Misleading Propoganda by Finance Minister - Election Gimmics

We just had the finance minister P. Chidambaram doling out his propaganda on curbing gold imports and saying that they 'cannot finance' the same. The average imports of gold have been 20-25 MTs per month from the time gold prices crashed in the international market. At USD 1400 per ounce, 21 MTs of gold implies an expense of USD 700 million. The government has no obligation to finance the same as retail investors and the jewellers' groups have bought this in hard cash to whatever has been the prevailing exchange rate.



What the elite finance minister is not mentioning is the huge leakage of revenues in crude oil imports!!!

Under-recoveries in diesel are still hovering around the INR 5 to INR 8 per litre mark due to appreciation of the rupee

The real culprit is the under-recovery of INR 25 to INR 40 per litre on kerosene [consumed at almost 5 litres per person per month from the bottom of the pyramid camp of almost 200 million people in India; it is this class that ensures 100% voting turnout]

What is most intriguing is that even the elite journalists from media from NDTV Profit to CNBC TV 18 to Zee Business are simply using silence. They have energy and inclination to yell on top of their voices on petty cases reported as news to increase TRPs but sadly nobody even questions such remarks when uttered by the finance minister.

Not that opposition parties will talk too much into this as they too are heavily dependent on maximum votes from the less fortunate people of India and equally heavily dependent on the educated class taking election day as a holiday and not exercising their votes.

Mr. Chidambaram - you may fool the journalists and some people but please try and understand that people in general are not fools. You have been harping about the gold imports relentlessly for quite some time now but can you be kind enough to address the real problem i.e. crude imports. The first step is to eliminate kerosene completely and allow subsidies for alternative energy sources. At least that gives a one time cost and alleviates problems to a large degree than to perpetually keep subsidizing kerosene [for which RBI has to auction debt to finance and the tax payers pay the interest on sovereign debt]

1 million paid for in cash in full by the consumer for gold; is that the problem or USD 20 billion+ paid for under-recoveries of kerosene and all other oil subsidies through tax payers' money is that the real problem???

Outlook For June 2013

So the expected upside went well  above expectations [5880 minimum expected and 6080-6180 expected should the 5944-5970 double top area be taken out as per outlook for May '13] The move above 6200 was a bit surprising. The adage is 'Sell in May and Go Away'; one of our readers [asit123] had a query as to what the news will be and what the trigger will be for prices to fall;

Well as is the case with gold, silver or stocks and indices, it is difficult to predict what news will negatively impact the market. All that students of markets can do is to evaluate the charts and look out for most probable paths. At any given point of time, there exists 2 possibilities i.e. a Bullish possibility and a Bearish possibility. One can see those and give conditions to be met with for the same and negation points [all from the price action only]

Let us review the Nifty / BankNifty EOD/EOW charts before looking at the outlook

Even now there are 2 possibilities on Nifty [as stated in the outlook for April '13 as well]

Bullish Possibility: We are going through a bullish consolidation and markets are poised to go higher; this possibility is very much on the cards as long as 5280 holds on downside in Daily / Weekly charts.
2 consecutive closes below 5280 negates the bullish view.

Bearish Possibility: A top is in place and the last leg of correction has started [This is a major correction to the Jan '08 top of 6357 and Nov '10 top of 6338]. If this is correct then downside targets are 4373-4531-4693-4770 over the next 6 months. 2 consecutive closes above 6280 negates this view.

Im leaning towards the bearish possibility for now but will change gears as soon as the possibility is negated. This is definitely not the time to enter long positions on delivery basis IMHO but actually the time to book profits and conserve cash. There is excessive optimism in the global equities scenario and usually markets lean in the direction opposite to the majority.

