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……All Fall Down

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……ALL FALL DOWN

We have witnessed an extremely topsy-turvy first 6 months of year 2012. First two months the markets saw a stupendous rally mitigating for the losses of full year 2011. March was eagerly awaited due to Budget and the crucial RBI policy, however, after that the months which followed have seen a sideways action for the markets, and off late we are seeing the markets, especially the stocks rather than the indices crumbling.

Technically, the markets have undergone severe damage leading to a sea-change in the outlook going ahead. The benchmark indices have closed below their crucial 200 DMA levels, as well as breached the key retracements levels of 61.8%. Interestingly, the stocks which called the shot few months back, are struggling to find any sort of support in this market.

But as we know, history is history, what is more important is the current scenario and the outlook going ahead. Jumping to the last few weeks of trading, I think one very important factor which is developing, is the fall of all asset classes across the board. Take global equity indices, US or European, or Crude Oil, Gold / Silver, etc., all of these are witnessing a sharp correction. I think, this is a clear case of risk aversion happening across the global investors, which is leaving a deep impact on the equity markets especially.

With Oil correcting by more than 10%, it provides a favourable backdrop for RBI to cut rates. If rate cuts ensue in the next few policy meetings, markets could provide the much necessary boost.

QE3, seems to be now the talk of the Wall Street, with June meeting eyed for any chance by the Fed to inject liquidity into the system.

If it is about risk-reward, I think this zone provides a favourable risk reward ratio to investors, looking from a long term perspective.

Trading has been on lacklustre in the last few weeks, however once the markets stabilises and volatility subsides, a short term reversal can most likely happen.

As of immediate short term, it is a wait and watch, however, I believe one should look at stock specific opportunities to start building a robust portfolio for rough times ahead.

Trade with strict stop losses, and more important is trade light.

In such times, I believe one should adopt a strategy of “ Live today, so that you can make a killing tomorrow”. This means, trade light in this market, and once a favourable trend begins one can start investing in good volumes.

 

 

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Blockbuster start to 2012

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Blockbuster Start to 2012

The start of 2012 has been a thrilling experience for anyone who is into stock markets. It’s been a stupendous rise for some of the major stocks and indices are clocking gains as I write this piece of article.

What needs to be seen now is whether the rally has gathered enough momentum to sustain the same, in short whether it is a steroid providing a short term boost or a proper medication. It’s not how effective a medicine works at the first instance, it is how far can the medicine last and what would be the repercussions of the same is something which needs to be watched with bated breath.

FII’s have made a strong comeback into our markets. Till date since the onset of 2012, they have pumped in 25000 cr(approx), and let alone in the month of Feb they have pumped in 14000 cr (according the the actual numbers from SEBI). We have already seen, some of the stocks making a brilliant comeback and rallying more than 50% of their price since the last 5-7 weeks. The European problems and its issues are being sidelined by the markets, and we can now say that they are forward looking, especially with the painful Q3FY12 period for most of the local companies getting a relief.

I believe that the undertone of this strong rally has purely been the turnaround of the interest rate cycle. RBI cutting the key interest rates and signalling that inflation cooling further will give them a leeway to relax the steep rise in interest rates and Infact go for a cut in the same. The banking sector which comprises a major proportion of our stock market capitalisation will heave a sigh of relief with this reversal of interest rate cycle. This will in turn have a trickling down effect to rate sensitive sectors such as Real Estate, Auto stocks, Capital Goods etc.

Technically one of the best part of this “relief rally” has been that we have comfortably crossed the 200 DMA, and have managed to sustain that since the start of Feb 2012. This is an extremely positive sign for the outlook going forward. Some stocks have touched their 52 weeks high and some of them have rallied to lifetime highs in this rally. It is a good sign, but what is now important is when the markets would go into the consolidation phase the kind of correction in the stocks which we will witness then, would determine the sustenance of this rally going forward.

It is true that stocks would always provide a higher percentage returns vis a vis the index, but it is the index which will show the actual “direction of the trend”.

Markets have proved it yet again that “ To break extreme pessimism, you need extreme optimism.”

