fund managers and a safe haven, especially given the weak rupee.

There have been a lot of financial models circulated in the blogospheres about perpetual growth rates in excess of 10%-15% and I can safely tell you that all this is BS! Remember that perpetual growth is an exponential function and as the base increases, it becomes increasingly difficult to achieve 10% -15% growth rates when the base itself doubles or triples.

Also, technology space is one area where there is quick obsolete phases and levelling of the playing field for all players. At one point of time, one needed to pay HTML page builders by the hour to write code for a web page. Today, there is automation software that renders such workers obsolete unless they upgrade their skills. Similarly in many computing applications, there is a lot of automation that is coming in and the number of programmers required for that application is decreasing. To summarize, the IT industry within itself will also keep looking for ways to boost productivity and efficiency. So there will no doubt be growth in these areas but profit margins will slowly get eroded and so will the number of employees by a firm.

Another area where the Indian IT segment has been betting on is in providing body-shoppiing [call it BPO, KPO or whatever] where in the cost differential provides an incentive for the developed nations to outsource work to Indians. The last 20 years have seen phenomenal growth for Indian IT firms by this virtue. However, I think we are slowly coming to an end of this party. It is not going to happen overnight but I think this IT wave riding on body shopping is coming to its terminal stage.

Simple Mathematics
On average, an IT worker from the developed economy costs about 6000 dollars per month on a CTC basis

In contrast, the Indian IT worker costs about 3000 dollars per month on a CTC basis.

The core inflation in developed economies is about 1% whilst in India it is about 9%. With this differential in inflation rates, the Indian worker will become as expensive as a developer in western countries within the next 10 years. Add to that challenges of economic recession in Europe and jobs issues. There will also be an added pressure by governments to promote local talent over talent from developing nations.

As suggested by numerical extrapolation, the doom is not going to be overnight. Purely on inflation basis, the doom is at least 10 years away. And even if there are disruptive changes brought by new technology within IT and also disruptive changes brought by governments, the doom is at least 5 years away. And when I say doom, it does not mean that the entire IT industry is going to come down crashing, There will be a Darwinian struggle resulting in survival of the fittest. IT is going to be part and parcel of our lives and the usage will only increase.

However, as investors, we need to bear in mind that stock valuations are reaching excesses and that is something we need to be cautious about. Darlings of the indices like Infosys, TCS, Tech Mahindra etc all have at least 20% more upside over the next 2 years with some healthy corrections in between. However, the IT theme overall has almost played itself out now and wont be delivering those stellar returns moving ahead [in all likelihood I must say as it is a probabilistic view]

Over the next 2 years in India, we will in all likelihood see IPOs coming out for ventures like Flipkart, Ola Cabs, BookMyShow etc and all of these firms funded by Private Equity players have been told that the valuations are in excess of 1000 crores each!

Ola Cabs: It is working in the radio cab theme which is fantastic but it is not the only player. The average profit tends to be about 3 rupees / kilometer for the parent company and is largely driven by volumes. As long as there are such healthy margins in the business, more and more players will come into the picture over a period of time and as classical economics suggests, the industry will saturate into marginal revenue = marginal cost structure and the space will be crowded. This space will eventually settle at about 2 rupees / kilometer. Assuming that the IPO goes well and the company is able to pay a dividend of 1 rupee and a perpetual growth of 5%, the fair price of this stock will come to 20 rupees / share. Do you think that the private equity groups will allow the share to be listed at this price? The stock will get listed at at least 100 rupees / share and then mass hysteria will drive the prices to at least double if not triple the value in the first 18 months post listing. By 60 months post-listing, the price will settle down to the fair value. If one does decide to invest in this venture, remember that you need to be mentally prepared to take a loss within a month of listing and if you are lucky to get gains, start booking profits the moment your absolute return comes to 50%. The fall in stock price will be very sudden and severe just like Opto Circuits and Educomp.

BookMyShow: It charges about 10 rupees per ticket for booking online and this profit margin is pretty steep. More and more cinemas themselves will come into the picture [as is the case already] and many more players will enter the market space. Eventually the profit margins in this segment will have to settle for about 5 rupees per ticket. The good part about this business model is that it is not very dependent on administrative costs and infrastructure. All you need is a good IT server and 10 people to handle operations. The main source of expense is marketing but even with all these brownie points, 1000 crore valuation for this company is absurd!

I would not be surprised to see this venture getting listed at about 200 rupees a share and then climbing upwards of 600 rupees a share within a year of listing. The fair value of this business is about 40 rupees a share which is where it will settle down eventually.

To summarize, the technology bubble is in its terminal stage globally. The boom in this space is assuming maniac proportions just as was the case in the 1999-2000 period. There is still a very good chance of tech stocks delivering another 20%-25% return from current valuations as far as existing stocks are concerned. There are some new tech stories that will hit the markets and go for a rapid fire doubling and tripling of stock prices [as it has happened with Just Dial] Investors can choose to ride this momentum wave but be very very cautious as far as tech stock holdings are concerned. I have given all the fundamental reasons why this bubble will fizzle out. As and when institutional investors pull the plug and choke funding, a lot of this ventures will crash down. As far as core IT companies are concerned, by the end of the mania, a lot of IT jobs will move out from India back to developed countries over the next 5 years to 10 years.

Enjoy the ride till it lasts and don't rush to create shorts. All that I am saying is be cautious and don't herd in to this tech bubble; you may end up being the last person to board the bus before it crashes!