With money printing rampant from all major central banks, its quite clear why markets are so buoyant. From an Indian market perspective, its true that all the secular bull market rallies so far have taken place when the Rollar was below 48.25 This also points towards a major divergence; with Rollar at 56+, its more prudent for hot money to pour some more money into the Indian stock markets for now. Both the Nifty and Rollar are due for a correction. The most likely outcome in the near term to begin with is a 10% correction on both Nifty and Rollar. Should that happen, FIIs are hedged completely in dollar terms as their dollars will remain intact in such a scenario! Its very clear looking at Nifty and other sectoral indices that its not a broad market rally [The last 2 times when such a rally took place, even duds like Suzlon, Rpower, RCom or for that matter Sintex, Patel Engineering etc etc were all rallying which is the sign of a secular bull market] We have seen good sectoral churning right now and once it was FMCG, then IT and now the Auto and Pharma space. At the end, its all about maintaining the index. BankNifty saw additions in counters as well. Its difficult to catch tops and bottoms and with sectoral churns happening, one is best protected by keeping exposure to the index as that automatically relieves the burden of diversification. Yes the returns may not be high but the risks are also covered well.

A secular bull market in India IMHO is only possible after the elections. June will be a high octane month for trading with lots of opportunities on both upside and downside. The most critical date is 21st June and in the 5-7 trading sessions before and after 21st June, alert traders may stand to gain a lot in either direction of Nifty. The most critical numbers to watch out for on Nifty are 5944 and 5740 on downside and 6280 on upside.

2 consecutive closes below 5944 opens Nifty for retest of 5740 and 2 consecutive closes below 5740 opens Nifty for retest of 5408-5532 band.

On upside, 2 consecutive closes above 6280 opens for bull fireworks on the index. What is important to note is that even in May expiry week, we did not get a close below 6080. We have not had a weekly close below 5944 in the last 3 weeks.

Other Updates
After the crash in gold and silver, yet again EW pundits have come out with their versions and counts of why they were correct. What they do not tell you is that they expected the fall in late 2011 and early 2012; as the fall eluded them, the leading commentator for gold and silver started sending out comments 'Im not confident'
The Euro-Dollar was supposed to have said 'A Kiss Good-Bye' to the 1.32-1.34 levels way back in early 2012. The SnP 500 found a top at 1325 and then 1425 and then 1525

That does not take away the merit of EW Analysis; the concept per say is excellent and indeed helps identify turning points. The biggest problem with the current team of EW pundits including Bob Prechter is that they are excessively biased towards their own trading positions [if any] The moment any analyst using any technique puts in his/her own bias for analysis and trade, that analysis/trade is most often than not wrong. So lets just learn to use the techniques and study the charts and prices objectively.

The EW team is still looking at deflation [which as per most dictionaries is contraction in credit] On one side they will give you books titled 'Stock Market is Not Physics', Conquer The Crash' and on the other side they will continue to look at doctored CPI numbers only to find stock markets roaring to new highs. The latest articles point towards gold at USD 500 per ounce because in the 100 years of Fed's existence, gold appreciated 4 times that of CPI inflation!!! There is no impact of change in economical dynamics over the last 100 years!!! And the very same pundits point to the Dow-Gold ratio i.e. purchasing power of the dollar that has gone down by almost 95% and that is NOT INFLATION!!!!

Inference: Use the techniques and apply your own mind and devise a strategy for your trading / investing success. Now coming to the likes of Roubini, Fergusson [from the Ascent of Money fame] and Krugman, et all that they are doing everything they can to cut costs and are questioning their own analysis for nothing justifies the current rise in global stock market indices and Euro-zone still seems to be going strong. Its almost 5 years now from the time these rallies began.

The downside targets for global indices remain intact and it is only a matter of time. News will come after the price events take place. Corrections will come and they will be hard when they come through.

You will find the video updates uploaded below over the weekend.

Defensive Stocks Accumulation Zones

Some defensive stocks to buy with a longer term horizon [2 to 3 years]

BBTC - Bombay Burmah Tea Corporation
Wadia controled vertically integrated tea company. Buy Zone in the 90-115 zone for targets 150+

HUL - Hindustan Unilever Limited
We all know the firm; best buy in the region 280-320 zone for targets 480-560
Dividend Yield is about 5% on CMP and can be about 9%. Stock is currently in overheated territory and 280-380 zone can be expected in 2nd half of 2013

Biocon
A good defensive bet when the price is in 180-220 band.

