Stock-mkts

Is Arbitrary Investment in Tax-Saving ELSS MF Scheme Just Before The Year End Justified?

2010-02-17T15:46:00.002+05:30

Readers of this blog can read about how arbitrary decisions of putting funds into tax-saving ELSS schemes without due-diligence and proper analysis can adversely affect their financial status going forward. Below is the link where readers can read my Guest article posted on Trak.in:

http://trak.in/tags/business/2010/02/17/is-arbitrary-investment-in-tax-saving-elss-mf-scheme-before-the-year-end-justified/

The article aims at educating the readers about the fact that the objective of tax-saving should not hinder the cause of capital appreciation. Both should go hand-in-hand and with proper planning. It explains in detail how ELSS schemes are differs from Diversified equity schemes in its nature of operation and yielding returns.

Interested readers can place their relevant comments with respect to their views on the subject and other tax-planning method to their knowledge.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

The Power Of Doji

2010-02-11T11:17:00.022+05:30

Most of the ardent followers of chart patterns must have come across the term 'Doji' either on business news channels or Internet. Doji is a chart pattern which signifies indecision in the market. It is a candlestick in which opening and closing prices for the period under consideration are same. It is a major trend reversal signal especially at market tops or even at market bottoms.

Wikipedia describes Doji as, "The doji is a commonly found pattern in a candlestick chart of financially traded assets (stocks, bonds, futures, etc). It is characterized by being small in length -- meaning a small trading range -- with an opening and closing price that are equal."

It further interprets a Doji as, "The doji represents indecision in the market. A doji is not as significant if the market is not clearly trending, as non-trending markets are inherently indicative of indecision. If the doji forms in an uptrend or downtrend, this is normally seen as significant, as it is a signal that the buyers are losing conviction when formed in an uptrend and a signal that sellers are losing conviction if seen in a downtrend. Most traders will place greater significance on the doji when it forms in a market that is in overbought or oversold territory as noted by oscillators like relative strength index or MACD."

Doji: A Potent Top Reversal Indicator

It must be noted that a Doji is more potent towards its formation at the top of the rally or at the bottom of the downward correction, rather than in between the up or down journey of the markets. A Doji at the upper end of the rally is a sign of exhaustion of the power of the bulls to further pull the market higher. As soon as the bears get a sniff of this lack of conviction among bulls, the charge swaps hands from bulls to bears at least for some time to come.

Doji: To be Coupled with Confirmation

A Doji in itself is not a confirmation of the prevailing trend's reversal. It needs to be coupled and confirmed by the follow-up reversing move with in next few candlestick patterns. As such, a Doji at a market top could be a warning for the bulls to cover longs and remain neutral only to further initiate shorts once the bearish confirmation is received. A bearish confirmation is much needed before initiating any short position as a trend reversal could also mean change of trend to 'lateral' consolidation and not necessarily a complete reversal of trend.

Nifty & Doji

In the below given charts, we will see how a couple of Dojis stalled the market rally around Nifty 5300 level during first week of January 2010 which led markets to consolidate & further correct on witnessing one more doji around January 20, 2010.

Charts Courtesy: www.icharts.in

In the above Daily charts of Nifty, we see how the rally in the benchmark index, which was in an up trend since December 22 starting from Nifty 4950 level, got stalled by the emergence of 'twin' doji on January 05 and 06. The existence of Doji after the rally indicated exhaustion of the up trend. However, bulls were in no mood to completely give up just yet nor were bears in any mood to let bulls continue their charge. This ensured that the Nifty moved in a congestion band of 5200 to 5300 range. At least, we can say that the sudden emergence of Doji at higher levels ensured a trend 'Change' from bullish to lateral movement.

It was only after the existence of the third Doji on January 20, that the bears were able to take a complete charge of the situation in favour of a correction in the trend. A long bearish candlestick formed on the follow-up session of the Doji day (January 21) was enough confirmation evidence for the bears that the up trend is over at least for some time to come.

So, in effect, for a market which was powerfully in hands of bulls since quite some time needed 3 occurrences of Doji (read indecisive attempts) in order to turn the trend over head in favour of bears. The first two doji led to Trend 'Change' and the third was a final coup to start a Trend 'Reversal'. But the change was inevitable as doji at market tops indicated lack of certainty and vigour amongst bulls to carry market higher. Just have a look at the Resistance line as defined by the Doji formed on January 06, which proved to be a stiff market top ever since then.

Doji in the Midst of a Trend

Again, on January 28, we witnessed a Doji at the midst of a down trend. This doji indicated lack of vigour amongst bears to drag market further down at least for the time being. The doji was followed twin hammers on January 29 and February 01. The doji led the markets to consolidate for the next 5 sessions as can be seen from above charts. However, the doji which appeared in the midst of the downtrend was not so successful in reversing the trend as it was at the higher band of the market. This shows that Doji is highly effective and most potent at market tops than during the midst of the up or down trend.

So, it is very crucial to determine as to where the Doji occurs and during which stage of market. Doji in midst of the trend transition need not be as potent as at market top or bottom. At the same time, a Doji indication is best served when coupled with other confirmation evidences of trend change.

Variations of Doji

1) Gravestone Doji: Lows, Opening & Closing are Same.
2) Dragonfly Doji: Highs, Opening & Closing are Same.
3) Long-Legged Doji: Volatile Highs or Lows, but Same Closing and Opening.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trend Changer: Has Nifty Hammered A Near-term Bottom?

2010-01-30T11:31:00.029+05:30

Firstly, to inform the readers over here that this post and the discussion of the chart pattern herein pertains only to the 'Near term' trend of the market. The Candle stick chart pattern as depicted in the below attached chart relates to a 'Trend Reversal' Pattern which could signify either a reversal in the prevailing down trend or simply a trend bottom/changer.

Nifty has been in a short-term down trend after witnessing stiff Resistance around 5280 level. The 5 day short term RSI has climbed down from 70 to 15 during the downward journey of markets, yet another hint of market in over-sold zone in near term horizon.

Charts Courtesy: www.icharts.in

Hammering Out A Bottom

Investopedia.com defines a Hammer as, "A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick."

It further adds, "A hammer occurs after a security has been declining, possibly suggesting the market is attempting to determine a bottom.The signal does not mean bullish investors have taken full control of a security, it simply indicates that the bulls are strengthening."

A Hammer is a Bottom Reversal Pattern. The rationale behind the analysis and logic of this pattern formulation is explained as under:

1) The market is in a pronounced downtrend.
2) A candle stick with small real body but a large lower shadow appears at the end of the downtrend indicating some sort of reversal in prevailing downtrend.
3) The bulls took charge of the situation after bears tested the lower waters but could not sustain/hold their short positions with conviction.
4) Taking note of the situation, the bulls took the lead from the front and closed near the day's high with little or no shadow at all.
5) The primary idea from here is that further downward slide could come for a halt atleast for very near term & at best- a trend reversal towards up side could be seen.
6) In very near term, bears can recoup the control over markets only if the lows tested on the hammer forming day is breached.

The pattern is typically characterized by a long lower shadow with a small real body on the top. The color of the real body (white or red) is not of greater significance while studying the pattern. However, a white body gets a first preference as it signifies that markets sold off as a last leg of the near term down trend and bulls were good enough to bounce back to ensure that markets closed near to the highs of the session. The waters at the lower levels were tested and found good enough for a reversal. The pattern signifies that bulls are eager to gain some lost ground in days to come.

Another study that goes into the Hammer pattern is that the lower shadow should be at least twice the size of the small real body on the top. It signifies that bulls attempted a significant come back from the lows to prove it's dominance. However, even without the fulfillment of above condition a Hammer is a hammer, but its effectiveness could be questionable and uncertain. A smaller real body coupled with longer lower shadow will give the hammer a more complete look and meaning. After all, the chart patterns are nothing but the mirror image of a trader/investor's psychology and their collective action put on paper.

Further, it is desirable for traders who want to bet on this reversal chart pattern to confirm the effectiveness of this bullish hammer pattern by checking the follow-up chart signals (of next 2-3 sessions) in look-out for bullish White Candles or even bullish Continuation patterns.

Nifty & Hammer

On January 29, 2009, Nifty established a low at 4765 and from there on bounced back to close at 4880, a little above the day's opening at 4825. This led to emergence of a small real body with a long lower shadow and a very minute upper shadow. Add to it, on the preceding day of witnessing the hammer pattern, the Nifty witnessed a 'Doji' day which is also a trend reversal signal indicating an equal tug-of-war between the bulls and the bears. A Doji followed by a Hammer could be hinting towards a dissipation of prior (short term down trend) trend's force possibly with a last attempt to test lower waters on a Hammering day. Hence, a doji followed by a hammer pattern is a stronger clue of trend change, in direction of the original bullish trend.

Further, if Nifty closes below the low hammered by Nifty at 4765 on January 29, the analysis and prediction of the bullish reversal pattern can be termed as failed/void and could act as a significant stop loss level for Traders.

Note: Quite often, it may also happen that the reversal patterns may play out well in the near term, but the effectiveness of the trend fizzles out eventually over medium term horizon. So, it is necessary to check and update the view in light of changing market times and environment periodically. Like, for example, a bullish reversal pattern in 'Hammer' ensures that markets move up. But, over a period of time, markets may develop yet another reversal pattern but this time in bearish bias in form of a 'Hanging-Man' pattern which signifies a Top, eventually pulling the markets down. So, it is necessary to review chart patterns in the light of passage of time and development of various chart patterns.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

What Exactly is a Market Crash?