Outlook For September 2014

So August series closed on a firm note again and this trend should continue towards the 1st week of September as well. An interim top may form around 7980-8025 levels from where a profit booking round towards 7800 may come through. However, that does not imply rushing to shorts; the first hint to create shorts will be when Nifty closes below 7925 levels. Technical indicators are in over-bought territory for almost 2 weeks now but trending markets defy these which reflects the underlying bullishness

For the longer term investments, this is the time to periodically book some profits and move to fixed income markets. From current levels till Diwali, more than 5% upside seems unlikely. Valuations for a lot of stocks are now excessive and correction seems inevitable. It is not a question of 'whether it will happen' but 'when will it happen'. Unfortunately I do not have a crystal ball with me to answer this question. We will have to wait for market action to unfurl the same.

For Nifty, the 7200-7400 band seems a pretty firm support for September series and 7800 can provide interim support. Since Nifty is now in uncharted territory, if it goes beyond 8025, it can go anywhere

BankNifty has closed above the swing high of May. Volumes are low but pretty soon it may scale 16500 levels. 14800 is a pretty good support and BankNifty may just retest this once before it begins its next leg up.

Gold in all likelihood has found its bottom in rupee terms. It entered its lower trajectory last year in dollar terms and correction is still on-going in dollar terms. In 3 years time, we can expect gold to move upwards of 45k in rupee terms.

Silver too may have found its bottom but technically, there is a possibility of visiting 35k once before resuming its uptrend. This too in 3 years time, may scale upwards of 60k

Crude in dollar terms will find support around the 90 dollars per barrel mark and move towards 100 dollars per barrel again. Hence in rupee terms, the 5600-5700 band will be strong bounce back zone for target 5950-6000 levels.

Some potential stock opportunities in the small and mid-cap space that look attractive

Zee Learn: It has broken a multi-month range on the upside

3i Infotech: It seems a value buy at current levels

Disclosure: I do have holdings in these counters

Outlook For August 2014

So after spending the first half of July '14 in a corrective mode, Nifty started marching upwards and scaled a new intra-day high as well as closing high in the second half. I have been reiterating over the last couple of months that this market keeps on giving opportunities to buy and 7800 levels are to be attained. While it is premature to call for a top, now IMHO we are slowly approaching the top end of this rally. Logical targets for the rally were around 7200-7500 and euphoria took the markets much higher. Technicals and ratio analysis suggest that the top for this rally if not achieved already should come around 7900-8000 levels.

While that does not imply creation of shorts but it is high time to be cautious with longs created with a longer term view as well. Most of the stocks are exhibiting signs of distribution and topping out [SBIN, LT, ICICI Bank etc] whilst a few select counters are taking the indices higher [Asian Paints, ITC, Kotak Bank etc]
Distribution takes a lot of time and markets will not fall fiercely in one go. Lending credence to the distribution phase is the advertisements of Mutual Funds, Insurance schemes etc continuously on media channels. Historically, excessive advertisements regarding securities on media has coincided with distribution phase and within 6 months of such advertisements surfacing, Indian equities have corrected significantly. In the 2008 period, the largest number of securities advertisements surrounded ULIP schemes like Fortune Plus, Market Plus and similar products from other insurance firms. The ensuing correction got worse due to the Lehman Brothers' crisis. Around October '10, we had a flurry of mutual fund advertisements, especially thematic schemes and we had a correction of almost 40%. The key point to note here is that mutual fund advertisements did not surface in India in 2014 aggressively even when Nifty took out the 6400-6600 levels

The scale of such advertisements only has started increasing now and will perhaps continue to do so until Diwali '14. As mentioned earlier, unless some Black Swan incidents from international markets hit the scene, there won't be any 'crash' or 'melt-down' in the correction that will come. The corrective phase could last about 12-18 months and the downside price targets will be 5900-6200 i.e. the psychological 6000 level will in all likelihood be the new baseline for Nifty [just as 4800-5200 levels were in the previous corrective phase]

I would again like to draw the reader's attention to the point that I am not talking about a correction setting in immediately. All that I am saying is that now we need to be careful about the longer term investments in major stocks as we are approaching a top. Now it is time to slowly book out profits and deploy those funds in FMPs, FDs and if the profit chunks are large, in assets like real estate. The next set of buying opportunities will come later this year or next year and the same will be intimated through the updates.

As long as the 7400 levels hold on daily / weekly basis, the risk-reward is in favor of buying the dips. Once Nifty posts a close below 7400 levels, it will be a potential sign of reversal from the bull trend [weakness gets pronounced if the close is below 7400 levels on a weekly basis] The most crucial date will be with the pivotal date of 26th Aug '14 [3 years ago on 26th Aug '11, Nifty had made a swing bottom of 4728] So one can expect a major upswing or downswing in the 7-8 days around 26th Aug '14

For BankNifty, if it takes out the swing high of 15700 levels of May '14, then it can rally a further 800 odd points towards 16500 levels. The crucial support remains at 14200 levels breach of which will invite a further correction of 800 odd points.

One need not read too much into the stock split of Axis Bank [1:5] It is another sign of distribution. Initially prices may get marked up towards 420-425 levels and then correct downwards to 300 odd levels. Again, no need to rush to build shorts. The same will be confirmed by price and volume action and I will update the same via Twitter.