Navneet Publications
Good stock with steadily growing business. Accumulation band below 50 for target 80

These counters may seem far off from their current prices but when the prices collapse, the falls will be severe [We had to wait for almost 1 year for gold to come down to USD 1450 / Ounce and when the collapse did take place, it just took 3 trading sessions and even 1450 support level disappeared for a few hours and that is the strength of bears when they inflict damage]

Stocks to avoid:

IT/ITeS/Education stocks like Educomp, MTEducare, Aptech, NIIT etc; these stocks do not create wealth in the long run for ordinary retail shareholders except for promoters and institutional divisions. The valuations tend to be over-heated like Enron where-in the next 30 years of profit is built into initial and follow-on offerings. Remember, if the business is so profitable, new entrants will come in and marginal revenues and profits have to be lowered. NIIT was offering Oracle, Java courses etc at more than 30k rupees per student only to collapse to sub-10k levels now.

Anything pertaining to high margin business especially in IT / ITeS space will eventually collapse and retail traders should avoid such counters.

Outlook For May 2013

What a spectacular month it has been; personally, the most gratifying part were the downside targets being achieved for gold and silver that I have been indicating for almost 8 months now. What the slump also showed is that securities be it stocks, or precious metals take the stairs to go up but nosedive on the way down eroding upto 5 years of gains in a short span of 3 to 5 days :D

In my personal opinion, both gold and silver are on the verge of finding their bottoms in dollar terms. Longer term investors must not be worried with these short-term fluctuations [I find it funny that there were far more people willing to buy gold @ 1650 dollars an ounce and silver @ 29 dollars an ounce as compared to now]
The 5% odd rally after the steep fall does not mean much for gold; in case of another round of panic, gold may even slip to USD 1200 / Ounce and if that breaks, then we may see a sharper correction to USD 1000 per ounce also. Silver is almost bottoming out and difficult to go below USD 17 per ounce. Crude has another 20% to 25% correction remaining and a bottom should form around the USD 65-70 / barrel mark for Nymex Crude. Falls are excellent buying opportunities as the larger trend is UP. In terms of returns, gold will now provide about 12% per annum returns over a 3 year period and within a 5 year period, it should retest the September 2011 high of USD 1925 per ounce. Silver being higher beta will end up providing much better returns over a 5 year period. Crude will continue to remain sideways in the USD 60 to USD 150 mark over the next 2-3 years but over a 5 year period, it may finally break the ceiling and achieve the magical USD 200 per barrel mark.

One must also remember that the economic circumstances and the pains in various sectors continue as usual. What accentuated the sharp sell-off in gold is not Cyprus or any other country selling its gold reserves but a panic wave that brought about a lot of redemption pressures on ETFs in the major metal exchanges. We must note that developed economies have lower reserve requirements of physical gold. The balance can be held in the form of Long Futures Contracts; if we add up all the long futures gold contracts floating around the world, they amount to almost 20 times the production of physical gold!!! [these are recorded figures at CBOT and LME; if CFDs and unrecorded figures are taken GOD alone knows how much leveraged contracts are floating around; hundreds of trillions] These are nothing more than ponzi schemes to get gullible investors with the allure of high returns. As long as bullish sentiment prevails, redemption pressures are low. When the bears put in their grip, margin calls are triggered and asset prices get rationalized.

So retail investors must conquer their fears and use all dips as buying opportunities; the short-term fluctuations barely matter when one is looking to double one's money in 5 years. Also as far as buying physical gold and silver are concerned, one should just look at one's target buying price and just go ahead and buy it when the opportunity comes. Just like the property one stays in, any appreciation / depreciation is notional. We will use the asset and market values simply don't matter!!! [If in doubt whether the mega-trend is UP or DOWN for Gold, always compare with prices of platinum; if platinum trades below gold, then it is a sure shot signal that gold is in over-heated territory and a correction is impending; if gold trades below platinum, the greater the deviation between gold and platinum prices, greater is the potential for return. It signals buying opportunities :D]

Back to our markets, let us first review the charts of Nifty and BankNifty on Daily / Weekly basis

The bullish and bearish views remain unchanged from the outlook for April 2013

Bullish View: There is more upside to come with 2 consecutive closes above 5944 which give us targets of 6080-6180. 2 consecutive closes above 6180 and Nifty will zoooom sending down shivers to the bears

Bearish View: A top is in place and we are in the corrective phase similar to the one we had in 2011 that started from 6338 and went all the way down to 4531. If that is the case then the downside targets by mid-June are 5440, 5280 and eventually settling at 5092 [800 points from 5880 odd levels is the expectation]