Confidence likely to come back into our markets

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CONFIDENCE LIKELY TO COME BACK INTO OUR MARKETS

With major boost coming from Italy accepting the austerity measures, the global markets romped their way back to register strong gains on Friday. Bulls were in clear command, and that would likely be the trend for the Asian markets as well. Last week, even though a truncated one proved to be a blessing in disguise for our markets, as on Thursday 10th Nov, the Asian markets saw a sharp cut, with Hang seng notably down more than 1000 points. However, our markets were closed on Thursday, and on the next trading day we managed to relatively outperform the Asian peers. IIP numbers were also announced on Friday, and it was not a strong set of numbers, however, the new question which lingers in everyone’s mind now is “Whether the worst is taken care of in terms of IIP?.” Technically markets are still trading above their critical support levels of 5150 on closing basis, and if all bodes well for the market, this retracement from the 200 DMA ( 5400 levels) on Nifty, might well be over and done with, and we could now start inching back towards that level of 5400. Look closely and there is a definite confidence coming back into the market. The probability of upside moves has increased, and now breaking 4700 seems to be difficult. It would need an extremely strong negative event to break this support level for the markets now. Now the critical question remains, how should we trade our markets now? The dramatic events in Euorpe appear to be settiling down – atleast in the short term. This should be a boost to the global markets. We could also see the Asian markets showing short term rally. Ideally for all long positions the stop loss should now be placed at 5150 levels. And the next few days will be very critical for the market, especially the first test to 5280. As you can see from the short term channel on Nifty, the resistance is placed at 5280. Above that we can convincingly say that the market would likely head to 5400 levels again.

Written by Kunal Bothra

November 14, 2011 at 12:52 pm

Gold prices set to fall

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Gold is back in the limelight after a stellar couple of months. As you can see from the chart above it has rose from $1000 odd levels in 2009 to above $1900 levels.

Looking at the chart above it is just unbelievable to imagine how one asset class can just rise continuously for the last 11 years.

The most interesting part about this rise is that it has managed to prove the so called “Dow Theory” correct year on year since the last decade by forming a higher high and higher low. For instance, look at blue arrows, which signify the low price in a year, for Gold, and it is just startling to know that the gap between two successive bottoms and how the gap between successive bottoms has expanded beyond proportions. What I want to emphasise is the steep increase in the price activity in the last 4-5 years, which is causing the huge gap between the subsequent lows of the candle.

Factopedia: The rise, as the chart depicts, is from a low of $253.75 to $1920.30 in a span of 11 years. This makes it a stupendous 675% rise or 7.57 times the year 2000 low.

However, I believe, that we are already too late to board the bus. The only confirmation which I am waiting for is a breach of the previous yearly low, which currently stands at $1308. It is too farfetched a stop loss, but my point is that uptrend for Gold is in jeopardy and price warrants a correction, a sharp one.

The same fate happened with Silver not too long ago, when it rose sharply to $48-49 levels in a matter of weeks and then corrected sharply to below 40$ in a matter of days.

Let us have a reality check on this, and whether the steep rise in gold is justified, and what would likely be the future course of action for the same.

I was talking to some of my friends in the last few weeks discussing about the markets and current grim situation in the equity markets. Just to give you an outlook, these friends of mine have always wanted their money safe, not to invest in equity markets, and have complete risk aversion. They were telling me that Gold is one of the safest asset classes at this point and that they have invested a good amount of their money buying gold ETF’s. Not just that, the local taxi drivers are interested in knowing the potential upside of Gold. To top that up, even a lot of local jewellers have opened various schemes on Gold investment, making it very conspicuous to every investor.

Now my only point of contention is Gold has been rising for the last 11 good years, and realising now that Gold is one of the safest asset class, I think, is clearly too late. And that too nothing has changed about Gold since the last couple of years, other than increased investor speculation and scare across the equity market investors.

The current situation is kind of “euphoria”, and hardly anyone wants to look at the downside possibilities of Gold. It is similar to any bubble in the past, be it the Tulip bubble, dot.com bubble, and the 2008 crisis, which showed how a particular asset class considered infallible, was taken apart.

The triggers for correction in Gold prices include a rally in equity markets across the world. Also, if the dollar was up versus the world and then the euro was also up against the US dollar. Supply demand factors involved with mining gold also plays a role, but the real key to use gold in a portfolio successfully is as a hedge against world stagnation in real growth accompanied by high currency growth.

Markets do not give an easy money making opportunity for investors, especially with the current aura of optimism. I believe that we are near a long term high in Gold and investors should be trimming back positions on this run. Remember Gold too has peaks and valleys, and it has moved in this pattern for years. Which is why the likely conclusion of this massive parabolic blow-off is nigh.

To give you a glimpse of history, in late 70’s and early 80’s, gold experienced a similar rise which we are seeing today. It rose from levels of $ 200 per ounce in 1978 to levels above $850 in a couple of years. Back then the economic environment was plagued with inflation and turbulent times in equities. Investors piled on to gold thinking it was a safe haven at all times. Gold corrected sharply for the next two years falling below $400 levels, a reduction of 50% from the high, and thus stalling the exponential rise.

If anyone who believes that History repeats itself, needs to be wary of Gold. Fear when everyone is greedy.

Written by Kunal Bothra

September 22, 2011 at 11:22 am

Gold prices set to fall

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Gold is back in the limelight after a stellar couple of months. As you can see from the chart above it has rose from $1000 odd levels in 2009 to above $1900 levels.