2010-01-23T12:18:00.018+05:30

What Exactly is a Market Crash?
Summary of an Article from www.stock-market-crash.net:
http://www.stock-market-crash.net/what.htm

The above site which has wonderfully narrated the periodical moves and psyche of investors towards stock market's bull and bear phases. The site has explained the way in which the so-called 'Smart Money' takes entry into the market by way of gradual accumulation at lower levels where valuations are cheap and below its intrinsic value, but retail investors fret to take entry at this point in time due to over-all saggy investment mood.

The site elaborates as to how smartest accumulation takes place at lowest levels & gradually other lesser smart funds take entry at the 2nd lowest step of market with inside news of recovery spreading over. It further elaborates as to how retail investors remain a mere spectator during the above phases of smart money entry into the market and how the gullible lot enter at valuations which could be termed as 'Fair' but not longer cheap. It says that once the retail investors start earning money fuelled by over-all optimistic environment, the sophisticated lot gradually takes the Exit route and moves towards safety net as valuations move forward from 'Fair' levels to 'Expensive' levels.

The site further cautions our attention as to how a number of companies become public and come out with IPO to sell their story amongst gullible retail investors. The optimism reaches such high horizons that the lessons from the just-witnessed extreme bearish conditions are forgotten and 'Money-making' becomes the mantra from tips and recommendations from Brokerage houses and other smaller agencies.

Note: Readers can Read this Article in Detail by Clicking on the Link attached at the start of this post. This is Not A Paid Review Of Any Kind For The Above Site. I've posted this link for the benefit of the new investors who would find this article helpful in determining the different phases of markets without being carried over by the prevailing phase of excess euphoria which has seen Nifty jump from 2500 to 5000 with in a short time span of just 1 year, which needs some sort of consoldiation/correction before the upward journey flourishes in a big way. I was able to co-relate with some of the inputs in the article with the recently witnessed bust and boom rounds of last 1 year in Indian stock markets.

Readers' Comments Are Welcome From Those Who Are Willing & Eager To Share Their Experience & Lessons From Boom-N-Bust Cycle Witnessed Recently.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Markets in 2010

2010-01-14T17:04:00.012+05:30

A fortnight away from the dawn of the calender year 2010 and in trying to address queries from some of the readers as to how will the markets fare in this new year, let us do some crystal gazing about the market levels and it's gyration in the year 2010. Doing so could be as tough as gambling with lowest probability of our prediction coming true. The only base that we have to predict the future course of market for here is- the performance of the equity markets in the preceding year 2009 and development and diagnosis of Corporate fundamentals post economic slowdown mostly inherited from global recession.

First, let me jot-down a few determinants which could go down farther in influencing the equity market levels in the calender year 2010:

1) Steep rise in Global financial markets:'V'- shaped Recovery in 2009.
2) Health of Global economy especially US and European Nations.
3) Pace of development of Emerging economies.
4) Sustainability of Corporate Earnings in line with market valuations.
5) Management of Stimulus measures by global Central banks.
6) Control over Inflation: Crude, Metals & Food Article Prices.
7) Fundamental shift in key Policies & Currency Rates.

Coming back to Equity markets in India, which has seen the most extreme of pessimism and optimism in a matter of last couple of years, the benchmark index Nifty has swayed like more than a see-saw from the highs of 6000 levels to the trough of 2500 in the year 2008, only to bounce back from the jaws of slowdown to reach 5250 levels just as I am writing this. The jump has been a spectacular 100% plus from the extreme lows, mostly aided by global recovery led by stimulus measures from various central banks.

The optimism sensed since last one month reminds one of the peak of any bull run where almost all mid-caps and small-caps have participated in the rally with vigour. But, the point to ponder over here is that we have already doubled from the lows in a span of short time of 1 year. Is it possible to keep posting such spectacular gains time and again? Is it possible to register another 20-30% rally in next 1 year?

The answer lies in the fact that if the corporate earnings over next 1 year shows signs of as much of robust growth as equity market returns, it could well be a dream come true. But, if the above condition is not fulfilled and market goes on to notch yet another 20-30% returns in 2010, it could be termed as a 'bubble', which is not backed by appropriate earnings growth from corporate world. The bubble could be due to excess liquidity around the globe or any other reason leading to favouritism and growth of market levels in particular area, with little support from corporate growth.

This draws us to conclusion that most probably the first-half of calender year 2010 could be a year of consolidation or a mild correction. Also, if one takes note of the market rally in last one year, it was in line with most of the global markets and in sync with other emerging market rally. If, for any reason, the global rally is to stop over medium term horizon, it is quite likely that Indian markets will also catch the flue and may need some rest time.

However, based on the highlights and performance of the upcoming March and June 2010 Quarters, markets may bounce back around last quarter of 2010 and possibly first half of calender year 2011. This could be the time, if all is well with the globe, when Sensex and Nifty might try inching to a higher horizon, say, cross previous highs and much higher targets. However, above is simply a guess-work and prediction into the future with no guarantee of what will markets do in times to come.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Market Mantra: Valuation By Time Parameter

2009-12-16T12:53:00.012+05:30

"Old Time, that greatest and longest established spinner of all!.... his factory is a secret place, his work is noiseless, and his hands are mutes." ~ Charles Dickens

In this post, we'll see how the ticking time gradually killed the valuations of some of the renowned stocks based on some negative impact which led to under-performance of these stocks on the bourses, even as the over-all market valuations are quite near to those witnessed at the peak of the bull run last time. Read on...

The Adventurous Journey

A year back when equity markets the world over were at the helm of extreme pessimism, who would have imagined that the benchmark index Nifty, which witnessed a trough of 2500, would be at 5000 plus levels as early as December 2009. But, that's how stock markets work, contrary to imagination of most of the market participants. The recover in itself is not surprising but the 'pace' of its journey has certainly stumped most of them including the ones involved in the forecasting job- the Analyst community.

Market's Collective Wisdom

In this post, the discussion will revolve around how markets have valued some of the prominent stocks from various different sectors and industries, spanning the journey from previous bull market to the recently witnessed great recession and from there back to current spate of revival and recovery on the equity bourses. What are the aspects that the markets have taken a prior notice of, before giving the right kind of valuation fit for respective individual companies discussed below.

Factors Determining the Valuations

While deciding the kind of valuation that each of these individual companies deserve, markets have taken into account as to how these listed companies have fared all through it's journey from optimistic bullish times to pessimistic slowing times of global recession. How has these companies managed their all-important 'Cash' reserves? How has these companies fared in the process of cost-cutting and rationalization during the slow-down times? What is the impact on their 'Order Book' due to slowing global demand?

How has some of these companies managed their 'Leveraged Buy-outs' which were executed during the times when liquidity was flush in the system? Have these companies entered into M&A deals which did not warrant high valuations? How capable are these companies in servicing their debt taken to fund their expansion plans? Are they in position to bring down their borrowing costs?

Some other factors that goes into valuing the companies during the journey from bullish to bearish times and back to bullish times are the test that the 'Management' of the company goes through in passing slow-down phases. That's not all, markets also take note of the change in fundamentals of the industry in which the individual companies may be operating in. Say, for example, the Telecom sector - the prospects for the individual companies have worsened after cluttering of new entrants in the space leading to 'Price Wars'.

Now, we shall directly deal with selected few individual companies and see what math has been worked out by the markets in determining the valuation for these companies on the Indian bourses:

1) Suzlon Energy: This much touted stock from the renewable energy space got a rude treatment from the markets based on its performance. The company, which is involved in wind power generation, had taken a huge debt to fund the buy-out of firms like Hansen Transmission and REpower.

The woes continued for the company with the instances of blade cracks on more than one occasion during the operation of the wind turbines. The company had to provide for blade retrofit & replacement compensation to the clients. The markets clearly gave a thumbs-down to this inefficient management and repetitive product accessory-related woes experienced by the company all this while. This stock, whose all-time highs lays some where between Rs.400 to 500 levels, is currently quoting around Rs.80 on the bourses way below its all-time highs.

2) Punj Lloyd: This company which is one of the biggest Engineering & Construction player after L&T, and specializes in laying pipes and building oil and gas storage tanks and terminals, got no better treatment from the bourses. The stock corrected from its all-time high of Rs.600 to a trough level of Rs.70 when Nifty bottomed out at 2500. However, during the rise of the benchmark index from 2500 to 5000, this fast-growing mid-cap engineering stock could merely double with currently quoting at Rs.200 on the bourses, as against its all-time highs of Rs.600. The company's results got negatively impacted due to litigation between its UK based subsidiary Simon Carves and SABIC Petrochemicals.

While comparing the stock with L&T, the markets have given thumbs-down to Punj Lloyd with respect to the fact that most of the L&T operations are domestic oriented. So, during the global recession, it is but quite obvious that Punj Lloyd was largely impacted with it's wide presence across the slow-down infected globe. Also, during the ongoing recovery, India has shown sharp recovery (and hence better recovery in stock price of L&T) as compared to other developed and developing markets where Punj loyd has more prominence. Thus markets have tagged a few genuine reasons for the under-performance of stock price of Punj Lloyd vis-a-vis L&T; like slow global recovery than in India, decline in oil consumption & consequently its capex requirement due to low real demand for oil and gas, among others.

3) Alok Industries: This company is a leading textile manufacturer whose order book is full and providing good revenue visibility. The company has also witnessed a sustained growth in its revenues and profits. This stock had witnessed an all-time high of around Rs.100-105 during the peak of the bull run at Nifty 6000 levels. However, currently the stock is quoting at around Rs.20 since quite a long time. A sharp run-down in the stock price as compared to it's all-time highs.