5880 was the expected top for April series; the breakout on 25th April suggests that even if the bearish view holds, we should now expect a top in the 5944-5970 zone. If we look at the BankNifty charts, they are suggesting some more upside. In fact April was one of the finest months in BankNifty with almost 14% gains

May has traditionally been a down year and as the adage goes 'Sell in May and Go Away' This year, the major planet Jupiter is moving from Taurus to Gemini on 29th May 2013. Taurus is the sign of the bull. Gemini is a dual faced sign. This is a very significant move that will last for the next 13 months. This transit will bring in a lot of changes in the lives of people [as usual for some people it will be very positive and for some people, it may bring some discomfort from present status quo] This will also have a bearing on markets  in general.

The positives of a potential rate cut of 50 bps and CRR cut is already built into the price of BankNifty. In case the RBI delivers on these 'expectations', then the upside is capped; if it falls short of street expectations, then there will be a knee-jerk reaction on the downside. Most banks are in over-heated territory and some of them are ripe for steep corrections. Some over-heated banks

1] SBIN: The asset quality is definitely a big concern. Last month, the SBI chairman mentioned that they will do what it takes to recover dues of the KFA debt of 7500 crores; first by selling the shares in its control and then perhaps going to the personal assets pledged by Vijay Mallya. What went un-noticed by the mainstream  press was the fact that SBIN wrote down the debt and said whatever they recover is a bonus!!!

On raising capital, markets were positively surprised that SBIN had a very successful overseas debt issue with a 3.25% coupon rate. However, we should also note that Credit Default Swaps on SBIN are traded on the bourses of Hong Kong. FIIs are wary of both asset quality and stock price of SBIN and the Lehman Brothers crisis showed that the companies on which CDS instruments are traded are punished the most in a bear market scenario

2] HDFC Bank: Most of the loan growth is coming from personal loans and credit cards. The stock has almost shot up 100% over the last 14 months. Whilst the top management claims that appropriate collaterals are usually taken and that they only shell out calculated risks, unsecured loans are always a challenge. a 40% correction from current levels seems inevitable even if the larger trend is UP

3] Kotak Bank: This bank is rallying on the back of corporate loan portfolios and the top management is aggressively buying loan portfolios from foreign banks that are winding down their corporate debt portfolios. As we have seen in the Kingfisher or Suzlon debt scenario, corporate debts have a higher tendency to go bust and corporate entities are less incentivised to repay debts compared to individuals [In India, if you miss your EMI of 5k for 3 months, recovery agents will be at your doorstep but as a company you default on 5000 crores of debt, you make media headlines but will be seen guzzling beers in an IPL match or a fancy party on a yacht] Corporate Debt at 14% interest is unsustainable for growth and with more banking entities cropping up, corporate debt yields are poised to go down. So Kotak Bank is actually in a very risk-on mode and that is bad for the stock holders in the medium term. This stock is due for a 40% correction from the life-time highs before deciding the next course of action [I wouldn't be surprised to see Kotak Bank being booted out of the Nifty / BankNifty indices in the next 3 to 5 years]

4] Yes Bank: Good run up so far but the company's microfinance exposure is very high. IMHO this counter is all set to nose-dive pretty soon. Retail investors should book some profits on this counter now and cut long exposure.

The safe havens i.e. FMCG and consumption theme stocks have begun their corrections. If the bearish scenario does play out, even this segment won't be spared. Forget about what Bob Prechter and the EW team says about Nifty [they use wrong parallels like IT and Auto for their analysis] Indian equities are heavily dependent on how Banks pan out; that's the primary determinant followed by capital goods and infrastructure.

Overall, this is actually the time to take profit off the table from equities and cut long exposure. It is prudent to lock in some profits in Fixed Deposits when the yields are so attractive. IMHO, right now the investment corpus should be 50% cash, 25% precious metals an maximum 25% in equities. When Nifty started trading at 4800 and below, that is the time to increase long exposure to about 50% [This oversimplified example excludes real estate] For the middle class people [I belong to this class only!] the EMI for real estate should not exceed 40% of monthly take home income and the home loan should not exceed a duration of 7.5 years. Realty is actually starting a mini-correction and b end-June we should see across the board correction of at least 15% in real estate prices. The fact that HDFC has started offering 30 year loan tenures with an EMI of 875 per lakh per month is a leading indicator of the slump in real estate segment. Its the black market funds and private equity funds that are propping up prices at the moment.