So for August, the broad Nifty range is expected to be 7400-8000 levels and high volatility in price action expected. On BankNifty broad range can be expected to be 14200-15700 and breach of either of these barriers will bring a large swing trade in the same direction.

For Gold and Silver, the rupee prices have in all likelihood bottomed out at 24k and 38k respectively on MCX levels [though silver still has the potential to test the 35k mark once]

Crude in dollar terms will move in the 95-105 dollars / barrel mark whilst MCX Crude will likely move in the 5900-6400 range for August '14. Falls are buying opportunities.

To summarize, book profits but resist creating shorts till 7400 is not taken out on downside.

Outlook For July 2014

So the initial part of June was good and after hitting an intraday high of almost 7700, it then slipped back to 7500 levels and kept drifting there about. So what next? 7200-7400 band is a very strong support band right now and at least for July '14, seems unlikely that this will be breached unless the budget is bad or there are external Black Swan Events.

Barring that, the euphoric sentiments, budget expectations and reactions to budget can either take Nifty to 7800 levels in July or it may slip back to 6900. 8th to 10th July can witness lots of whipsaws as people will be reacting to sections of the budget speeches etc. The news will try to comment on every little detail barring say a cough or sneeze by the finance minister!

What the markets really want to know are
1] Outlook for Growth? [Tax Holidays, Government Capex Expenditure etc]
2] Ease of Business [At least partial roll-out of GST, etc]
3] Cost of Capital [Largely domain for RBI]
4] Fiscal Prudence

As long as there is something to cheer for, a 5% upside from current levels is possible on the back of positive sentiments [remember that most of the positives have already been factored in the price] As long as there are no negative surprises here, the downfall is limited. However, since prices have already shot over the roof and lots of positives have already been factored in there is limited scope for upside as well. Until Diwali 2014, the index might manage to keep its head above 7k levels [barring Black Swan Events] The phase of distributing stocks is in process and distribution takes time.

Let us review the charts for Nifty / BankNifty on Daily / Weekly Basis

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

As seen in the charts and prices over the last 2 weeks, prices have been sideways for the last 2 weeks on Nifty and BankNifty. The alarming aspect on BankNifty are the ominous signs of distribution vis a vis prices and volumes. Nifty on the other hand is showing sideways correction with sectoral rotations.

However, at this point of time, as I keep reiterating on Twitter as well, it is not a time to build shorts. On the longer term equity investment funds, keep booking out and trim long positions. On the trading funds, wait for good dips and buy [futures / equities better than options] The risk-reward is tilted in favor of longs as long as the 7200 levels are held [positional] and 7400 level is held [2-3 days]. Bulls are in control of the market as long as 7200 level holds on closing basis. Of course, from a trading perspective, that will be too far away to book a loss. One can keep SL of 30-40-50 points depending on one's risk appetite. The best buying points in July series will be around 7400 levels or on 2 consecutive closes above 7550-7580 zone for a minimum target of 7700 and ideal target of 7800-7850 levels.

Other Updates
It still seems likely that Gold and Silver may have bottomed out in Rupee terms. Around 25k per 10 gms [give or take 2%] it is a recommended buy via ETFs like GOLDBEES, QGOLDHALF

Silver may test 35k-36k levels once before the next breakout

Oil is temporarily high due to tensions in the Middle East but things should stabilize soon. However, USD 90-95 mark seems to be the benchmark now with temporary blips over this threshold or below this threshold.

To recap, Nifty is approaching the last stage of its rally. Unless there is some major Black Swan event, Nifty may not correct too much as well and stay sideways most of the time [perhaps a budget rally now and a Diwali rally later and a corrective phase post-budget] Enjoy July for whatever upside comes through and wait for fresh signals to emerge. Keep booking profits on equities and deploy them on money market instruments [not NCDs though; stick to FMPs anf G-Sec Funds]

Outlook For June 2014

Well the election results were covered in the previous posts and let us not forget that this is just the beginning for the new government. The real challenges start now and as usual, markets discounted a lot of good things already and profit-booking has commenced.

I keep reiterating that 7200-7500 levels were the logical targets for Nifty and they were achieved much earlier than anticipated. The key levels on daily/weekly/monthly basis are 7200/6900/6600 respectively IMHO. 7200 should ideally act as a good interim support for minimum upside of 7350-7400 levels in the next 4 weeks. If Nifty closes 2 consecutive instances below 7200, the next logical halt will be 6900, at which point all gaps created in May '14 will be filled [there is 1 gap pending to be filled]. Corrections are healthy and good for the market and gives opportunities to re-enter the market.

Although the logical target has been achieved, technicals and euphoric sentiments suggest that Nifty may take a shy at 7800-7900 levels once more in 2014 [either around 21st June '14 or towards Diwali '14] provided no other Black Swan events come through. This is still not the time to short the market whilst equity portfolio gains can slowly be banked. From a trading perspective, in the beginning of June, a swing trade for shorts can be initiated with breach of 7200 levels for a target of around 6900 [+/- 50 points]. As it happens in most instances of 21st June, Summer Solstice, markets tend to bounce back very sharply.

