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.

Outlook For January 2014 / Outlook For 2014

Well Nifty has broken the jinx in 2013 by posting a new high [albeit for a few moments] and kept its head well above water. This was certainly not expected and a sharp fall was anticipated in 2013 as long as Nifty stayed below 6338. Global indices were on a roll in 2014 with European and US markets outperforming Asian markets big time. There will be many bears who will still say that these rallies are narrow with only a select stocks taking indices higher etc etc etc. What is important nevertheless is that indices have moved higher on the back of rampant money printing and this is exactly how things will pan out as long as QE continues.

On Nifty, the longer term bull case was 2 consecutive closes above 6280 that was satisfied in December '13. Some correction is likely in the next 3 months to about 5740 levels [5445 also possible] but this is healthy for the market. All such falls are excellent buying opportunities. The FMCG /Pharma / Consumer stocks defensive stories have played out their part. They may also rise further but no where close to the growth rates they had in the last 3 years. Now at best one can assume about 10% growth per annum in most of these stocks for the next 3 years or so. The cyclicals like capital goods, banks etc that will form the next major wave of growth for 2014. Midcaps are yet to perform and in all likelihood they will in 2014. 2014 is the year of elections and as I have been mentioning before, the markets do not care whether it is NDA or UPA at the helm. The latter half of 2013 have suffered from policy paralysis and this would have happened even if the opposition were in power. Post-elections, once there is certainty of a stable government, markets are expected to roar. The only spoke in the wheel is a third front that hot money won't like and that seems very unlikely for 2014. Post elections, the currency space can be expected to appreciate significantly and take Rupee-Dollar back to sub-50 levels by end-2014. DEFTY that has kept FIIs languishing will finally surge up IMHO and things should be on a song. Getting a year-end target is difficult but during the year, 6700-6800 is something that Nifty should be able to achieve in the 2nd half of this year. The next logical target is 7200 but markets don't move in one direction all the time. One must keep expectations normal but 7200 is something that we will see on upside in the next 3 years and 4900 is expected on downside once.

The point to remember is that unless Black Swan events like wars, economic crisis beyond normal limits etc take place, 2014-Oct'16 is a strong bull market for India. Every fall is a buying opportunity on indices like Nifty and BankNifty. The greater the fall, the greater the buying opportunity. So keep that cash ready to beat inflation. Ignore the noise regarding NPAs and Credit Restructuring with banks. It is well known to all market players right now and although fundamentally bad, the government banks will be recapitalized time and again. Stick to large-cap banks like Axis, SBI and ICICI and ideally go for SIPs in these scrips. The SIP mode will ensure that you get at least 25% PA returns on the overall corpus over the next 2.5 years. Other investing opportunities will be updated as and when they come through.

Be very wary of the IPOs that come through in 2014. The success of Just Dial is a pre-cursor by hot money to entice retail investors and tell them that the IPO success platform is back in India. Historical data suggests that over 95% of IPOs spell doom for retail investors in the long run. Sometimes it pays off better to stay on the road frequently travelled i.e. regular scrips like LT, NiftyBees, BankBees and ideally on SIP basis. For the Midcaps, go for index linked ETFs like M100 and JuniorBees. On the investment front, ignore short-term volatility. Since 2008, a lot of investors have been vary because the Nifty was in corrective mode. Post elections 2014, the story is expected to be much different and this is a once in a lifetime opportunity on Indian bourses. This is an opportunity one should not miss as an SIP portfolio of NiftyBees, BankBees, JuniorBees, LT, SBI, Axis Bank and ICICI Bank put together will yield a minimum 25% return per annum over the next 2.5 years.

Before moving further, let me zoom in to outlook for January 2014 specifically.
Here are the charts as on 27th Dec '14

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

From the week starting 6th Jan '14, the trend should get clearer. In all likelihood, price action is expected to be similar to that of Jan '12 though in lower proportion [that rally had started from 4531 whilst half of the current rally is already done IMHO] Critical time period are the 8-10 days after Makar Sankranti i.e. 15th Jan '14 onwards.