The stock has everything positive about it; right from catering to major retailer like Wal-Mart and having domestic presence in form of H&A stores in the retail segment. However, the major aspect that is going contrary for the company's stock valuation is it's High Debt-Equity Ratio. Though, with the recent Right issue by the company, the high debt ratio is likely to moderate to some extent. Most of the company's interest liabilities for its long-term debt is subsidized under textile promotion scheme. But, certainly, markets have clearly given a thumbs-down to a good business model of alok Industries due to its High Debt-Equity Ratio.

4) Aban Offshore: Oil services firm Aban Offshore which lets out oil rigs for hire bought Norway's Sinvest three years ago in 2006. The company has about Rs.16000 crore of debt on its books with exorbitant high debt-equity ratio. The markets have given an extreme thumbs down to this company when compared to its all time highs of Rs.5000 to 6000 during the bull run as against Rs.1200 quoting currently.

Apart from this, the global slowdown & collapse in crude oil prices led to fall in capex towards oil exploration activities leading to slump in letting-out rigs to oil companies. This slump in demand for its services along with high interest rates payable towards acquisition of Sinvest led to fall in income for the company.

5) Tata Steel: On acquiring Corus, Tata Steel went on to be the world's 6th largest Steel maker. The Indian steel maker had acquired Corus for about a whooping $13 billion two years back in a bid to have a global presence. However, the subsequently following global crisis led to demand destruction for steel in reduced demand in sectors like automobiles and construction, particularly adversely affecting Corus performance & operations. Tata Steel incurred a consolidated net loss of Rs.2710 crore in the quarter ended September 2009. The stock made an all-time high of Rs.900-1000 during the peak of the bull run & is now quoting around Rs.550, indicating a steep discount to the peak prices then.

6) Bharti Airtel & Reliance Comm: Bharti Airtel, along with Reliance Communications, are the stocks from the Telecom sector which are under-performing big time on the bourses due to the intense 'Price Wars' among the telecom operators. During the previous bull run, when these stocks were distinct out-performers the record subscriber additions & rising ARPU's were the major attraction.

However, as time passed the Tier 1 cities have almost turned 100% wireless by now, more so leaving the scope of expansion only in the rural India & somewhat Tier 2 and 3 cities. Not to mention the upcoming Mobile Number Portability which will intensify the competition. This all reflects well in the current low valuations even in rising markets. Reliance Communications whose all-time highs lay around Rs.800 is quoting at a fraction of its peaks at Rs.180 currently.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Market Outlook & Diwali Wishes

2009-10-14T13:13:00.020+05:30

Mr Faisal Humayun has posted a query in the Comments Section, on my suggestion regarding prevailing Nifty Trend and Technicals. He was of the view of expecting some correction around Nifty 5000 levels which seems to be getting delayed. His Comment was as follows:

Hi Viral,
It would be great if you can provide some insights on the markets at present. I personally expected correction at 4950-5000 levels. But that does not seem to be happening.What do Nifty technicals suggest?

Charts Courtesy: www.icharts.in

Nifty Outlook & View

From what I can pick-up from the Nifty charts attached above, the markets seems to be in a broad tapering range which is slowly but steadily closing out as markets move forward. This tapering range is marked by Pink-coloured trend lines 1 and 2 in the above charts.

At some stage, I presume that these trend lines which are tapering in nature will eventually close-out and markets will make a decisive and an expanded move from the current levels. The up side could be as high as 5250-5450, a rally which could be fuelled on the back of Panic Buying among investors. At that point of time, the Analyst fraternity could well be predicting about Nifty 6000 level to be on cards. This could be the time of excesses, if such a situation gets played out. At such times of euphoric rallies, if all the remaining laggard stocks and sectors which have not yet participated in the rally by substantial means, starts rallying; it could be a warning of sorts that we're getting nearer to have topped-out over medium term horizon.

However, the above is based on the assumption that the up side break out could be the order of the day in the times to come. But, it is not necessary that market will oblige this view of mine. The break out could as well be on the downside. In that case, my first levels to fall-0n for support would be Nifty 4900 levels where the markets has sought support for 3-4 times in last 20-25 sessions. Below Nifty 4900, the next big support lies around 4780-4800 zone, which is also coincided by its 50 EMA support zone. As of now, as the trend remains up, traders should remain long until initial support of Nifty 4900 stays-on. Investors on the sidelines will have to go through a painful waiting period. If they lose patience, a trap could be well-laid in 5250-5450 zone, which will act as Panic buying zone with tons of optimism.

The recent downward move from Nifty 5080 to 4920 & finding a support over there is ample evidence that markets have again sought a support at its Lower trend line (Pink trend Line 1). This trend line will slowly move higher with time as market advances in upward direction.

Mr Vikas has posted a query on Diwali Shopping List

To start with, for Diwali shopping list, I would happily recommend sweets, crackers and new costumes as of now rather than stocks from equity markets. Markets has more than doubled from the trough levels witnessed before 7 months. However, the fact that markets have doubled is not a concern, but the compressed time horizon in which this sharp rally has occurred is concerning and hair-raising fact.

Anyways, to address to your specific query, I have a small list of stocks for readers who wish to truly invest during this Diwali based on fundamentals and valuations in specific stocks. However, they should remember that if markets meltdown to some extent or shifts into an intermediate downtrend, these stocks could be further dragged down by some more bit in sync with the downward market momentum. The readers need to be aware that the valuations are sound to buy the below mentioned stocks even at this point, but it comes with the risk that they're indulging in it at peak market levels. The list is as follows:

1) Bharti Airtel
2) Alok Industries
3) Kalindee Rail
4) Time Technoplast
5) Everest Kanto
6) Praj Industries
7) ONGC

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

United Phosphorus: Trend Under Cloud Cover !!

2009-10-09T17:58:00.017+05:30

Just few days back on October 05, 2009 I had posted my stock view on United Phosphorus. The stock charts then had showed an emergence of a bullish reversal indicator in a Morning Doji Star pattern. The expectation was that the near term bearish trend prevailing from mid September has come to a halt & a likely trend reversal would set in after witnessing a unique Morning Doji Star Pattern on the charts. The stock did show signs of strength post such signals and witnessed higher levels of about Rs.176-178 in the follow-up session.

Charts Courtesy: www.icharts.in

However, on October 7 and 8 we witnessed yet another reversal pattern in a Dark-Cloud Cover format, this one being the bearish signalling pattern. Today (October 9), the follow-up session of spotting this bearish trend reversal patter in dark-cloud cover, a long red candle stick occurred which pierced the low of the dark-cloud cover pattern, confirming that there is some sort of reversal in the stock's trend.

Dark-Cloud Cover

A Dark-cloud Cover is a Bearish reversal pattern witnessed after an uptrend. First day of this pattern is characterized by a long white candle in the direction of the uptrend. The second day typically opens gap-up above the close of the first day only to end (close) lower, piercing right below the middle of the first day's real body.

The greater the degree of penetration of the closing on the second day into the real body of first day, the more effective could be the bearish signal as may be given by the pattern. A better confirmation of this bearish pattern can be received on the next follow-up session which leads to the stock price to close below the standing position of the two decisive days of the dark-cloud cover pattern as shown in the above chart. It reaffirms the fact that no uptrend has ceased to exist. The highs established during the two days of emergence of dark-cloud cover pattern acts as a Resistance zone over a future period.

United Phosphorus (Short-term Trend)

The stock has developed a crucial resistance around Rs.176-178 with a top with dark-cloud cover pattern on October 7 and 8. A support exists at Rs.154-156 levels near the bottom of recently witnessed Morning Doji Star pattern. A break below this support zone could open the flood gates for bears to further dragging down the stock at lower levels. Traders should observe thorough due-diligence to trade within the Rs.155-180 zone, as there is lack of clear trend with crucial support & resistance placed at the extremes of this range.

United Phosphorus (Medium-term Trend)

Indeed, if this Dark-cloud cover pattern were to effectively materialize over a period of time, there could be more down side to the stock in the coming times. If the stock breaks crucial Rs.154-156 support, a down side risk towards Rs.135-145 can not be ruled out over a Medium-term horizon in next few months. However, the trend may again turn positive if the stock manages to close above Rs.180 resistance zone.

Tweezers Top Resistance

In a classical Dark-cloud cover pattern, usually the second day opens above the highs of the first day. But in this specific instance of United Phosphorus there is a slight variation in the pattern where the second day simply opens above the first day's close (not highs), and could not surpass the highs established on first day but simply managed to match it. Some Analysts may prefer to call this pattern as 'Tweezers Top & Dark-cloud Cover' as the highs of both the sessions are almost matching. Unless the highs of this tweezer tops are not crossed-over, the momentum in the counter may remain negative until some new trend reversal pattern emerges. The highs of the tweezer top could act as significant Resistance in future.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Zandu Pharma: Fluttering with the Flag?

2009-10-08T15:58:00.012+05:30

The stock price of Zandu Pharmaceutical Works Ltd. has spurted at 10% up circuit to close at Rs.10925 on the bourses today. The stock made a low of Rs.9921 during the day. Zandu Pharma is a Small-cap company with market capital of approximately Rs.800 to Rs.900 crore which is usually traded at low volumes. On the Daily charts of Zandu Pharma, a 'likely' Flag pattern is visible which is a short-term Continuation indicator marked by a small consolidation & declining volumes in between the over-all journey.

(Please refer to the Risk factors associated while trading in this stock, at the end of this post)

Charts Courtesy: www.icharts.in

Flag Pattern

Investopedia.com defines 'Flag' as, "A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations within a narrow range and mark a consolidation before the previous move resumes."