The liquidity gush from central banks has overheated the equity indices and it will be very logical that some profit booking will take place going into summer 2013 [June is the peak summer month for Northern Europe and North America] Also the fall in gold prices have unlocked additional liquidity for emerging markets in particular. Overall, the bull market from the lows of 2009 seems to be approaching maturity now. A correction is overdue.

Global Market Perspective
What happened in Cyprus is just a pre-cursor of things to come from peripheral European countries. Contrary to what Germans are saying, the reality is that saving the Euro is in German interest. Should the Euro-zone break up, other countries will go back to their old currencies with upto 70% devaluation within 48 hours of inception [similar to what happened to Thai Bahts, Indonesian Rupaihs, Malaysian Rinngits in the Asian Currency Crisis] Countries like Spain, Italy will all become as competitive as Asian manufacturing locations. They will see a quantum leap in manufacturing and tourism. Germany on the other hand that is export driven [internationally as well as within Europe] will see a 200% to 300% jump in Deutsche Marks and a complete meltdown of its manufacturing segment. Also saving the Euro and showcasing the risks of peripheral countries helps Germany keeps its borrowing costs low in the bond markets [after all, the Bund is a far safer haven compared to even the US Treasuries]

So it doesn't matter what the ECB or Merkel says; one should look at the picture objectively and there is a very big political game that is being played. However, neither such financial engineering nor political engineering can save the Euro-zone continuing with a single currency. It is just a matter of time before somebody pulls the plug. Fundamentals in the global economy remain weak and most of the Fortune 500 companies are not doing well [with the exception of Oil related companies, high-tech companies and consumption theme companies]

The entire banking system in Europe is still skating on thin ice and when the bears secure their grips, the falls in equities across the globe will be similar to the crash in gold and silver. It just takes 3 to 5 trading sessions to erode 3 to 5 years of gains! How long can Apple, Google, Exxon, Shell etc keep the indices afloat?

So here are the links to video capsules summarizing the outlook and forecasts for May
[Just keep the mouse pointer under the word 'Link' and the links will appear]

Link1: Nifty / BankNifty Update:

Link2: Staying Invested / Myths and Facts


Link3: Precious Metals and Commodity Updates

Link4: Global Market Updates

Special Update for Precious Metals - Gold and Silver

What a sell-off in gold; the fall was expected to be arrested in the USD 1450 per ounce area after the breakdown from 1550 level; worst case scenario was expected to be another USD 100 per ounce and a bottom formation in the USD 1350 per ounce area.

Silver has almost met its target of USD 22 per ounce as I have been indicating for the last 6 months. What I now see is a sudden fear to buy gold and silver. In fact it is this very fear that one needs to conquer as the chaotic fall is temporary.

The larger trend is UP for both Gold and Silver. Gold has had a tremendous 400% rally from 2001 to 2012 thanks to the money printing exercises from central banks around the world. So some cooling off was bound to happen. Another thing we need to bear in mind is that a lot of Gold ETFs around the world were excessively leveraged compared to the physical gold holdings. So the unwinding of long bets have triggered acceleration in falls.

What does this mean for the average investor???? BUYING OPPORTUNITY
Gold made a high of USD 1925 per ounce in September 2011. That is a 40% correction and this also means that over the next 3 to 5 year horizon, this will be the logical upside target for gold.

Silver made a high of USD 48 per ounce and this is the logical target for the next 3 to 5 years.

One needs to ignore the short-term fluctuations and enter fearlessly when markets present such opportunities. For the Indian investor, the best instruments to invest in gold and silver are as follows IMHO

Gold: QGOLDHALF by Quantum Asset Management. This is the least leveraged Gold ETF with almost 80% physical gold backing parked in Deutsche Bank lockers. QGOLDHALF is the scrip name on BSE and 1 unit corresponds to half gram of gold. When a subscriber has accumulated 2000 units of this scrip, s/he can redeem units for physical gold that will be directly deposited in the designated bank locker of the subscriber.

Silver: E-Silver listed in the NCDX i.e. the commodities section of National Stock Exchange. 1 unit = 1 gram of silver.