Critical Levels
Daily - 6280
Weekly - 6180
Monthly - 5970

So as long as Nifty manages to close above 5970 on 31st Jan '14, the uptrend remains intact. For traders, the daily/weekly levels are more significant and should change positions accordingly. If 6280 is breached on daily basis, it just means trim long positions. Short-term shorts should only be initiated after 6180 is breached on weekly basis.

Markets have been testing traders' patience for almost 2 months now and option prices have been absolutely crazy. One should avoid options for now and only use them as hedges for their futures' positions. The large moves either up or down should come through in the next 3-4 weeks.

Going back to 2014, the outlook for stocks has been spelt out clearly. The real estate market may take a short-term hit but the stage seems ripe for a royal upside in the property market. The pre-cursor to that is the introduction of Mortgage Backed Securities and the launch by IIFL is just the beginning. There will be many more coming in 2014.

Gold and Silver will slowly crawl back and by mid-2015 reach old highs. Oil prices will continue to be stubbornly up and petrol prices in all likelihood cross the 3 figure mark by end of 2014. [The gain in rupee currency will be offset by price rise in dollar terms. Moreover, with so many subsidies to take care of, petrol is the most logical target for the government to recover tax revenues]

The MCX debacle not withstanding, commodity trading will continue to soar in all likelihood through the NCDEX platform.

On the global markets front, 10% to 15% correction is likely but that again is very healthy and logical. Except for the Black Swan events, Nifty will run its own course this year and it may not be prudent to extrapolate western markets and anticipate movements on Nifty.

So once again, wishing all of you a very prosperous New Year 2014.

Outlook For December 2013

So we are the last month of 2013. Nifty has remained above the 5944 mark after opening the year at 6000+ levels. One part of the jinx has been no new highs in a year when Nifty opens above 6000 in the January of that year. So far, that jinx has held. The other part has been a bad 4th quarter of the calendar year is usually bad. That hasn't happened yet. December will tell us the whether history will repeat itself or the jinx will be broken.

From the technicals perspective, as long as 5944 holds on weekly basis, no major down moves seen. As far as 5810 holds on monthly basis, no major down moves seen. Daily levels will keep changing [currently in the 6080-6125 zone] That Nifty is headed for new highs is a given because the condition of 2 consecutive closes above 6280 has been satisfied. Only factor is the election results and hence new highs may wait till that is out of the way. On the other hand, falls upto 5445 will be considered routine corrections / profit booking and such moves are healthy for the market.

Since the technical part is being discussed, I will also post the Nifty and BankNifty Charts

Nifty Daily

Nifty Weekly

BankNifty Daily

BankNifty Weekly

For a severe downfall that was expected, it can only be now triggered by Black Swan events like the Lehman Brothers episode in 2008. Right now, the most probable events come from German politics or the banking system of Denmark [where personal debt levels are above 350% of current networth] This is the highest in quantum and percentage for any country in the last 300 years on 'personal' indebtedness. The problem is very grave because the country has a small population of under 6 million people and the quantum is significant. Or it could be a war in the middle east whatever - as the name suggests, these events are Black Swan events. It is difficult to predict them because they come at random.

Assuming normal conditions, capital markets will continue to maintain upward bias as long as money printing takes place. From an Indian perspective, too much upside seems difficult with stubborn inflation and weak currency. Hence the elections are important from this perspective as well.

In terms of timing, the 10-12 days with 21st Dec '13[Winter Solstice] as the pivot will be good for traders. Markets will in all likelihood give a good 200-300 point move in either direction around this point of time. The RBI policy will see some knee jerk reactions in either direction but it is difficult for RBI to be very dovish at this point of time. My personal take is that we may see repo rates unchanged [for growth] and perhaps a CRR cut for liquidity that senor Raghuram Rajan has not done so far.