1) A Flag pattern is a Continuation pattern characterized by an up trend followed by consolidation with declining volumes. The pattern witnesses a breakout from the consolidation pattern leading to a spurt in prices in the same direction as prior established trend.

2) Usually a Flag pattern, as a whole, is preceded by a series of dull and low volume sessions packed with in a tight range, though this is not a universal rule. Later a break in stagnant price action occurs leading to almost a vertical spurt in prices with strong up trending momentum. This zone of price spurt which is characterized by high volume is known as a 'Flag Pole'.

3) After the storm of sharp up move, comes the consolidation period which is characterized by small downside pressure with in a tight narrow range as show in chart attached above. This consolidation phase is driven on the back of declining volumes. Next stage is breakout on the upside as continuation of the prior trend.

4) The last stage is a breakout from the consolidation zone as continuation on the trend established prior to consolidation. Even this last stage can be as furious and fast as the breakout witnessed during the formation of the prior Flag pole marked before consolidation. The length and 'likely targets' for the 2nd Flag pole could be as big as the price movement witnessed during the 1st Flag pole.

Zandu with a Flag

From the above mentioned evidences, I have posted this blog entry assuming that Zandu Pharma stock is in the last stage of formation of 2nd Flag pole. The stock spurted up at 10% Up circuit as I am writing this, which can be construed as a breakout from the consolidation zone of Rs.12500 on the up side to Rs.10000 on the downside. With today's spurt in price action, the consolidation phase can be assumed as being completed before the prior established up trend resumes its up surge.

The usual way of calculating the price target for up move during the 2nd Flag pole could be equal to the length of the price action witnessed during the preceded flag pole at the start of the up trend. In Zandu Pharma, the 1st Flag pole is of a height of Rs.6000, formed during an up move from Rs.7000 to Rs.13000. Assuming that the formation of the 2nd Flag pole has commenced from this date, we can presume that the up move has started from the day's low of Rs.9900, giving us a probable target of Rs.16000 approximately (6000 points added to Rs.9900). The target can deviate by one or two thousand rupees. However, this is just my view and thought on the stock and the pattern that is visibly developing on the chart and it should not be construed as sure shot achievable targets, nor is it a Buy/Sell Recommendation.

Risks Factors

1) Zandu Pharma is Small-cap stock.
2) It is a Low Volume stock and often trades under Circuit filters which may not allow trader a much desirable entry/exit opportunity at the right time.
3) The views about formation of the Flag pattern in this stock is simply my assumption based on my knowledge and signals I am receiving from the charts. There is no surety of any kind that the stock price will move in up ward direction only from here.

Note: The above view on the stock is for Short-term horizon and not an investment/fundamental report. The above views are for educational purpose and should not be construed as a Buy/Sell Recommendation of any kind/nature whatsoever.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

United Phosphorus: Is Short-Term Bottom in Place?

2009-10-05T21:36:00.013+05:30

I would like to assure all the readers who have provided affirmative comments regarding the issue of trading ideas on the blog, that I am not going to stop posting stock specific views based on act of particular readers. But, there would definitely be a small change in the format of my postings which will be more in the form of 'Trading Views' rather than formal 'Trading Calls or Recommendations'.

However, in short, trading views with supportive chart patterns will continue to flow as always. But, the decision of trading call based on specific signals like Entry, Exit, Stop loss , etc. will have to be determined by the traders themselves at their own peril.

This may also mean that, I may post multiple trading views generated based on supportive chart signals, at the best of my knowledge. But, traders need to FILTER these views based on their due-diligence or understanding on the matter and act only when they feel that the specific stock view is good enough to take a call for themselves. A number of trading views will keep flowing from my side, you have to choose (filter) as to which few would serve you best as per your profile.

United Phosphorus

Previous week saw an emergence of a bullish reversal indicator in United Phosphorus- 'The Morning Doji Star' Pattern. This pattern consists of determination of the trend based on performance of three candle sticks patterns which indicates that the prevailing down trend has ended and a gradual process of new up trend could be in the offing.

Charts Courtesy: www.icharts.in

The Morning Doji Star

This pattern characterizes the reversal pattern in the prevailing down trend in the counter. The 1st day of the morning star pattern signifies a long red candle indicating the last downside move preceded by several down trending days. The 2nd day is a doji which opens gap-down & closes somewhere near the very same open- indicating a tussle between bulls and the bears in search of a decisive trend. The 3rd day is the bullish confirmation day with a big white candle piercing above the mid-point of the real body of 1st day of the pattern.

In short, we have a stock in a down trend since quite some while and we get a star doji indicating that bears were in control of the downtrend but was duly followed by bulls taking some charge of the situations- meaning bears are losing capacity to drive down the stock further from here. The confirmation of this comes on the 3rd day of the pattern when bulls seems to be in full control of the situation and betting of the reversal in the stock fortunes. However, traders who want further confirmation of this reversal pattern can latch on to clues from the another 2-3 days of trading sentiment in the counter.

Supports & Resistances

Coming back to United Phosphorus and the bullish reversal pattern in this counter, we have witnessed a Morning Doji Star pattern (as marked by Blue Rectangle on above Chart) around September 24, 2009. With the positive stock performance in the following 4-5 sessions of witnessing this pattern, we can conclude that the stock could have indeed bottomed out around 154-156 zone in the near term horizon.

The stock has minor support around 163-164 zone followed by 154-156 at deeper levels. Presuming that this stock view on United Phosphorus has indeed sought a bullish reversal pattern with determination of Morning Doji Star pattern during the last week, we can come to conclusion that the stock has a strong support at 154-156 where the stock could have bottomed out in near term.

The stock has a resistance at 174-175 zone. So, a real bullish confirmation comes above 174-175 levels where traders can bet with conviction. However, the entry and exit strategy to be used for trading in this counter may vary from trader to trader depending upon their risk profile & to some extent market conditions as well. Traders are requested not to take trading calls on each and every stock view presented by me on this blog. Consider all the above views as guide posts with thoughts on the stock and its trend, rather than as a recommendation to Buy/Sell.

Note: The term ‘Trend Reversal’ could have number of implications. One of them being- the prior trend would cease to exist, not necessarily being reversed instantly. Also, a trend reversal is a slow and a gradual process which develops over a period of time with change in sentiment.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading View: JP Hydro & Nifty

2009-10-03T11:35:00.022+05:30

Thanks to an eye-opening Comment by a reader in my previous posting related to IDFC, that I realize that posting free calls on a blog is a thankless job. I wonder, as commented by that particular reader, as to whether Technical Analysis is just as good as you want the data to be interpreted. I kept wondering- aren't charts a reflection of the demand-supply scenario in the market? Well, I am not here to discuss about all this as of now. But, one must remember, trading is like a coin. It has two sides- Stop loss and Targets. It is impossible that all trading calls will click.

But, I have come to a conclusion that I will not post calls on this blog. But I shall keep posting my views on the stock or index. I shall present chart view from my side & leave the decision of trading call on the readers themselves who track this blog. The crucial entry, exit, stop loss and trailing stop loss points will have to be determined by the readers themselves. I would be more involved in providing stock ideas and material which could be more of educational in nature & not recommendation to Buy or Sell whatsoever.

Traders are free to trade whenever they feel fit and take their own due-diligent decision to trade depending upon their intellectual to judge the viability of my views.
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Trading View on Jaiprakash Hydro-Power

In the prevailing positive momentum for the markets, have markets given a miss to one of their trading favourite among the momentum stocks i.e., JP Hydro ??

Pennant is a short-term continuation pattern which is characterized by (triangular) consolidation & resumption of the move in the previous trending direction. This pattern also features a sharp decline in volume during the consolidation phase. There are signs that this particular pattern could be emerging on the counter of JP Hydro.

Charts Courtesy: www.icharts.in

Investopedia.com defines Pennant as, "A continuation pattern in technical analysis formed when there is a large movement in a stock, the flagpole, followed by a consolidation period with converging trend lines, the pennant, followed by a breakout movement in the same direction as the initial large movement, the second half of the flagpole."

Without going much into detail regarding the working of the Pennant pattern, as can be seen on the above chart of JP Hydro- the stock has witnessed an up move during the month of July from Rs.65 to Rs.85. However, since then the stock has gone into a long consolidation for the following 2-3 months hinting towards formation of a Pennant pattern.

The consolidation zone typically reflects features of range bound movement with in the converging trend lines backed by declining volumes. The breakout from this long consolidating pattern could herald a rally up to Rs.100-110 in short duration of time. Note: Traders should be cautious if the stock breaks substantially downward below Rs.78 mark.

Traders can use various trading techniques which best suits their risk appetite or judgement profile. One option is to trade once the stock breaks past the upper trend line of the triangle for further confirmation of the emergence of the Pennant pattern in the counter. Second option could be to build long positions around current price with Stop loss at the lower trend line defining downside support.
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Nifty View

In Nifty, as we can see from the above chart that the market is steadily moving up but in a narrow range. I have highlighted two trend lines (blue lines) which is acting as support and resistance for the market on either sides. My view is that if markets were to break past the upper trend line, than we could witness a steeper rally up to Nifty 5250-5450 levels in times to come over shorter duration.