Last but not the least, if one has some spare cash, this is the best time to invest in jewellery and the proverbial silver plates and spoons ;)

Disclosure: I started my personal gold and silver accumulation from yesterday and have recommended the same to friends in my network

Outlook For April 2013

[This post and videos were created on 28th March 2013 and were pending updates for the charts]

Well Spring Equinox did not give as much traction as it usually tends to give. 2 consecutive closes above 5740 helped Nifty to reach the indicated target but the gains could not be held on to.

Resistances and Supports remain as follows for April series in Nifty

Supports: 5408-5440-5480-5532-5580-5608

Resistances: 5608-5655-5690-5740-5810-5880

Nifty/BankNifty Daily/Weekly Charts

Unless 5740 is not taken out on upside for 2 consecutive sessions, it is difficult to move ahead. The market breadth has been very negative especially with mid-caps and small-caps. Usually a major fall in market is preceded in this pack followed by largecaps. Now we have 2 potential views moving ahead

Bullish View: The falls in March have been profit booking sessions and risk-aversion by fund houses given global cues. If this view holds good, we may see one more shy at 5944 and if we get 2 consecutive closes above 5944, then 6080-6180 will be the logical targets. 2 closes below 5380 negate this view.

Bearish View: A top is in place. The fall from Nov'11 to Dec '12 was a Large A wave, the rally from Dec '12 to Jan'13 was the Large B wave and the current downtrend is the Large C wave down. This gives us downside targets of 4400-4600 levels over the next 8 months. 2 consecutive closes above 6180 negate this view.

My personal bias is leaning towards the bearish view as I have been indicating for the last 6 months or so. If the bearish view is intact, we may see a rally to 5740-5880 levels in April on upside followed by a fall to 5080 by mid-June. The previous fall was apprx 6100-5600 = 500; 500 x 1.618 = 810; 5880 [expected top] - 810 converting to about 5092 on closing basis on downside. this fall will be fast and furious as it will be the 3rd wave to the down.

Please take it with a pinch of salt as this is my personal opinion; I will never recommend buying OTM Puts or blindly shorting the market as always. One needs to wait for the appropriate signals to emerge from price action.

I would also encourage all EW enthusiasts to take an objective view. The EW principles are well defined and provide both bullish and bearish scenarios. Over the last 6 months, Bob Prechter and teams obsessions with their personal outlook has damaged far more than benefit followers. That is not because the EW theory is wrong, but whenever personal outlook clouds price action on ticker, objectivity flies out of the window.

Attached is the free pdf document shared by the EW Team last month. Look at the outlook for India given on the basis of the automotive segment!!! India always rallies with Banks, Infrastructure and Capital Goods segment. Part of the false confidence from the EW team comes from the fact that they identified the previous rally with CNXIT [as good as a random walk principle perpetrated by Bob Prechter himself in his article 'The Stock Market is Not Physics'!!!

Other Market Updates
What happened in Cyprus is just a pre-cursor to what can be expected out of Europe. As mentioned earlier, the Euro-zone breakup is inevitable. It is just a matter of time. 2013 and 2016 remain the most high probable years for the same to happen. This is logical from the \Fibonacci Time Series models as well

1987 - The flash crash of roaring 80s; 1987 + 13 = 2000; Dot-Com Bust;
2000 + 13 = 2013 So this is one highly probable year.

2000 - Dot-Com Bust; 2000 + 8 = 2008: Lehman Brothers' Crisis
2008 + 8 = 2016 So this is another high probable year. Given the state of elections still pending in many global economic superpowers, Im inclined to believe that the breakup will happen in 2016

Unlike what many market experts are yelling, there will not be any armageddon. The world will continue to exist as it is, and people will move ahead in life - simple. Yes if something will happen, definitely such events will shift balance of powers to emerging economies. The Indian Nifty is bound to go up North in the longer run.

So for the Indian investor, one should wait for sub 5k levels or the psychological 4800 level; regardless of what doomsday experts have to say, one should enter the market fearlessly at these levels with maximum exposure to Benchmark Index ETFs. Daily trading ideas are shared by Sanjay Raghuvanshiji on the other blog.

So that is just about it and we hope you make a profitable trade / investment as we move along.