From the social perspective, the great expansion of central banks balance sheets into trillions of dollars/euros/pounds/yen are feeding the next crisis. There is no doubt about the fact that the banking and financial industry will trigger the next crisis. However, since 2013 did not trigger such an event [with Oct '87 and Oct '08 in hindsight], this event is perhaps now due around Oct '16

Why am I certain about such a thing happening

It took almost 2 years before the 1987 crash for the bubble to be fully set to be burst. Then came the tech boom. There was a lot of mania for dotcoms before the crash actually happened. The dotcom / tech mania is here for one and all to see. People tend to forget that IT is a critical factor for business today but IT is in reality an enabler. In the last run-up for the IT crash, technology was so rudimentary that people had to be hired to generate HTML syntax codes. Over a period of time, software was developed for the same and pure HTML coders had to find something new. Again, I reiterate that IT is a critical enabler. However, real business and economy still grows on the basis of brick and mortar businesses and jobs. Yesterday's game changing technology will become today's dud. One also must remember that there is no perpetual growth. I am all for technology but simply cannot forget the fact that a tech mania wrecks havoc on economies. Compounding to this fact is that for 1 successful Google or Linked In, there are 250-300 failures.

The other part that fascinates me is that the sector that has boomed in financial markets ends up being on television the most. At equity market highs earlier, we used to see most advertisements from the banking and financial services segment [relative to the proportion of other advertisements] This time around, most of the prime time advertisements are coming from the defensive segments like FMCG, Pharma [moving more towards generics] and food industry. Exploding marketing campaign budgets are suggesting that something is drastically wrong in the system right now. Nevertheless, the fact of the matter is Indian markets are headed for new highs in the next 18 months or so after the elections IMHO. Use declines as opportunities to buy.

This is really not the time to go short; this is a time to go long on the index and do a sectoral churn in the individual stocks in holdings. IT, Automobiles and Defensives have done most of what they could do. They may not fall much but the potential to go significantly higher from current levels is unlikely. The grossly beaten down counters like capital goods, banking [large-cap banks like SBI, Axis and ICICI], metals like Hindalco have more potential to grow now. [One may go through my posts since August where I have given the list of stocks with Buy zones] On the mid-cap funds, it is very difficult to pick winning contenders without insider information [and I don't have any access to such information :(] The next rally will see mid-caps picking up as well and one may buy into ETFs specifically related to midcaps like M100 or Junior Bees that derive value from the index.

So let us hope that there are no significant down moves in Dec '13 and we all manage to enjoy Xmas '13 and welcome 2014 with great cheer.

Credit Growth and Debt Slaves in India

As we come closer to elections and protracted slowdown in banks, there are a lot of advertisements by banks regarding easy credit [personal loans, home loans and credit cards]. If you see carefully, most ads are focused on home loans. Why is there so much emphasis on home loans???

First, the realty sector is in shambles with excess inventory yet high prices fueled by black money. One must remember that projects in the realty sector get limbs by virtue of bank finance. So if the sales slow down, they are not in a position to repay banks. Banks have a vested interest to entice loans in this segment so that their repayment cycle comes back on track from the developer's side.

Second, a home is a priced possession for any human being. A person may delay purchase of a car but buying own home is a top priority. This ensures that the EMIs are paid on time thereby securing credit growth. Most important is that if one services a home loan exactly as per 15-20 year tenure, the interest component is actually larger than the principal availed by the owner and interest income is bread and butter for a bank. All said and done, the property is hypothecated with the bank till the loan principal is paid back.

So far, I have just mentioned the interests of the builders and banks to promote the home loan portfolio. Now comes pricing of homes that are astronomical by logical standards. India has a GDP per capita of about USD 10000 for urban population [about USD 3000 on a pan-country basis] So the spend on home loan EMIs is about 40% of per capita income i.e. one of the highest in the world. In developed economies, the GDP / Capita is about USD 45000 and the spend on home loan mortgages is about 10% to 15%. Thus, it is clearly evident that the home prices in India are obnoxious and since they are purchased on credit, a person will slog day in and day out to ensure that the home loan portfolio is serviced.