However, currently Nifty is resting very near to the upper trend line of the range which could be a reason to be cautious until we get a thorough breakout from the range. There is a downside support around Nifty 4930-4950 zone. So, vaguely, we can consider nifty with in narrow range of 4930-5125. A bigger market move needs a break past this range with a weekly closing.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading Review: Reiterate Buy on IDFC at Close Above Rs.147/- Mark

2009-09-19T11:39:00.045+05:30

Short-term Trading Call: A Buy Call on IDFC is Reiterated if it manages to Close above Rs.147/- mark. A bullish Mat Hold indicator & an Ascending Triangle Pattern emerging on the IDFC Daily charts point towards a Bullish breakout once the stock settles above Rs.147 on Closing basis.

Charts Courtesy: www.icharts.in

Reference: IDFC Buy Call on this blog on September 14, 2009

The stock has Consolidated for about 5 days since a Trading Buy call was initiated on this blog on Sept 14. However, during this consolidation phase of last 5 days, a unique pattern of bullish Mat Hold indicator seems to have emerged on the Daily charts of IDFC.

Mat Hold Indicator: (Refer Blue Rectangle in Above Chart)

Investopedia.com defines Mat Hold Pattern as, "A pattern found in the technical analysis of stocks that ultimately indicates the stock will continue its previous directional trend (bullish or bearish). The pattern is initially indicated by a significant trading day in one direction or another, followed by three small opposite trending days. The fifth day then continues the first day's trend, pushing higher or lower, in the same direction as the first day's movement."

The Mat Hold Pattern of Candle stick charts is characterized by 5 day pattern with Signs of Consoldiation & then a Reversal, which can be described as below:

Day 1: The First day is marked by a long white candle (Up day) where the Closing of the day is way above the opening of the day, in effect, creating a long Real Body (with or without shadows).

Day 2: The Second day is characterized by a gap-up opening. However, the second day closes below the Opening price, in effect, creating a Red candle (as shown in above charts) with relatively small Real body as compared to that of the First day.

Day 3 and 4: Similarly, the 3rd and the 4th days are characterized by closes that are slightly below their respective opening for the day, in effect, creating another 2 Red candles with small Real body as compared to that of the First day. However, a common typical feature that reflects on Day 3 and 4 signifies a brief period of down trend but within the range of the stock price movement which is recorded on Day1.

Day 5: The Fifth day is characterized by a bullish formation of long white candle either engulfing the coverage of price movement of last 3 days or a Close above the closing levels recorded on the 1st Day of long white candle.

Apart from bullish Mat hold Pattern, an Ascending Triangle Pattern is also visible as pointed out by two trend lines on the chart attached above. The Resistance line of the ascending triangle is placed around Rs.147 mark.

CONCLUSION

With Reference to the above mentioned chart patterns for IDFC viz., Mat hold indicator & Ascending triangle pattern, it is advisable to track both chart indicators in sync with each other. Meaning to say, that the ascending triangle pattern has a resistance of Rs.147 & a bullish confirmation of the Mat hold pattern can be gauged with one more positive white candle stick which closes above Rs.147 mark. Tracking above evidences of bullish formation, a Buy call is Reiterated once the stock closes above Rs.147 resistance level.

Option for Traders

Traders who Already Bought IDFC based on Sept 14 Buy Call
Traders who have already invested money @Rs.142-145 zone based on the Buy call dated Sept 14, can add-on to to their investments as & when a bullish confirmation comes above Rs.147 mark. Traders with Low risk appetite can remain invested in the stock if they do not wish to add-on. The Stop loss for the trade remains at Rs.136/- on Closing basis.

Traders who have still not Bought IDFC based on Sept 14 Buy Call
Traders who did not buy the stock based on Sept 14 call, can jump-in to this counter, only on the cross-over & close above Rs.147 where we get a bullish confirmation. However, they can avoid/skip this Trading Call until the stock crosses crucial resistance zone of Rs.147.

Note: The above views on IDFC are simply based on visibility of 'Likely' patterns on charts to the best of my knowledge. The grounds on which the patterns are predicted may go wrong or haywire depending upon the market movement or actual demand-supply scenario prevailing in the counter. Traders should act on the above calls solely based on their own Responsibility & confirmation of the above views from their trust-worthy sources. The above views are only for educational & guidance purposes.

Status Of Past Trading Calls:

1) Ranbaxy Call Full Target Achieved
2) Orchid Chemicals Both Targets Achieved
3) Aban Offshore Stop Loss Triggered

(High Risk Traders can again Buy Aban Offshore below Rs.1600 with SL of Rs.1496, a Bullish Engulfing pattern followed by positive confirmation during next two sessions, affirms the positive uptrend in the counter)

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading Idea: Buy IDFC with SL of 136/-

2009-09-14T18:20:00.011+05:30

Short Term Trading Call

Charts Courtesy: www.icharts.in

Buy: IDFC (Closing Price- Rs.144)
Accumulation Zone: Rs.142-145
Stop Loss (SL): Rs.136/-
Targets: T1 155, T2 170

Stock View: IDFC has been consolidating in a Narrow range of Rs.128 to Rs.135 zone from August 15 to Sept 04 for a period of about 20 days. The stock jumped out of the range at the onset of 2nd week of September only to consolidate lower in the follow up trading sessions until yesterday. However, today the stock seems to have sought an important support around Rs.136 and the stock bounced back from there giving initial signs of stability. The stock also has an important Support at Rs.136 marked by its 50 EMA Trend line.

However, traders should keep in mind that the stock has a minor resistance at Rs.150 mark which is a resistance zone for the stock for past 4 months. On cross over & sustenance above Rs.150 mark backed by strong volumes, this stock seems set for a ride up to Rs.170-180 over next few months.

Swinging with RSI Momentum Indicator

2009-09-12T11:14:00.023+05:30

Often Technical indicators are used as a guide or to predict the future course of action of equity markets, especially short-term market movement. Usually the use of technical indicators over a short term period involves studying demand-supply indicators irrespective of fundamental aspects of the market or a stock. Though it is not advisable to predict markets based on any particular technical indicators but a combination of indicators to arrive at any type of concrete decision of the market's next price direction.
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Short Term Momentum with RSI

However, in this post we shall try to focus on predicting the very near-term (next 5-15 sessions)market movement for the markets in general. For this purpose, we will use one of the most widely tracked technical momentum indicator for determining the relative strength of the market - the Relative Strength Indicator (RSI).

RSI as defined by Investopedia.com is, "A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset."

It further elaborates on the working of RSI as, "The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. "

Charts Courtesy: www.icharts.in

From the above attached Daily Nifty Charts with range of last 3 months, I have used RSI 5 to determine over-bought & over-sold position of markets for next 5-15 sessions.

1) RSI below 30 around July: As can be seen from the charts, the benchmark index Nifty got over sold during the 10 days prior to and post July 2009, leading to short-term revival in the index immediately for next few sessions.

2) RSI above 70 in July End: During the last 2 weeks of the July 2009, Nifty went into over-bought territory. However, Nifty did not witness any sharp correction but went for small-time consolidation at lower levels for 2 times only to bounce back in the over-bought territory.

3) RSI support at 30 in August: However, the correction of over-bought phenomenon in the latter half of July was inevitable which was witnessed in first half of August 2009. Nifty took strong support at 4400 levels in the first half of August.

4) RSI above 70 in Sept: Again markets have bounced back in the over-bought territory in the September first half.

Based on the above evidences from history of short-term price movements, we can conclude that sooner or later Nifty has to consolidate or correct in order to ensure in line movement with a 'likely' retract in RSI at lower levels in future.

Future Possibilities:

(A) Stretched-Out Pattern: RSI stays above 70 for some more time and Nifty remains over-bought for few more sessions. This possibility could see Nifty testing higher grounds like 4900-4950. On RSI indicator, this would reflect as 'stretching zone' for markets above RSI 70 mark. But, after a certain point, Nifty has to retract to lower range of 4780-4840 levels for consolidation or may be even deeper for correction up to 4680-4740.

(B) Zig-Zag Pattern: The other possibility could be Nifty immediately takes a small 'U' Turn for consolidation below RSI 70 for a week or so. The support area could be 4680-4740 mark for Nifty at such times. But, later, Nifty could again bounce back above RSI 70 mark to head towards higher levels (like the RSI pattern witnessed in last half of July 2009).

(C) Pronounced Correction: Third possibility for Nifty could be that the RSI opts to retract back to 50 mark where it may find Support. This move back for the RSI to 50 could drag Nifty substantially lower at around 4570-4640 range over a period of 10-20 days. Nifty 4570 is a strong support zone for Nifty.

Caution: RSI is 'not' the only technical indicator that determines the movement in any asset class. It is just one of the few indicators which can be more fruitfully utilised in integration with other technical momentum indicators. So, do not build your wholesome judgement or decision based exclusively on above thoughts related with market momentum based on RSI swings.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

High Risk Buy: Aban Offshore & Ind.Bull.Real Estate

2009-09-07T10:16:00.033+05:30

Charts Courtesy: www.icharts.in

Aban Offshore- Deployment of Jack up Rigs led by Increased Spending from Oil explorers on Higher Crude Prices

Oil exploration services provider Aban Offshore witnessed a huge 25-30% up move during last week on the back of positive announcement of deployment of three newly build jack up rigs in the Middle East for a contract worth Rs.2925 crore spanning 3 years duration. Apart from that the company has also entered into a deal for deployment of a rig in Latin America.

What Next after a Huge Surge Last Week??

Coming to technical views on Aban Offshore, as has been pointed out in the chart, the stock has sought crucial support at lower levels around Rs.1520 mark after a huge surge in its stock price on announcement of deployment of its jack up rigs. The stock seemed extremely over-bought over the past few sessions and hence consolidating in Rs.1500-1650 range for the time being.