After a lot of months, finally option prices have gotten rationalized and around 21st of June, there is an interesting trade setup; should Nifty be around 7200 levels, one can attempt a July 6900PE + July 7500 CE straddle within a cost of about 150 bucks. Target exits will be 6900 Nifty spot on downside and 7500 Nifty spot on upside within 10 days where a 300 point move can yield 70-80 points per lot [after recovering initial costs] Should the profit booking be more severe in 1st half of June and Nifty spot be around 6900 levels around 21st of June, the straddle can be with Jul 6600 PE and Jul 7200 CE. These are high probability trade setups as most often than not, markets move significantly [250-300 points on Nifty in the 2 weeks around 21st June]

20th June '11 to 7th July '11: Rally from 5177 to 5740
20th June '12 to 9th July '12: Rally from 5032 to 5348
24th June '13 to  1st July '13: Rally from 5550 to 5880

As I keep mentioning from time to time, 21st March onwards, 21st June onwards, 22nd September onwards and 21st December onwards, the markets tend to move dramatically in either direction and with a good swing [albeit, in some instances a bit delayed] and during such instances options are a good bet. Always beware of the India VIX levels and Implied Volatility levels as the IV can significantly impact option pricing. For Longs, one always has the option to buy equity.

For shorts, one needs to have a technical confirmation  before buying Puts or shorting futures.

Let us review the Nifty and BankNifty charts once to get a handle of the levels

Nifty / BankNifty Daily / Weekly Charts

From an investment perspective, the A-group counters were already identified from August '13 onwards with levels and most of the counters achieved their targets as well. Now it is just a matter of trailing positions and cutting long exposure to equities in A-group shares. Even in the mid-cap space, ETFs like JuniorBees, InfraBees have played out their stories for now. Accumulation in these counters should now be only after a 15%-20% or more correction and that will be updated as and when such opportunities come through.

Opportunities for quick long/shorts will be updated regularly via Twitter on the top left hand side of the blog.

Gold is coming to a good buying point again. It may retest the lows of last year once around 24k-25k levels where it should consolidate for sometime and then slowly start moving upwards again. QGOLDHALF and GoldBees remain preferred instruments to buy the same. Silver should find a bottom around the 35k per kilo mark and buying physical units makes more sense.

Enjoy the bull run till it lasts and for now ignore calls for 9k, 10k etc on Nifty. There is only so much that an index can rise in a particular year and markets discount a lot of news in advance. Keep cashing out from time to time so that it can be redeployed when needed.

Nifty Election Outcome - Compare with Prediction 2014

Well well well - the big day has arrived and Nifty is almost there at 7500 levels. In the Outlook for May itself I had given a BankNifty estimate of 14500 and we are well past below that. I mentioned PSU banks outpacing over Private Banks in May and that too has happened.


Let us review my investment picks given over the last 6 - 8 months

SBI: Accumulate below 1850 all the way to 1450.
Avg Investment Price = 1650; LTP is 2485 Gain: 50% ROI in 8 months

Larsen: Accumulate below 900 For 1450 target.
Avg Investment Price = 725; LTP is 1445 Gain: 99%

Tata Steel: Accumulate in 240-270 Range; Target 425+
Avg Investment Price: 225; LTP 480 ROI 210%

Yes Bank: Accumulate below 300 all the way to 240
Avg Investment Price: 295; LTP 581 ROI 97%

NiftyBees: Buy below 580 levels relentlessly
Avg Investment Price: 600; LTP 750 ROI 25%

BankBees: Buy below 1000 levels relentlessly
Avg Investment Price: 900; LTP 1550 ROI 72%

Bottom-Line: Buy when the market is fearful and there is no need to buy too many stocks. The only buy call that failed was JP Associates. Also there have been some personal picks and trades that did not pan out on expected lines.

I am still seeing a lot of buy calls coming through and targets of 8000, 9000, 10000 being spoken about on Nifty. I reiterate my stance: Anything beyond 7500 is a bonus. DO NOT BUY NOW; THIS IS TIME to BOOK PROFITS.

That does not mean you liquidate all your holdings. But as far as the India story is concerned, almost all positives are being priced in. Euphoria may take the markets another 10% to 20% higher but this is time to start cutting long positions. Book those gains and start looking at the next leg of gains.

What we are seeing now is the repeat of 2008, 2010 etc. The buy calls come towards the end of the rally and thats why retail investors lose money [because they buy at potential tops]

If you look at the fundamental story, nothing has changed over the last 12 months. This rally is fuelled by optimism and euphoria and that will die down soon. Last but not the least, don't short this market. But certainly don't buy in. Looking at the way the Rupee-Dollar is moving and assuming that Bond Yields will soften, there is more money to be made in Debt Instruments, Gold Silver now.

The buying time for equities went away long ago. With a stronger rupee, gold and silver will correct in Rupee terms further. Rupee-Dollar should move towards the 54-55 mark by end-June when the budget comes through. Should that happen, the next significant return yielding instrument will be the gilts.

Every 1 rupee appreciation in Rupee-Dollar exchange rate, the gilt instruments appreciate 5% to 7%

To summarize, enjoy the bull run till it lasts but don't rush to buy in now. Keep raising your stop losses. The way things are poised, the euphoria may bring more gains but that is not a sustainable rally. Please do take moment to review the election updates that were shared here as well over the last 6 months.

'Jaanoge toh maanohe' - Jai Hind

http://india-election-2014-niftyparadox.blogspot.in/

Outlook For May 2014

So the much awaited election month is here. A lot of people are anticipating fantastic election results and hence the huge demand for options. Elections May 2009 saw some big gap-ups post UPA-2 and the consensus view is that history will repeat itself. I personally don't know whether history will repeat itself but prima facie looking at the run-up as of now and option prices, whilst upsides are expected with a stable government outcome but such a massive runaway gap-up may not repeat itself.

