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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.”

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Weakening Rupee & Dividend Yield Stocks

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Weakening Rupee & Dividend Yield Stocks

With the rupee weakening by more than 19% this year we find ourselves caught up in an inflationary environment despite a series of rate hikes by the RBI. India Inc is now caught in a scenario of slack demand, rising input costs ,wage costs and interest cost coupled with MTM losses on its FX loans. In such a scenario it is no surprise that Infosys continues to remain a safe heaven for investors as it will continue to report earnings growth and has proven ability of displaying the best organic revenue growth among leading IT companies over the past 10 years with a return on capital of more than 65%.  

As the market continues to hide in IT stocks like Infosys, TCS & HCL Technologies in times of rupee weakening, the thirst for good dividend yield stocks beyond the NIFTY FIFTY is still prevailent and we find that the steep rupee depreciation has now caught up with some of the so called “Dividend Yield” stories which are part of the BSE 500. One such example is the Pune based pipe producer – Finolex Industries which apparently has a dividend yield of 7% at the current price- but one look at its debt equity and import intensity is enough to get the sense that earnings would degrow thereby casting a shadow on such dividend yield themes. It is for this reason that we like free cash generating business and prefer to buy such business for dividend yield despite low growth and when you do get growth out of such business then you reap it big like in the case of the cigarette company – VST Industries.

 

Written by Fundamental Side

December 16, 2011 at 12:46 pm

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

US market ‘down the line’

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US market ‘down the line’

US markets witnessed historic price correction and Dow Jones corrected 2076 (16.34%) points in three weeks time frame. Daily price chart formation suggests Dow Jones plunged from head and shoulder (H&S) pattern given below. The chart shows almost seven months long H&S formation was broken marked by huge volumes (relative basis). Neckline of H&S formation broken with tepid volumes which enhances the validity of the pattern.

This kind of price action calls for an intermediate top and current rally is due to oversold nature of the Index. I think any pullback in Dow Jones may face resistance near 12,100 to 11,800 levels and further downtrend would resume.  

As per Dow Theory (one of the oldest and basic theory of Technical Analysis), “averages should confirm” means any kind of large directional movement must be confirmed by all the averages. Dow Jones Transportation index and Financials delivered negative divergence prior and now Dow Jones Industrial Average confirms the same. On broader basis I think US market will continue to underperform or remain in consolidation mode.

 

Blog graph

US MARKET-DOW JONES-GRAPH

 

 

 

Written by Dwaipayan Poddar

August 24, 2011 at 6:16 pm

Nifty could head towards level of 4,800 or lower

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Nifty could head towards level of 4,800 or lower after US credit ratings downgrade

Indian market has been trading with a negative bias since past one week amid the uncertain environment in global markets. On Friday Indian market broke below the critical levels of 5,250 on Nifty & 17,500 on Sensex with high volumes and with negative advance decline ratio of 1:5 which is a big cause of concern. It added further pain to many of the stocks which have broken below their 2009 lows.
Like one gets excited about upside at higher levels it is time to get excited for the downside. Looking at the long term charts, markets have been trading in a broad range for past 12 months and in this period they have made a formation of descending triangle.
This bearish formation has completed on Nifty closing below 5250 on weekly basis. This formation has potential to take Nifty to the level of 4800 or even lower. Many of the global markets have also broken their important support levels that were not seen in last many months.
In coming weeks market could get very volatile before it finds a significant bottom and there will be bouts of up & down days but, a change of trend situation based in on technical study will take some time.
Any bounce will find difficult for market to stay above 5450/18050 levels as that has become pivot level looking at the formations and moving averages of last two years. Due to the gloom and doom situation around the globe, everything could become negative so it is better to not to hurry and wait for markets to get steady at lower level before commitment in long position.
Our markets have fallen on the global concerns and reasons for change of sentiment could also be something global.

Written by Rakesh Gandhi

August 8, 2011 at 12:35 pm