The government and the banks are very happy with this kind of scenario. As long as the sword of EMI is hanging on a person's head, s/he will not think about other things. S/he will be indifferent to misdeeds of the government and government policies as s/he has better things to worry about in personal life. This person also starts becoming less creative or rebellious at the workplace. The person wants the cushion of safety of a salary credit at the end of the month. It is this salary that will ensure that loans are serviced on time.

So the person does not question the government, does not question the corporation and leaves his/her independent views and creativity apart. What does all this lead the person to become? A slave albeit a debt slave. We are living in a democracy and hence it is not possible to chain human beings and make them direct slaves of the government and corporation. So what is the best way to control and make people slaves in the larger scheme of things? Make them debt slaves.

This is the sheer business that the government and corporates want to ensure in India. Keep the poor poor and ensure votebanks via subsidies and sops. Make the super-rich ultra-rich by keeping hopes and aspirations alive with the middle class population. And ensure that the middle class is reeling under EMIs for most part of their lives to service EMIs.

Bottom-line: Debt is modern slavery. There was a flop Hindi movie a few years ago but the message in that movie was great. An aged person says 'Pehle log zaroorat ke hisaab se karz lete the; ab karz ke hisab se zaroorat bana lete hain' Coming back to market perspectives that I usually comment upon; as investors, we try to shun away from corporations that have huge debts on their books. We like to invest in companies that are as debt free as possible. Does this not also apply to our personal lives?

I am not against availing loans. The salary levels and price levels for most of the essential goods and services in India mandate us from taking on loans to take possession of the same. I have availed loans myself at various points in life and am sure at some point of time in future, will have to avail loans again if need arises. The point Im trying to drive is that availing debt and taking possession of goods and services gives a momentary high. In the long run, it hurts our capabilities to think independently and be creative. It automatically ensures that we become systemic slaves [political system and banking system].

So one should be prudent whilst availing credit and one should be quickly servicing debt to ensure that one moves out of the debt spiral as soon as possible. We all like to talk about the Sovereign Debt issues in Europe, US etc but most of us forget that we are individual equivalents of Greece, Spain, Portugal etc that tend to borrow far too much failing to realize that we don't have the luxury as individuals to default on our loans. Default would simply mean losing our homes, cars etc. The Kingfishers and Saharas can go on forever doing what they want and yet retain a lavish lifestyle and avoid jails. The common man cannot. So think prudently when taking on credit and act wisely to clear off debts as soon as possible.

Otherwise, one will be slave forever to the system [this is what our leaders want us to be for their vested interests] And as long as debt slaves exist, systemic changes for the better will not be possible. We can say along with chai with our friends 'Iss desh ka kuch nahi hoga; sarkar bekaar hai' etc etc We need to be the change that we want to see. If charity begins at home, change begins with us on a personal level. Let us try to ensure that we get out of the debt spirals as soon as possible so that we can then think through things and catalyse the process of change India needs desperately.

Updates on Long Term Investments / Additional Recommendations

Well leaving apart short term fluctuations, I think this is a good time to review where my longer term investment picks stand as on date [over the last 3 months].

NiftyBees: Buy Call given when value slips below 550 CMP 619 +12.5%

BankBees: Buy Call given when value slips below 900 CMP: 1092 +21.3%

SBI: Buy Call given when value slips below 1850 CMP: 1725 -9.3%

LT: Buy Call given when value slips below 800 CMP: 940 +17.5%

JP Associates: Buy Call given when value slips below 55 CMP: SL Triggered @ 45 -18%

Tata Steel: Buy Call given in the 200-270 zone CMP 360 +50%

On balance, the portfolio is still in green territory and I would still encourage holding the ones in green some more updates

SBI - Still maintain a Buy on Dips on this counter and over a 2-3 year period, this counter is expected to test 2550-2750 levels

JP Associates: Avoid this stock completely

Hindalco: Recommend Buying in the 70-95 zone for target 160+ with SL: 55

ITC: Recommend Buying in the 240-275 zone for target 375+ with SL: 200

Fixed Income
Today's impact on Bond Yields has weakened the NAVs of Debt Funds and FMPs

One should make use of the same and park some funds in this segment. Post elections, the yields will soften and the NAVs of debt funds will be much higher. Debt funds are expected to deliver about 14% returns over the next 18 months by virtue of rationalization of yields on bond yields [G-Secs and AAA segments only]

So go ahead and make use of the opportunities for good returns :D

Outlook For November 2013

So Nifty has defied gravity and fundamentals. October series started with the outlook as Daily = Bullish, Weekly = Bullish and Monthly = Bearish. A monthly close below 5803 would have kept the monthly trend as bearish.