I don't mean to say that markets won't cheer such an outcome but looking at the aggressive option price build-up, change in Volatility, Implied Volatility, the immediate outcome in the stock markets seem poised in favor of option writers and hence fireworks may not immediately follow post-results. I would be very vary to play this game via options. Cash Market buying or Long Futures + Long Puts as hedges could be better.

Coming back to the profit booking mode that Nifty has been in the last week of April, I can just say that these are healthy and needed for sustained bull runs. As long as prices stay above 6225-6350 band, it is a very healthy correction and routine profit-booking sessions. So far, 6650 zone has been tested twice and prices have bounced from there. Another time it is tested, it may not hold and slip further to 6550. However, as prices have broken out of a multi-week, multi-month consolidation and hence I won't recommend shorts even for trading. I would use all these falls to add to longs be it in the equities segment or futures segment with SL EOW < 6225. The minimum upside targets remain unchanged at 7200-7500 bands. Anything above this in 2014 will be a bonus.

The higher markets go without reasonable correction and consolidation, the steeper will be the ensuing correction. As of now its a bull party that seems very well poised to continue. So when will the bears come into the picture??? Only 2 possibilities

1] An unstable government / Third Front or a government with a short tenure with another elections within 12-15 months. FIIs will simply pull the plug out of India

2] Black Swan events like the dot-com bust, Lehman Brothers etc

These are events that one cannot really plan for and alertness in taking action is the only way to manage. So without any of these triggers, the bull trend is intact and short-term fluctuations should be just ignored as far as the blue chip stocks are concerned. As mentioned in April as well, most of the consumption theme patterns have played themselves out well. Similar is the case for IT as well. The sectors that will lead the rally now will be the capital goods / manufacturing related stocks, banking stocks [especially the PSU companies]
The best way to play these stocks will be Junior Bees, InfraBees etc

The charts for review
Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

Other Updates
Gold and Silver may play out in divergent themes in the second half of this year. Gold in all likelihood is going to continue its uptrend as usual. However, now Im getting very wary of silver in the short to medium term. The prices in both dollar terms and rupee terms are not appreciating as swiftly as they should have. Moreover with silicon and nanotechnology, the industrial use for silver is decreasing. Given low prices in dollar / rupee terms for Gold and Silver, there is natural inclination to allocate higher amounts to gold rather than silver. Please not that this is a short to medium term view. The longer term trend for silver still continues to remain up. So if one can ignore the short-term fluctuations, any price below 44k all the way down to 35k is a good price to buy silver for a longer term target of 75k.

Gold is an open and shut case because the moment dollar price drops below 1250 dollars an ounce, there is significant drop in gold production and demand from emerging markets surge. So within 8 to 10 trading sessions, price simply starts picking up on the back of physical demand.

As far as crude is concerned, in the short term rupee appreciation may bring some relief in prices. However, that relief will be temporary. Longer term trend for Crude is UP and it is poised to cross the 3 digit mark in rupee terms within the next 18 months or so. On the Rupee-Dollar, front, a stable government may bring rupee dollar exchange rates towards 50 levels but that also will be a medium term relief factor.

The exchange rates are primarily dependent on the bond markets and bond yields. As long as we have near zero rates from the west and 6%+ yields on RBI bonds, the exchange rate is bound to depreciate in rupee terms. Compounding to India's woes are the high level of imports that need to be settled for in Dollars and Euros. However, these again are longer term trends and one needs to plan accordingly.

As and when day to day trading or investing ideas come up, I keep updating via Twitter that you can see on the top right side of this blog. Happy investing and trading. Just like many firsts, this is one of the most historic elections of India and let us see how things pan out. From an EW perspective, we are in a powerful 3rd wave on a monthly/yearly scale as well [about 18 months from Jan '14  to June '15] One should not be disheartened by corrections / falls in the shorter term. Greater the fall, greater the buying opportunity on index level. 

Outlook For April 2014

Initial Comments
Normally I post the outlook file latest by 1st of the calendar month. The post below was in draft mode until 2nd April after which I had to urgently go out for personal work with ZERO access to internet/mobile etc. I got back home only on 13th April. I have NOT MODIFIED the post with updated data now available. So when you read this, remember that 90% of the texts are updates basis data until 1st April '14.

Only 2 additions have been made to the post while uploading this post
1] Charts for Nifty/BankNifty [though they are with additional bars of 2nd April till date now
2] The last paragraphs with some more comments basis latest price action

I humbly request readers to keep these points in mind when reading the same

Beginning of Post EXACTLY AS IT WAS on 2nd April '14

So March was indeed very exciting. Nifty broke past the 6380-6415 band and moved to new highs [I had anticipated this post-elections though I admit] Sectoral churning is on-going as usual but the fact of the matter is that prices have broken out of a major consolidation band even in the weekly/monthly longer term time frames. [After the highs of 6357 in Jan '08, the index never quite managed to take those levels out comprehensively for almost 4 years and that too, with such a weak Rupee]

I have been repeating for the last 6 months that 2014 is expected to push Nifty to new highs but I also mentioned that any major upside will be post-elections. I received some mails questioning why I was so assertive about post-poll rallies when pre-election 2009 data clearly points to a pre-election rally. There are 2 parts to this explanation;

1st: Self-Selection Bias: I started actively participating in the market in 2011 with 6th Nov '10 as my personal anchor point. So my comments get assertive for events after that more than anything else. Study of price / events before that are mere statistical analyses - so the self-selection bias definitely plays a role