Usually, after such a big surge it is unlikely that the stock gets dragged down atleast over a period of short-term horizon. In fact, the stock is expected to register incremental gains over a period of time once the consolidation phase is over. High Risk traders can initiate long position in the counter at current levels with a stop loss of Rs.1520 and target as mentioned below:

Aban Offshore: High Risk Short-term Trade
Accumulation Zone: Rs.1560-1590
Stop Loss (SL): Rs.1520/-
Targets: T1 1670, T2 1785

Note: This trading call has been tagged as 'High Risk' Trading call not due to its sharply surged stock price in recent past, but due to the reason that the Support and Stop loss levels for this stock are placed quite near to the current market levels. Looking at the highly volatile fluctuation in the stock price of Aban Offshore after a huge surge, a fluctuation of 3-4% in the stock price on either side can't be ruled out during a volatile market session.

Indiabulls Real Estate: High Risk Short Term Trade

Accumulation Range: 255-260

Stop Loss (SL): Rs.247

Targets: T1 Rs.270, T2 Rs.285

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Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Market Review: Nifty Analysis

2009-09-04T18:06:00.010+05:30

Markets Nearing Trend Deciding Zone

Chart Courtesy: www.icharts.in

Sturdy 4570 levels

Nifty closes the week at 4680 on a positive note aided by revival in Chinese markets during the last session of this trading week. Currently, Nifty seems to be in a narrow trading range of 4570 to 4750 levels. It is significant to mention over here that the Nifty took support at 4570 level for 4 times during last 10 sessions, clearly confirming the view that these are the levels to be watched out for the downside support for short term traders.

Crucial 4350-4400 Zone

Over medium term basis, Nifty could be broadly trading in 4350 to 4750 range. The significance of Nifty 4350 to 4400 comes from the fact that markets took downside support for 8 times during mid August 2009. This forms as a crucial levels to be watched out for bulls, below which it would be advisable to play safe and exit or book partial profits. Below 4350 levels, bears are expected to take control of the situation for some time to come once the levels are taken out on the downside.

Resistant 4750 Zone

Nifty 4730-4750 continues to act as a strong Resistance for the markets to cross over. Above 4750, a quick burst to 4800-4850 can't be ruled out. If global markets stay sound & steady with upward bias for some more time, it wont be much before we see bulls crossing this crucial indicator at 4750 mark.

Summary
1) Below 4570: Short term Traders be Cautious on Long Positions
2) Below 4350: Book Partial Profits / Exit Partial Longs
3) Above 4750: Hold Trading / Investment Positions

Trading Idea: Buy Ranbaxy Laboratories

2009-09-04T15:44:00.019+05:30

Short Term Trading Call

Charts Courtesy: http://www.icharts.in/

BUY:Ranbaxy Laboratories (Closing Price: 321)
Accumulation Zone: Rs.318-322
Stop Loss: Rs.312
Target: Rs.340

Trading Updates during the Week:

1) Videocon Indsutries
Aug 27: Buy Call initiated
Aug 28: 1st Target Achieved (30% Gains Booked)
SL trailed from 210 to 222
Sept 01: SL trailed from 222 to 232

2) HDIL
Aug 25: Buy Call initiated
Aug 29: 1st Target Achieved (40% Gains Booked)
SL Trailed from 280 to 290
Sept 01: SL trailed from 290 to 305
Sept 02: Trailing SL trigerred at 305 (Buying Price 295)
Trailing SL Strategy ensured No losses. Call Wrapped Up.

3) Tata Communication
Aug 25: Buy Call initiated
Aug 29: SL Trigerred at 500 & loss booked.

4) Orchid Chemicals
Aug 26: Buy Call initiated
Aug 28: 1st Target Achieved (60% Gains Booked)
Sept 01: SL trailed from 105 to 108
Sept 04: Trail SL from 108 to 117
Stock Going Strong towards our T2

5) United Phosphorus
Aug 28: Buy Call initiated
Sept 01: 1st Target Achieved (40% Gains Booked)
SL trailed from 158 to 162, Support at 162

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Investment Review: Hold Videocon Industries

2009-08-29T15:48:00.044+05:30

Past Recommendation: I had recommended a Buy Call on Videocon Industries Ltd on May 15, 2009- Click here to refer my old Blog post. The stock was recommended to buy in the range of Rs.95-125. Read Further Review on the Stock:

Significance of Trend Line Support

Charts Courtesy: www.icharts.in

Alas !! A Breakout from Range Bound Movement:

1) Broadly Range Bound: In Rs.140-210 zone since mid-May 2009.
2) Narrowly Range Bound: In Rs.180-210 zone since mid-July 2009.
3) The stock has sought support for 3 times at the six month trend line during the month of March, Mid-May and Mid-July 2009.
4) Current Market Price: Rs.240/-

1) Starting the Journey: Whenever the stock has moved farther from the trend line by a substantial margin, sooner or later the stock has reverted back closer to the trend line to seek a support for any further upmove in future. The stock commenced its upmove during mid-March 2009 from its trough lows of Rs.75, the place from where the trend line's starting point can be tracked.

2) The Rising Baby: Since mid-March the stock rallied from Rs.75 to Rs.130 in about a month's time- a whooping range expansion from lows. This steep rally saw a consolidation pattern in the range of Rs.110-125. This consolidation was nothing but the stock reverting back to seek support near to its trend line's existence.

3) The Galloping Horse: Once seeking a support near to its trend line at Rs.110-125 zone during mid-May, the stock seemed ready for yet another bounce- this time even vigourous. This time the stock settled for nothing less than Rs.200 - another range expansion from Rs.125 to Rs.200. Not to mention over here that yet another round of consolidation was due and the stock reverted back to seek a trend line support at Rs.140/-.

Baby's Day Out:

If you must have closely observed, every range expansion is more vigourous than the last one. Once the stock reverted back to the trned line for support, the stock has moved to higher horizons with increased vigour. However, whatever be the extent of range expansion, the stock keeps coming back to trend line for support over a medium term horizon. Its like a child which goes out to play during the day, but has to come back at home during night hours to seek shelter at the end of the day.

What Next??

Since the stock has reverted back to trend line to seek support around Rs.140 zone during mid-July, the stock still seems to be reasonably near the trend line. However, closely analysing, the stock is neither near to the trend line nor too far away. I mean to say, the much sought after 'Range Expansion' may be still not complete on the stock's chart in whole- which could have been half done and still some more to come.

Conclusion: Hold Videocon with SL of Rs.190

My personal view is that we could see the stock reaching higher levels like Rs.260-280 zone during the ongoing momentum (even Rs.300 cant be ruled out), before we actually see the stock making effort to consolidate & seek its conventional support near to the trend line. This time the much needed trend line support zone could be perched in Rs.190-220 zone. But before that a likely range expansion could be in the row for this consumer durable stock.

Points to Note: As the stock moves up, its trend line support gradually shifts up in a slanting fashion. The trend line support mentioned in the charts around Rs.190 levels stands the test of time over medium term horizon. Later the levels can change depending upon the stock movement in future.

One another possibility that remains is- if markets correct sharply, the trend line could be breached on downside temporarily or even permanantly- which could be determined only with passage of time. The trend line supports could as well prove out to an illusion, if markets goes in a deep intermediate correction. Long term Investors can observe Rs.190 levels as Stop Loss for their investment in this stock based on the above mentioned explanation of trend line indicators as technical support for Videocon Industries.

Special Notes:

1)Readers should not mix-up Trading & Investment Call on Videocon Industries, both of which are recommended by me on this blog. This particular post is directed at Long term Investors & not Traders.

2) The views contained in this post are from the view of Technical Charts of the stock. So, readers who believe in Investments from Fundamental perspective can ignore this post. The fundamentals of Videocon remains sound from long term perspective.

Trading Idea: Buy United Phosphorus

2009-08-28T18:07:00.002+05:30

SHORT TERM TRADING CALL
Charts Courtesy: www.icharts.in

BUY: United Phosphorus (Closing Price 168)
Accumulation Zone: Rs.165-170
Stop Loss: Rs.158
Targets: T1 Rs.175, T2 Rs.185

Updation of Past Calls:

1) Tata Communication Buy call got active above Rs.520 today.
Stop Loss for the same to be Rs.500, unless any changes intimated.
2) Trail Stop Loss in HDIL Buy call from Rs.280 given earlier to Rs.290.
3) Stop Loss in Orchid Chemicals Buy Call remains unchanged.
4) Trail Stop Loss in Videocon from Rs.210 given earlier to Rs.222.

Note: First Target in both Videocon & Orchid Buy calls got achieved. It was recommended on the blog to Book 30% gains in Videocon & 60% gains in Orchid at levels of first targets.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading Idea: Buy Videocon & Orchid Chemicals

2009-08-26T10:46:00.030+05:30

SHORT TERM TRADING CALL

(Click on Charts for better clarity & enlarged view)
Charts Courtesy: http://www.icharts.in/

BUY: Videocon Industries (CMP 225)
Accumulation Zone: Rs.220-228
Stop Loss: Rs.210
Stop Loss (For High Risk Traders): Rs.200
Targets: T1 240, T2 260, T3 275.

Stock View: The stock has witnessed a break out from a broad trading range Rs.140-200 since last 3 months starting from June 2009. The stock has also witnessed a breakout from a narrow trading range of Rs.180-210 for the month of August 2009. A conical pattern was observed since the second week of August indicating indecisiveness among bulls and bears for this stock.