For November series the values are as follows

Daily = Bullish and only EOD below 6125 can change that

Weekly = Bullish and only EOW below 5944 can change that

Monthly = Bullish and only EOM below 5850 can change that

Where do we go from here? Let us review the charts first

Nifty EOD

Nifty EOW

BankNifty EOD

BankNifty EOW

Current Nifty price levels are no way close to a secular bull market; in the previous instances when Nifty came to 6200-6300 levels, BankNifty used to be 12500+ levels; Capital Goods used to be at levels much higher than current levels. This time around its the IT pack and defensive pack leading from the front. So do I get aggressive with shorts - no way. During the recovery from 5118, I was with SL at 5740 and those were triggered long time ago. The price on the ticker is supreme and the same goes for DJIA, DAX etc. Just a few selected stocks are propelling the index higher and unless there is a proper reversal and as long as money printing by central banks continues, markets will edge higher whether we like it or not.

Coming back to Nifty, it is no doubt over-heated but should the prices take out 6357 [with 2 consecutive closes above 6280], Nifty may defy all sceptics like me as well and hit 6500-6600 levels. On the other hand, 6339-6357 levels are tested and the downward trajectory begins, it may be deja vu 2010-2011 again.

I won't hazard a guess at this stage and as mentioned earlier as well, I would prefer to switch gears depending on price action at the ticker. The levels to turn bearish have been given above on different time frames. [Daily 6125, Weekly 5944 and Monthly 5850]

The PCR on stocks are not showing excesses on the Put side for now; Implied Volatility has been dropping consistently for 6 weeks and hence a lot of premiums are being sucked out of both Calls and Puts. Regardless of where Nifty goes in November, IVs are expected to shoot higher and option prices rationalized by mid-November.

For the elections outcome in 2014 for India, there is a school of thought that the market is trying to price in the new government. I don't think that is the case. Right now, the only thing in the price is continuous QE from Fed, BoE, ECB and BoJ. It is very difficult to price in election outcomes for a market like India where the game ain't over till the coalations are stitched and somebody assumes power. When that will actually happen in India in 2014, we may expect a significant gap-up or gap-down regardless of where Nifty spot is at that point of time. Post elections, we may expect Rollar to appreciate significantly and go to sub-48.25 levels.

Other market updates
US indices are moving up courtesy QE. Just some small corrections post FOMC meeting are routine profit booking sessions. 15k+ is where it stands even after that. Only rising yields on Treasuries can reverse the situation. [and it is overdue for a correction]

Similar for DAX and FTSE. The Black Swan event of new German parliament has still not come through. There are serious backdoor negotiations taking place between Ms Merkel's CDU party and the SPD. Im still expecting a major suprise in Europe in the near future most likely from Germany or from Finland. But more on that when it actually happens.

These bull markets have been steady for almost 5.5 years now post-Lehman Brothers and have weathered the debt crisis of Europe thanks to rampant money printing. Once the bull market attains maturity, the growth and returns start flattening out.

Precious Metals: Some sideways movement can go through but IMHO the bottoms have been found. The dips must be bought into and most likely in about 18 months from now, we may see old highs being tested once again.

Crude will hover around the 70 - 100 dollars a barrel mark with most of the time towards the higher end of the range. For now, it is Diwali time and enjoy the upsides till they last.

So wishing all a very Happy Diwali and Prosperous New Year. As I keep saying always, views apart, follow the trend and prices on the ticker and you will be fine.