2nd: Weightage Assignment Confusion: Even while studying price action prior to my anchor points vis a vis other events, IMHO there is a genuine confusion as to what weightage should be assigned to what event? At the benefit of hindsight, the rally in April-May 2009 looks like a pre-election rally. But just step back a bit and reflect - the base of Nifty at that time was about 2500 post-Lehman Brothers. US FED was looking at the launch of QE program. After correction from 6358 to 2252, a 50% retracement to 4500 levels was technically very much logical in the ensuing 1 year post Oct '08. QE pouring petrol in global markets was inevitable. With such major triggers, it is next to impossible to assign a particular weightage to that price action and conclude that x-number of points rally can be atributed to pre-eleciton euphoria and y-amount of points are due to QE factor. I had given very large weightage to the QE factor when I said that the rally to new highs will be after elections 2014

Last but not the least, I had categorically mentioned in my recent posts that breaching 6415 on closing basis will push Nifty into uncharted territory.

Now that Nifty has entered uncharted territory, it will take some time to establish new supports and resistances simply because it is in uncharted territory and unless we have the benefit of time and data, the same can't be established. The only 2 additional support points I could figure out in March above 6380 are 6480 and 6580. April being the time we have a lot of Dance of Democracy [tagline courtesy ToI], prices may seem to drift sideways again. Falls won't go below 5944 IMHO even in worst case scenario [ideally a base in the 6125-6180-6225 zone] Falls will be buying opportunities.

As usual, I maintain my stance that election outcomes can't be priced in a democracy like India. Right now, the price simply indicates that hot money is expecting a stable government sans policy paralysis for India in 2014. The single largest party can garner at best about 180-200 seats IMHO and a coalition is inevitable. The 3rd Front scenario seems fading off with each passing day [relief for hot money]. Yet, we need to know whether the ruling coalition can pass the vote of confidence and express high probability of serving the full term. A fractured mandate that can potentially end up with a longevity of 13-15 months forcing re-elections in 2015. This can take all the euphoria out and trigger an exodus of hot money from India. This seems highly unlikely at least for now.

I personally will look into buying opportunities should there be some corrections in April. The risks are pretty well known; if the vote is favorable, markets will go on a roll targeting 7200 over the next 18 months. Should there be a downside move post-elections, the worst hit that a LONG-equities portfolio can take is about 20% which is absolutely ok. The dividends and subsequent rallies will more than offset that given a longer term horizon [3 years] Unless there are Black Swan events, no major risks appear for India as of now.

However, on the issue of which segments will take the markets up, my bets are on cyclicals, banks and capital goods. IT and Defensives have had significant upsides and I reckon there would be significant profit-booking in these counters in the near-medium term. IT and Pharma income depends largely on weak currencies. Should there be a stable election outcome, the Rupee is going to appreciate significantly by at least 20% and that itself will take out a lot of sheen. Moreover, with the western governments aggressively trying to reduce their medical care expenses, there will be a lot of pricing pressure on pharma companies. As far as FMCG is concerned, most of the positives have been priced in. Volume growth on a sustainable level is about 5% and FMCG cycles are much larger. They rally for about 3 years, stagnate for about 3-4 years before any major upside follows through again. FMCG has almost rallied 200%-300% on the indices and that kind of growth to return will take longer. In strong bull market trends, interest rate sensitives, capital goods, banks [high risk categories] are the ones that rally the most as compared to defensives.

Just to put things in perspective, the toothpaste market is worth about 5500 crores. 40% of this is manufacturing cost, 20% distribution cost with almost 25%-30% marketing costs (gross estimates basis data available on the net). New product lines are crowding this market space. So how much bottom-line growth can these deliver? Take any other category like soaps, detergents and the same theme emerges. The only silver lining in all this is that this segment is largely recession-proof as the scope for discretion in spending in these categories is limited.

I don't think one should read too much into the Russia-Cremia kind of encounters. The US and Europe know very well that Russia is not another poodle nation like Iran, Iraq, Afghanistan etc; any offensive will be very strongly countered by Russia and not just a reckless one but a very measured one as Russia too has a lot of levers in command. Also I personally think that the statements from US Fed regarding QE taper is rubbish. It appears like a perfect build-up to ramp up money printing under guise of security threats in the geopolitical space. In a nutshell, such statements just end up creating large veils under which the money printing fiat schemes can thrive without challenges.

To summarize, apart from a major war or banking collapse [Black Swan events], the emerging market equities, especially India are well poised for a bull run. The more they fall, the greater buying opportunities they throw up.

End of Post as it was on 2nd April '14. The portions below are now basis additional knowledge as of 14th April '14

Let us review the Nifty and BankNifty Charts (Charts updated on 14th April '14)

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Monthly


Now that Nifty has kissed 6800 and RSI indicates a highly OVERBOUGHT reading (remember that the OVERBOUGHT condition has remained intact for most of the time from mid-March) the supports for April have been established as follows
6358-6380-6415-6480-6580-6680-6750
No resistance above these points are known. Should there be corrections and prices go below the points mentioned above, the supports will become resistances. All falls are buying opportunities on delivery basis. I am already seeing comments on various portals with Nifty targets at 8k, 9k, 10k!!!  These numbers seem far exaggerated as markets don't move in one direction only for very long periods. Not that these targets cannot be met but there will be profit-booking corrections, sideways corrections etc. I still maintain that a realistic target is about 7200-7500 levels until Diwali 2014. Any upside beyond that for 2014 will be an added bonus. Any correction arising after price rises above 7200 will end up being very swift and deep in all likelihood.