However, a move above this conical pattern since 24th August gives enough hint for an upside breakout from the narrow conial range of last 1 month and the broad trading range seen since 3 months. Also, the move of last couple of days is backed by higher volumes. Traders can accumulate the stock in the range of Rs.220-228 with SL of 210 (SL of Rs.210 for high risk traders) with substantial higher targets as mentioned in the above call. Traders should have courage to ride out the volatilty of highly inflated markets.

BUY: Orchid Chemicals & Pharmaceuticals (CMP 118)
Accumulation Zone: Small Qty @CMP,
Remaining in Rs.108-114 Zone
Stop Loss: Rs.105
Stop Loss (For Low Risk Traders) : Rs.107
Targets: T1 125, T2 140.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading Idea: Buy HDIL & Tata Comm.

2009-08-25T21:34:00.028+05:30

SHORT TERM TRADING CALL:

(Click on Charts for a better & enlarged view)

(Charts Courtesy: http://www.icharts.in/)

BUY: HDIL (CMP 294)
Accumulation Zone: Rs.292-298
Stop Loss (SL): Rs.280
Targets: T1 Rs.315, T2 Rs.330

SIGNAL BASED TRADING CALL

BUY: Tata Communication
Accumulation Zone: Above 520
SL: To be Updated Later (once call gets Active above 520)
Targets: T1 560, T2 590

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Correction: A Cool-off to Say the Least

2009-08-08T11:16:00.022+05:30

Twice Tested, Much Stronger!! -
The Resistence at Nifty 4750.

We have witnessed a strong resistance in Nifty at around 4725. The journey from nifty 3900 to 4700 was as exciting as one could imagine with almost a one-way ride in the upward direction. Nifty 4700 were the levels which were tested during Mid-June 2009 only to form a top for that month. Those levels are back to hound the market in form of stiff resistance to surpass. So, until this crucial zone of 4700-4750 gets taken out on the upside, it would be safe to assume that the Nifty broad range remains 3900 to 4750, a steady 800 point range. A narrow range could be spelled in between 4250 to 4750 range or 4400 to 4750 range, whichever stands the test of time.

Once again Nifty succumbed after testing 4730 during the first week of August 2009. On the downside, many important levels have come and gone. But, as of now, it would be safe to presume that the 'uptrend' is intact and this could just be a correction before next trending move. Markets have reversed from Nifty 3900 to 4700 without a breather. So, as of today, we can conclude that markets are in a short correction mode. Support for Nifty could be sought at 4400 or even 4250 on the lower side. Traders can buy around 4400-4450 with Stop Loss of 4380 with a probable target of 4650-4700 again. However, formally, if there is a tradeable call from my side, I will post it on blog as was done during previous week. Below 4380, another 100 point crack-down on Nifty can't be ruled out.

What could be the Chances of Revival Again?

We can again test 4700 after some bit of consolidation at lower levels. Support lies around 4250-4400, which ever stands the test of time.The broad range continues to be Nifty 3900-4700. Below Nifty 4250, the consolidation and waiting time could be for an extended period & may be even questions could be raised on the existence of current market uptrend if such crucial level is breached on the downside.

Can we again cross 4750? Quite possibly, we could go to 4900-5200 zone before this phase of exuberance come to a halt. Markets have a tendency to top-out when there is excess euphoria in the system and it succeeds in inducing investors to take an entry at higher levels when every thing is looking gung-ho and optimistic.

This is the way markets usually work: on the downside, weak hands are induced to lighten up their positions based on news and rumours of pessimism. This stock gradually moves in the hand of big people; the mentality that gets worked over at this stage is 'Fear'. Similarly, at the exuberant and higher levels, weaker hands take an entry at higher levels, when everything is looking optimistic. At such times, strong hands loosen their positions only to be dumped with weaker section of the system. The factor that works out at this stage is 'Greed' which induces investors to take entry at higher levels.

However, it is too soon to think about such higher levels as Nifty 4900-5200 zone, unless we cross 4750. But, I have a feeling that 4700 will come for yet another testing in near future. Markets will decide for itself whether Nifty 4750 needs to be taken out on the higher side or not, but before that: a Re-test of 4700 is more imminent prior to a big trending move either on the upside on downside. Well, markets could as well prove me wrong.

Money Making with Nifty

During the previous week, on this blog, Two Carry Forward Position were recommended in Nifty. One as a Trend player and one as a Hedge against the same. We cheerfully ended the Net position with smart gains as follows:

Date: July 29, 2009

Nifty Trading (Positional):
Sell in 4500-4550 zone
Stop Loss 4620 (Must have)
Targets 4425-4380

Date: July 30, 2009

COUNTER NIFTY POSITION
Buy in 4520-4540 Range
Stop Loss of 4470
Target 4650-4700

This Nifty view is opposite to the one mentioned above on July 29. One call will get stopped out and other will run at Profits in the direction of next trending move for the markets.

Date: August 03, 2009

NIFTY PROFITS BOOKED
SL trigerred in the Nifty Sell call dated July 29 at 4620 & Profits booked in Nifty Buy call dated July 30 at 4700.

Loss: 4620 - 4550 = 70 points
Profit: 4700 - 4540 = 160 points.
Net Profit: 160 - 70 = 90 points.

If you would dealt in Minifty, your profits should be 90 points x 20 units = Rs.1800/-If you would have dealt in Full Nifty, your profits should be 90 points x 50 units = Rs.4500/-

Time For A Small Break??

2009-07-21T18:36:00.010+05:30

Abhay has posted a query in the 'Comments' section regarding movement in Nifty and market trend. As per his comment he is expecting some cool down after recent sharp up move in last few sessions.

DEAR VIRAL,
I HOPING AND SOME WHAT PREDICTING FOR A 100-300 PT CORRECTION IN NIFTY IN VERY SHORT TERM. WHAT ARE YOUR VIEWS?
REGARDS ABHAY

Firstly, important to understand over here that the Trend has again turned in the upward direction in the near term. The break down below Nifty 4250 proved false for a sustained down trend. Nifty has bounced back vigorously after testing 3900 on the downside. Since then Nifty has fully engulfed the bearish move by rising above an important resistance of 4250 levels and now within testing distance to break above 4500 zone.

A correction of about 125-200 points on Nifty could be more likely, after witnessing a steep run-up in last week. But, again, it may or may not happen as per our expectation. Markets might as well choose to simply consolidate around current levels before next up move.

But no markets can move in single direction for a long time. So, traders should preferably look for a dip to take an entry at lower levels. During such strong momentum, even the corrections could turn out to be short lived or sometimes even as compressed in nature as intra-day correction only. Traders can buy around Nifty 4250 (which seems a bit unlikely even if markets choose to correct marginally) to 4350 zone. Accumulation of first lot of buying could be done around Nifty 4350-4300 which could prove to be a health entry point from Trading perspective. If markets choose to correct from here, traders can buy around Nifty 4350 with target of 4600-4700 on the upside, when the rally blooms again after a short correction.

On the other hand, long term investors need to wait patiently and hold on to their holdings and record price appreciation for their existing portfolio. Investors were recommended to start accumulation in Nifty 3900-3950 zone during the recent downturn. But, we missed out on aggressive buying spree as lower levels looked imminent then, but didn't turn up. At least, we were able to do some bit of cherry picking at the lowest point of the past 4250-3900 range. Investing should be a slow and a patient affair.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

PSU Stake Sale in Low Float Counters

2009-07-19T18:39:00.016+05:30

Disinvestment & Valuations.

'Disinvestment'- this was the theme on which speculators played a big bet before Budget announcement. Markets participants has expected some big announcement in lines of disinvestment or stake sale in public companies. In this post, I would like to throw some light on one aspect of PSU stake sale i.e., Valuations of already listed PSU companies on Indian bourses.

Low floating stocks are those stocks where a majority of the stake is owned by promoters and its group, thus limiting the scope of shares open to trading in public. Take, for instance, listed but government owned companies like NMDC & MMTC where the Centre has a whooping over 98% stake in each of these companies. In such companies, the stock in float for retail investors and institutional investors is very low and limited. The stock price and valuations of such companies are based on a low floating stock in public, thus making investment and trading in such stocks susceptible to high volatility and lower average volumes more often than not.

Fluctuation at its most Extreme

Most of the times, fluctuations in such stocks are often locked in up or down circuits based on the flow of news in the respective counters. It is relatively easier to manipulate the stock prices of such counters based on low outstanding shares in float. Such counters can be lifted with little or no institutional support due to low floating stock in public. Usually the charts of such stocks depict a vertical rise or fall during a period or it could as well be in shape of 'Steps' where the stock's chart pattern resembles as if moving on the pre-determined side after every planned phase of consolidation.

Competitiveness & Transparency

From all above, I simply intend say that in selective stocks with low float, the valuations could be on the higher side during times when the news flow is in favour (For example, disinvestment in PSU counters) of the stock. Such stocks could move up on the school of thought that further divestment could enhance the liquidity and volumes for the counter. In stocks, especially, where the promoters are Government, the usual process of thinking that goes into it is that as more stake from government sets free and as private institutions/retail investors gets more hold of the stake in the counter, the management will gradually strengthen, become transparent and be more competitive in nature.

A Slow Process of Price Adjustment

But, the other side to the story could also be that the excess valuations and speculative interest that such counter received till now based on its low float, could somehow become lose the sheen with higher float in the public/institutional domain. However, coming back to NMDC or MMTC where fundamentals are sound, could be a good investment pick for investors but for the excessive euphoria created in these stocks just before the budget announcement.