Looking at the chart above it is just unbelievable to imagine how one asset class can just rise continuously for the last 11 years.

The most interesting part about this rise is that it has managed to prove the so called “Dow Theory” correct year on year since the last decade by forming a higher high and higher low. For instance, look at blue arrows, which signify the low price in a year, for Gold, and it is just startling to know that the gap between two successive bottoms and how the gap between successive bottoms has expanded beyond proportions. What I want to emphasise is the steep increase in the price activity in the last 4-5 years, which is causing the huge gap between the subsequent lows of the candle.

Factopedia: The rise, as the chart depicts, is from a low of $253.75 to $1920.30 in a span of 11 years. This makes it a stupendous 675% rise or 7.57 times the year 2000 low.

However, I believe, that we are already too late to board the bus. The only confirmation which I am waiting for is a breach of the previous yearly low, which currently stands at $1308. It is too farfetched a stop loss, but my point is that uptrend for Gold is in jeopardy and price warrants a correction, a sharp one.

The same fate happened with Silver not too long ago, when it rose sharply to $48-49 levels in a matter of weeks and then corrected sharply to below 40$ in a matter of days.

Let us have a reality check on this, and whether the steep rise in gold is justified, and what would likely be the future course of action for the same.

I was talking to some of my friends in the last few weeks discussing about the markets and current grim situation in the equity markets. Just to give you an outlook, these friends of mine have always wanted their money safe, not to invest in equity markets, and have complete risk aversion. They were telling me that Gold is one of the safest asset classes at this point and that they have invested a good amount of their money buying gold ETF’s. Not just that, the local taxi drivers are interested in knowing the potential upside of Gold. To top that up, even a lot of local jewellers have opened various schemes on Gold investment, making it very conspicuous to every investor.

Now my only point of contention is Gold has been rising for the last 11 good years, and realising now that Gold is one of the safest asset class, I think, is clearly too late. And that too nothing has changed about Gold since the last couple of years, other than increased investor speculation and scare across the equity market investors.

The current situation is kind of “euphoria”, and hardly anyone wants to look at the downside possibilities of Gold. It is similar to any bubble in the past, be it the Tulip bubble, dot.com bubble, and the 2008 crisis, which showed how a particular asset class considered infallible, was taken apart.

The triggers for correction in Gold prices include a rally in equity markets across the world. Also, if the dollar was up versus the world and then the euro was also up against the US dollar. Supply demand factors involved with mining gold also plays a role, but the real key to use gold in a portfolio successfully is as a hedge against world stagnation in real growth accompanied by high currency growth.

Markets do not give an easy money making opportunity for investors, especially with the current aura of optimism. I believe that we are near a long term high in Gold and investors should be trimming back positions on this run. Remember Gold too has peaks and valleys, and it has moved in this pattern for years. Which is why the likely conclusion of this massive parabolic blow-off is nigh.

To give you a glimpse of history, in late 70’s and early 80’s, gold experienced a similar rise which we are seeing today. It rose from levels of $ 200 per ounce in 1978 to levels above $850 in a couple of years. Back then the economic environment was plagued with inflation and turbulent times in equities. Investors piled on to gold thinking it was a safe haven at all times. Gold corrected sharply for the next two years falling below $400 levels, a reduction of 50% from the high, and thus stalling the exponential rise.

If anyone who believes that History repeats itself, needs to be wary of Gold. Fear when everyone is greedy.

Gold- price graph

Gold Price

Written by Kunal Bothra

September 20, 2011 at 4:47 pm

Nifty may face resistance around 5,150-5,265

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Nifty may face resistance around 5,150-5,265 range in the coming week

 A year ago, month of September was an excellent month for trading in the Indian markets. The Sensex and the 50-share Nifty index were in touching their all time highs. Indian markets registered double digit gains, making it one of the solid months of 2010.

Exactly a year later, in September 2011, Indian markets are struggling to find their base, and the amount of pessimism at these levels is way too high.

The last week, was a very short one (in terms of the number of trading days), however the markets registered some excellent bounce, making it a 3 on 3 for the week. The bounce was much anticipated and much needed for the markets, looking at the kind of battering the stocks had faced for the couple of weeks before.

Talking about the sectoral performances, two sectors which have witnessed strong price action in this leg of rally were the metals and realty sectors. If we take a close look at the statistics below it will show the amount of short covering witnessed in these two sectors.

The laggards, however, have been the defensive space, FMCG, CG and CD. However, concerns still remain on the underperformance of banking and auto stocks.

The comparison below is for all BSE sectors with respect to the Nifty (except on WTD basis).

Technically, the markets took strong support from 4,750 levels on Nifty and are now well above the 5,000 mark, making it a sharp 6%+ bounce.

The resistances for the markets are placed at 5,150-5,265 levels for the coming week. However looking at the kind of activity stocks are exhibiting, I believe that the markets can sustain this bounce as well.