For now unless a Black Swan event happens, prices seem unlikely to go below 6358 in worst case and below 6500 on an optimistic note. Building short positions on Nifty/BankNifty is not a prudent idea at this juncture. Even in the FnO space, it is much better to use corrections to build Long Futures positions with a protective Put as hedge.

The rally in March and 2 weeks of April has seemed very healthy and secular. The mid-cap indices also have participated in the rally. There will be lots of buy calls on perhaps unknown names as well in the small-cap and mid-cap space. Unless one has very strong conviction on the person giving the call or one knows the fundamentals of the company, I would say be very very careful in buying these aggressively. The mid-cap space is always tricky because the price swings are very very sharp in both up and down directions. It is better to allocate mid-cap allocation to index linked ETFs like JUNIORBEES.

The goal is NOT PERCENTAGE gains but absolute gains made from the transaction. As much as possible, stick to large caps and index linked ETFs.

Other updates / Global Factors

Money printing is pretty much on an overdrive from most important Central Banks that will fuel money into stock markets. However, 2014 will see higher allocation in Emerging Markets especially where elections are due. We have already seen the euphoria in India and similar action can be expected in Indonesia, South Africa and perhaps Brazil as well. The developed market indices like DOW, FTSE and DAX. There is a global mania in the technology space just as it was in the dot-com time period. So 2 main triggers of a global contagion [Black Swan events remember] are potentially

1] A sharp bust in the dot-com space yet again. Obscene valuations for technologies with deals in billions for companies that are yet to show a profit and show no signs of making money anywhere in the next 5 years. The common examples given all the time are Google, LinkedIn, FaceBook etc. However one must remember that there are over 300 startups for one good bet like Google. This technology bubble is going to burst very hard in global markets when they come. It is not a question of if this will happen - it is bound to happen; the only question is when and hence one needs to be careful. The only companies that are in a position to get through the rough patch even after a roil in the IT space are Google, Microsoft, IBM, Apple and CISCO according to me. These are the only large-cap firms that have very sound fundamentals in place.

In India, over the last few weeks I have been seeing so much of dot-com euphoria with names like Flipkart, Snapdeal, OLX, QUIKR and countless number of local-abc.coms. It is sheer madness and most of these will fall like 9 pins when the going gets tough. On a very longer term basis, only naukri.com and bharatmatrimony.com have been portals that has survived so many booms and busts in India now. Only JustDial, Flipkart and Snapdeal are 3 portals with sound business models in place. However JustDial prices have been crazily overvalued and the same can be expected in Flipkart and Snapdeal on 2014-2015. One may park a very small sum into these to cash in on the euphoria but remember that they will call come crashing down very hard just like Educomp, NIIT, Aptech [if you look at 5 year historical data for these]

This space is a ticking time-bomb..........

2] Although ECB has been holding the European indices steady with money printing, the Eurozone threat is far from over. Remember that markets move opposite to the majority opinion most often than not. Since the time PIIGS crisis came, most people have had a very bearish outlook on Europe [including me as you can see in my older posts]. When the vast majority was expecting a fall, the much needed oxygen dose came in from ECB and Merkel re-election did not make any damage so far over the last 6 months [That was a very real danger that I had mentioned along with the bond markets of Denmark] Now there is a vast majority of people on the bullish side for Europe. The fundamentals of Europe have only deteriorated but the equity indices are scaling higher on free money printing dole-outs. With so much euphoria and complacency creeping in, the time bomb from Europe can hit anytime.

Both the above events cannot be planned for as they are random Black Swan events. But aalll izz naat well - always be alert!

Gold and Silver seem to have found their bottoms in rupee terms as of now. However, the rise in dollar prices of gold and silver have not recovered significantly until now [technically at least a 50% retracement was expected after gold hit 1200 dollars and Silver hit 20 dollars per ounce each. The maximum retracement so far has been 30%. So from an Indian perspective, should there be a sharp appreciation in Rupee-Dollar exchange rate, Gold and Silver may make a new low once.

I admit even until last month, I had kept saying that the appreciation in rupee-dollar will be more than offset by the appreciation in dollar denominated prices of gold and silver. However looking at the sluggish prices in dollar terms, should there be a sharp appreciation in rupee, Gold testing INR 22000 per 10 gms and Silver slipping to INR 35000 / Kg is not ruled out. I am not saying it will happen but the odds for this seem to have gotten higher now. Let me also add that even if this event does happen this will be an excellent buying opportunity. Looking at a 3 year horizon, Gold and Silver both will scale back to at least 1925 dollars an ounce and 30 dollars an ounce respectively. When this happens, depending on exchange rates Gold and Silver in Rupee terms will be 35k+ and 60k+ respectively. I won't reccommend shorts in this space also but should the falls come through, BUY

On the crude oil front, should there be an NDA government structure, petrol and diesel may go down 10% once but remember that fuel prices falling will be a very very temporary phenomenon. With the kind of subsidies and benefits that any government in India will have to deliver, taxing petrol and diesel de-regulation is one of the key levers for governments to increase revenues. Petrol is headed to 100+ per litre within the next 3 years.