Video Link1: https://www.dropbox.com/s/0lajwc3wu73j57f/VideoUpdateApril2013-Part1.mp4

Video Link2: https://www.dropbox.com/s/5mrrfgsz7myd5w6/VideoUpdateApril2013-Part2.mp4

Outlook For March 2013

Nifty and BankNifty Daily/Weekly Charts [Will be updated over the weekend]


The strong uptrending channel from the lows of 4770 in mid-2012 until 6100 on the upside has been broken by price action on the downside. Budget sessions are usually volatile and it takes 3 to 4 days for markets to digest the budget. The breach of 5740 yesterday on closing basis which was also a monthly closing vindicates our bearish stance for 2nd half of 2013.

Since 5740 did not hold strongly [which I personally thought it would as mentioned in the previous update], the downside support now comes in the 5532-5580 zone [of which 5532 should hold strongly IMHO]
On the upside, 5880-5944 will be strong resistances.

2 consecutive closes above 5740 will confirm a minimum upside target of 5880 and 2 consecutive closes above 5944 will confirm an upside target of 6080 at least.

Critical Dates for March 2013
21st March 2013 - Spring Equinox [market is expected to take a definite direction for a move of 200-300 points in either direction in a 2 week period between 21st March '13 and 5th April '13 from closing prices of 20th/21st March 2013]

Other Economic Stuff:
Deflation is a myth and we should be rejecting deflation calls even if is from Nobel laureates like Roubini, Krugman or the active proponent of EW theory Robert Prechter. I am personally in full agreement with Nadeem Walyat's argument that Inflation and rising inflation is the result of quantitative easing measures. In every post, I will just point towards the consumption theme - if indeed headline inflation is low, why are fruits, vegetables, fuel prices etc soaring so much? Apart from the diesel price deregulation theme, the bottom line is that quantitative easing and debt monetization finds funds channelized into the most essential needs of mankind in the consumption theme. I personally don't care about what the official statistics are with regards to inflation data in India. The basket of goods was determined in late 1950s with different demographic profiles of citizens. Today that demographic profiles have changed drastically [and the same business channels take pride in declaring 'demographic dividend'!!!!] Milk, Eggs, Fuel, Education, Rents all are soaring faster than the wages [growing at about 8% PA on average]

My personal outlook regarding corporate loan restructuring has been vindicated by the announcement of the ARC setup. Now financial institutions have started engaging in buying/selling loan portfolios in the fixed income market and this is just a pre-cursor to what lies ahead. Just like the housing market bubble of US in the 2004-2007 period, we are witnessing the creation of an asset bubble destined to burst with corporate loans in India. The stock prices of banks are misleading because asset quality and toxic loans are not in the price so far. In part, the consensus opinion is that the banks will have some other party to pick up the toxic loan portfolio, thereby mitigating the risk levels of the bank. This is an absolutely wrong assumption because this assumption needs the counter-party to be solvent and with adequate capital / risk appetite. Indirectly, its a good thing as it will explode so rapidly when the trigger is pulled and provide a lower base to start things afresh. There won't be any armageddon as pointed out by economists; in the end its a zero sum game and life will go on as usual.

Coming back to the Nifty, the view remains that this is not the time to buy stocks. The buy zone is when Nifty hits 4800 levels with maximum exposure to NiftyBees, BankBees and InfraBees and in front-line stocks like LT, SBIN, ICICI Bank etc. For those looking at FMCG as a defensive bet [and indeed a lot of FMCG and Pharma stocks have doubled in the last 18 months], just take a look at what HUL is doing....In the last 3 weeks, there have been advertisements from HUL for sale of prime residential assets and the Unilever group in general is solidifying its back-office operations in Bangalore. All this is hinting towards challenges with 'spend management' and a pre-cursor that even the defensive bets will soon see a sharp selloff.

Falls, corrections are always healthy for the market as they bring in buying opportunities and create wealth at a rate faster than inflation. Whether the correction on Nifty starts now or after making a new high is unknown. But one leg of a sharp fall is inevitable before the mega-bull run slated to begin after elections 2014.

Enjoy the upsides till it lasts and patiently wait for the next buying opportunity is what I would personally advise.

New feature from March 2013: A video update along with the blog post
[Will be uploaded over the weekend]