Also, the sentiment is filled with pessimism, hence the chances of markets taking out the resistance is very high. However, the only strain could come from weakness in the global markets, or any new events unfolding in the coming week or month.

Markets have historically seen a volatile month of September. For starters, from 2003-2010, we had only one year of 2008 where Nifty gave negative returns. Barring that in the other 7 occasions, the market has closed in positive.

Even if history does not repeat itself, let’s hope it does rhyme!!

Written by Kunal Bothra

September 5, 2011 at 1:53 pm

Cars gearing down in June.

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Cars gearing down in June.

June, the month which is seasonally sluggish before the onset of monsoon was indeed sluggish for a few companies like Maruti Suzuki, not to forget the 10 day strike and maintenance shutdown at its plants. Fuel price hike and another round of interest rate hike is set to take their toll on the PV industry, which was evident from June sales of PVs. Tata Motors also continued to witness a severe slowdown in PV segment fuelled by intensifying competition. On the CV side, there is still some resilience shown by companies like Tata Motors and M&M, where these companies have performed above expectations. LCVs outperformed the overall CV industry. Two wheeler industry has also performed well in June, as it seemed the most insulated sector from the macro headwinds. We remain positive on Bajaj Auto, Tata Motors and M&M, while we have turned negative on Maruti Suzuki and Ashok Leyland, and continue to be negative on Hero Honda. TVS remains a Neutral for us.

Mahindra and Mahindra – (TP- Rs 804, BUY) – The bright spot!
In a scenario where auto companies are showing signs of slowdown, M&M continues to outperform the industry through robust sales in its well-diversified product portfolio. M&M reported a strong 29% yoy growth in its auto segment to 35,584 units, with passenger UV sales growing 14%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a robust 65% growth yoy. Verito has posed yet another month of improved sales performance with a growth of 168% yoy with sales recorded at 1,510 units , 24% mom above 1,219 units sold in May and 1,050 sold in April. M&M is smartly increasing the sales of Verito on product revamp of the unsuccessful Logan. Farm Equipment Segment (FES) posted a very robust growth of 37% yoy to 22,730 units, while sequentially they were up 20% on pre monsoon purchases.

Maruti Suzuki – (TP – Rs 1,195, Underperformer)- Life after ‘LIVA’ to be difficult
Maruti Suzuki (MSIL) reported a 8.8% yoy de-growth in volumes, by selling 80,298 units in June which was about 16% fall on May, marred particularly by the 10 day long strike at its Manesar plant (loss of ~13,000 vehicles) and a 6 day maintenance shutdown at its Gurgaon plant and a similar ongoing shutdown at Manesar plant. Additionally, MSIL was the first to face the macro headwinds to the PV segment. A2, the bread and butter segment of MSIL posted just 2.3% yoy growth as the strike affected plant of Manesar produces the successful models such as Swift and A Star. Similarly, A3 segment, which was the top performing segment in April and May, also massively underperformed posting a de-growth of a whopping 60% yoy, again due to the strike. Kizashi sales were at 32 units. C segment sales were up by 23% due to continued success of Eeco in both private as well as taxi segments. Exports remained stable mom at 10,278 units, down by 33% yoy. Management has guided for a continuous export sales of 10,000 units every month, which implies a double digit(lower teens) degrowth in FY 12. Headwinds continue to be there for the PV segment on the back of rising fuel prices and interest rates. Competitive launches such as the recent launch of Toyota Liva pitched directly and aggressively against Swift will make things difficult for MSIL along with a slew of competitive launches, thus leading to a higher single digit growth in the domestic markets.

Tata Motors – (Under review)- CVs strong, PVs lack the zeal
June sales for the company were at 66,358 units, 1% up yoy and a growth of 6.5% mom. CV sales grew by 13% yoy, out of which LCV sales were up by 18% yoy and MHCV sales were 6% higher yoy. PV segment sales were down by 21% yoy to 21,993 units while utility segment sales fell by 4% yoy and equally on mom basis. Indica range continued to see a de-growth of 9% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai also feeling the heat. Indigo range sales were also low by 35% yoy. Nano also underperformed, which sold only 5,451 units as compared with 10,000 odd units in April, and ~6,500 in May.

TVS Motor – (TP- Rs 63, Neutral)- Still robust
TVS sold 1.82 lakh units in June, a strong growth of 14% yoy, while on a mom basis it showed a 2% de-growth. This growth indicates that the macro concerns have still not hit the two wheeler sector and TVS’s brands are showing a good demand. Two wheeler sales also grew by 14% yoy, while 3 wheelers are showing a consistent performance touching 4,000 units time and again.

Written by Kunal Bothra

July 4, 2011 at 11:01 am

Posted in Auto Segment