To summarize, 6600-6700 was the first target expected on upside and though I expected this after elections it happened much before and even kissed 6800. 7200-7500 should be realistic expectations as of now and anything above that is a bonus. Use the dips to buy. Keep looking at the Twitter feeds for day to day updates!

Outlook For March 2014

Well February was quite exciting towards the end of the series. Overall, the range for Nifty remains unchanged at 5950-6350 until election results go through. Any major upside or downside from these levels will be subject to events not known [and hence called Black Swan Events]

The charts are pretty straightforward and I have marked my comments

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

Right now, Nifty is bullish on Daily, Weekly and Monthly time-frams

Daily: Bullish till EOD > 6225
Weekly: Bullish till EOW>6080
Monthly: Bullish till EOM>5970


From a trading perspective, options may not be able to give the desired results. it is safe to buy Nifty futures in the 5950-6025 zone and to sell in the 6225-6325 zone with Long SL EOD < 5944 and Short SL EOD>6380. March '14 can get exciting in the period 15th March to 26th March [Spring Equinox due on 21st March '14]

Until the election event does not get out of the way, it may be difficult for retail traders to rake in some meaningful profits. Sectoral churning is on-going in every leg of fall or rise on Nifty. There are comments like 2 upper circuits for BJP/NDA election outcome etc; May and June near strike Calls and Puts are going at 350 rupees on each leg. IMHO, those who are expecting a bumper with the election outcome may end up losing money just as was the case with INFY options in 2013. Over a period of time, as many players enter the field with the same information, it becomes very difficult to make those gains due to high participation.

In my opinion as far as Nifty is concerned, one should just look at the Support/Resistances and trade accordingly.
Nifty Levels: 5944-5971-6025-6080-6125-6180-6225-6280-6325-6380

2 consecutive closes below 5944 opens for retest of 5740
2 consecutive closes above 6380 opens Nifty into uncharted zone

Gold and Silver have perhaps found their bottom in rupee terms. The prices will be more or less stable for the next few weeks and falls must be used to buy.

Last week of March will reward traders handsomely IMHO

Outlook For February 2014

So January '14 again opened on a strong note and managed to end above 6000 levels. As mentioned earlier, until elections [or a Black Swan event from abroad], Nifty will be range bound. The broad range is 5944-6415 whilst the trading range will in all likelihood move around 5970-6350 levels.

One needs to be patient and buying near 6000 levels and selling near 6350 levels is what one can do on the Nifty. The disappointing part was BankNifty which could not hold 10400 levels in Jan '14. This makes a test of 9600 very likely in Feb series from where a strong bounce should come through targeting 11200 levels.

From a longer term perspective, BankNifty is providing very good buying opportunities, especially SBIN. In all likelihood, it should form a base around the 1450 zone and start the upward movement. The longer term target remains 2750 for this stock. Just as was the case with Tata Steel when it fell relentlessly from 475 to 200 and then bounced back to 425 levels in a jiffy, a similar pattern may play out in SBIN. The bounce from 1450 to 2050 should play out rather quickly in the near term. One should use these falls to buy into such stocks.

A look at the charts

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

A lot of people are still harping around the IT theme. There is no doubt that the IT pack has delivered stellar returns but the premise that they will continue to do so seems highly unlikely. However, since most of these IT counters are near 52 week highs, one should not jump to short these counters. Historically, when stocks make 52 week highs, shorts get squeezed and the very short-covering propels them a few percentage points higher. Rather those who are long IT should slowly trim the long holdings and bank some of those gains.

As far as the pending bull market rally is concerned on Indian bourses [post-elections] it will be the banking counters, capital goods and mid-cap stocks that will provide opportunities. That's how a secular bull market plays out i.e. strong currency, credit based bank growth and infrastructure and capex cycle movement. It is very difficult to pick up individual names in the mid-cap counters as regular large cap circuits don't work on them. Overnight they appreciate/depreciate 40%-50%. So one is better off with index based ETFs like JuniorBees, InfraBees, M100 etc on SIP basis.

As far as my trading calls are concerned, you can see them on the twitter feeds on the top left hand side, updated with about 3 to 5 calls in a week. On the blog, I will be only advising buying opportunities now as I feel that we are on the cusp of a major bull market and investments are a much better option.

As I keep saying that the bond markets are a pre-cursor to what one can expect in the equities space. The growth of the institutional bond markets [mortgage backed securities] and soon we can expect asset backed securities in the transportation space. All this is pointing towards a gush of liquidity emerging slowly [contrary to media reports of Fed taper, Bond Yields on RBI treasuries etc]. Once the election is out of the way and a stable government comes through, currency space will see a lot of upside for the rupee-dollar and the bond market money will pour the much needed liquidity in a lot of equities. Mainstream media is always late to the party IMHO.

Other updates
Gold/Silver: In rupee terms, a bottom seems to have formed and now a base building exercise is on-going. Due to the dual dependency i.e. dollar price and exchange rate, prices seem to confuse at times. The way I look at it, by the time currency appreciation in rupee happens, the dollar prices will runaway upwards and hence in rupee terms, not much negative impact is anticipated further in India.

Crude Oil: Prices will continue to hover around the 90 dollars / barrel mark but in rupee terms, we can expect petrol and diesel to cross over the 3 digit mark within the next 3 years.

The overall market structure seems poised to move into a strong inflationary period and one needs to be geared up to ensure that investments are made in the right areas. Hot money is gearing itself up in every area of middle class needs i.e. food, education, entertainment and in fact is spreading tentacles to wipe out maximum purchasing power.