NMDC which had slumped to Rs.115 at Sensex 8000 levels, had clawed back to Rs.450 until Budget announcement before it settles around Rs.400 zone at last week's closing tick. The stock has moved up a whooping 400% during the period under contention as mentioned above. Same goes for MMTC which has appreciated from Rs.9100 levels at lows which has ended up at Rs.31200 at last week's closing level. Both the stocks are sustaining high valuations based on their price to earning multiples.

The Buck Stops at Demand-Supply Equation

The intent of this post on the blog is not to discourage readers planning to enter low floating stocks or encouraging them to exit such counters if they already hold them. Also, it is not necessary that all low floating stocks ought to be expensive. At times, there could be counters where the float is low but the volumes are healthy.

The intent is simply to Alert the readers that in counters where there could be near-term opportunity of price appreciation in such disinvestment candidates with majority stake in government's hold; the valuations in such stocks may find it difficult to sustain at higher levels as the floating stock and volume increases for trading in the open market during the longer time span. The simple logic that could apply over here is that with low floating stock the demand for the stock far out-strips the supply in such counters.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Is Trend Reversal Imminent?

2009-07-18T11:22:00.015+05:30

Volatility Revisited

A key feature of the market in last 15 days has been 'Volatility'. Stock markets at first developed a narrow range of Nifty 4200-4650 prior to budget. Post budget, as markets got a major event to react on, it breached the range on the downside taking cues from the FM's announcement or rather say lack of announcement. A crucial support got breached at Nifty 4200 levels to test lower levels until 3920 in next few sessions.

Did You Buy in Nifty 3900-3950 Zone?

The idea was to fill up the gap left open since election results i.e., Nifty 3650-4350. The gap got filled only partially up to Nifty 3900 levels. This blog had clearly hinted in my previous posting that the targeted gap need not necessarily be filled at this very attempt. An initial target of Nifty 3800-3850 was clearly spelled out. Keeping in lieu of this target, investors were suggested to start accumulating stocks in between 3900-3950 range as a start-up call.

Need of the Hour: Consolidation

Next few days, markets jumped up as vigorously as it had slumped during Nifty fall from 4250 to 3900. As mentioned in the previous post, a trend reversal is possible above Nifty 4400. Now, we're quite near to those levels and we till need to see whether Nifty 4400 is being crossed over and sustained above that. By ensuring sustenance, we'll understand that the break-out above 4400 is not a false one.

Traders can Buy on Dips, Investors can Hold on

The recently visited bearish range at Nifty 3900-4250 is fully engulfed, as Nifty has moved above 4250 with a weekly closing above the bearish range. The rise witnessed from the lows of 3900 was a vertical rise executed in only 4 sessions. This may call for some consolidation and range bound movement preferably in narrow range of Nifty 4250-4450 in short-term horizon or a broader range of Nifty 4000-4650 over medium term horizon. Keeping these ranges in view, traders can buy stocks at lower levels on dips or nearer to their respective support zones. Investors can hold on to their long positions unless there is re-emergence of any sort of bearish break down.

Leave Your Comments

Before concluding this post, let me pose a 'Thinker' for the readers. Readers can use their free time to ponder upon following aspect on the markets: The post-election gap on the charts at Nifty 3650-4350 has been partially filled up to 3900. The remaining gap of 3650-3900 is still pending to be filled in future. Will it be filled in near-term or will it be revisited upon in medium-term? Also, is it possible that markets can completely get away without filling this gap? The gap is still a substantial 250 point range. You can as well leave your views in the 'Comments' section.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

The Melting Point... Nifty Corrects Further

2009-07-11T11:16:00.004+05:30

Treading on a Thin Rope.

Nifty back to 4000 levels. It went almost 30 points below 4000 during the last hour of trade on July 10, but got averaged out a trifle above 4000 in last 10 minutes of adjustment period. On Thursday (July 9), Nifty made a futile attempt to cross 4105-4125 zone for multiple number of times only to end lower and in the process not witnessing that crucial cross over.

Again coming back to July 10, Nifty made last attempt to cross 4125 during the first half of the trade, but all in vain - it didn't manage to cross the crucial hurdle of 4125. Thus, nifty made level testing of 4125 levels twice in last 2 trading session only to end lower. This provided enough indication that Nifty (read Markets) was witnessing a constant supply of paper at lower levels, unwilling to wait even for a minor bounce back.

What Next ??

As mentioned in my previous post, Nifty seems slated to test 3800 levels in short-term horizon. The journey from Nifty 4000 to 3800 need not necessarily be as swift and fast as we witnessed from Nifty 4400 to 4000. But, quite possibly, we could see some consolidation in between 3900-4250 (perhaps even 3900-4125), before moving forward to attaining Nifty 3800 or even sub-3800 levels.

When Should Investors Start Buying ?

Investors were alerted (in the previous post) as to not to indulge in catching the falling knife when Nifty breached an all-important 4250 levels. However, they can indulge in small quantity accumulation in Nifty 3900-4000 range, preferably as nearer to Nifty 3900 levels as possible. Presuming that Nifty might take some support at 3800-3850 levels, investors can accumulate in small quantity below 3950 levels. The second tranche of buying to be done around Nifty 3600-3700 zone.

A point for Investors to note is that even if they don't get the opportunity to accumulate their favourite stocks around Nifty 3900 levels in very near-term, they could rest assured that for any substantial upturn to occur Nifty has to cross 3 significant Resistances situated around 4125, 4250 and 4400 levels. Also, the upward ride to cross all these 3 resistance would not be a unilateral rise and it would be a slow, wacky and a consolidating move.

Yawning Gap

But, there is no surety that Nifty will sustain a support at 3800 levels. A yawning gap on charts have been left post-election results. A jump from Nifty 3650 to 4350 was a huge 20% gap-up opening on the day Congress-led UPA Government was re-elected on Centre. This gap needs to be filled up on charts sooner or later. Half the gap has been already filled from Nifty 4350 to 4000 levels, remaining from 3650 to 4000 still pending.

However, it is not necessary that Nifty might make an attempt to fill-up the whole gap at this very attempt. It may take longer time depending upon market trend and mood. Markets have a knack of giving its participants a feeling that it moving ahead to do that pending repair job of filling the gap, but it may well decide to do it later. The idea to convey over here is that the repair job needs to be done, but not necessarily at this attempt and at current juncture.

Rocky Resistances

Lastly, to point out over here that now markets have 4 hurdles to pass for indication of any kind of bullishness. A primary level would be Nifty 4125 which proved to be a hurdle on weekly basis. Second hurdle is Nifty 4250 which was an active support for the old Nifty range of 4250-4650. however, that support turns out into Resistance unless Nifty rules below it. A Trend Reversal could be witnessed above Nifty 4400 levels and a confirmation that we are moving ahead with a rally for a substantial rise could be procured only above Nifty 4650.

Fundamentally Sound

If markets correct substantially, here is a list of Mid-cap stocks to keep an eye on from strictly Long term perspective. Accumulation to be done in small quantity on dips, staggered over a period of time.

Thermax, Moser Baer, Kalindee Rail, Videocon Ind., Adlabs / PVR, Gitanali Gems, Alok Industries, Biocon / Glenmark, Financial Technologies, I-Flex / 3i Infotech, IVRCL / HCC / Patel Engg., Punj Lloyd / GMR / JP Asso, BOB / BOI / Indian Bank, Voltamp Transformers, I.B.Realestate / HDIL, Educomp / NIIT Ltd., Time Technoplast, Aditya Birla Nuvo, Deccan Chronicle, Crompton Greaves, Pantaloon Retail, Reliance Capital, Praj Industries, Jain Irrigation, Aban Offshore, GE Shipping, Everest Kanto, Opto Circuit, United Phosphorus, IDFC /PFC, Bartronics, Sesa Goa, BEL.

Note: The above list of Mid-caps is not a recommendation to Buy stocks. It is just a list of few mid-cap counters for investors to focus during down turn as probable buying targets when their valuations touch lucrative and reasonable levels. While some of the above mid-caps are already quoting at cheap levels, some others are not so cheap at current levels.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Bucket Full of Expectations !!

2009-07-07T18:21:00.001+05:30

FM hints Reforms but at a Steady Pace

An important event in Union Budget came and went by. Before its announcement by FM Pranab Mukherjee, some thought that the budget would finally pan out as a non-event. While some held the view that it would act as the final frontier for next leg of rally. Yet many others felt that this would be the last hope on which markets would sustain this high before correcting substantially.

The announcement of the Budget event was simultaneously followed by a sharp slide in equity markets- conveying that they're not satisfied with the Budget from a government which has a much clearly pronounced mandate from the public to take the Reform route after a thumping victory in the Elections.

Clearly, the markets had factored in various types of Reforms & Disinvestment agenda from the newly elected government on the centre. This time with a whiff of a relief that the coalition is much stronger to ride through the rough waters for the next 5 years.

FM Pranab Mukherjee chose to keep this Budget a low-key affair without focusing much on Reforms and Disinvestment. A clear focus of the government was reflected on the sustenance of Growth of the Economy by stimulating growth through inclusiveness of Rural programmes and policies. However, from the signs in his Budget and post-budget speech, he has affirmed the view that Disinvestment are not completely out of agenda and that they would be taken over as and when felt fit by the government depending upon the conditions.

Quite possibly, markets were factoring in too much too soon from a finance minister which is in its first few months of taking control. And, not necessary that the government should act and open-up all possible reforms in its first year of operation. It should be a gradual and a well though out process which should grow over a period of next 5 years.

Technical Stand on Markets:
(Nifty Range: 3650-3800-4250)

Nifty was range bound in 4200-4400 levels for almost 10 days. One session before the Budget, it showed signs of break-out above 4400 levels but could not sustain from the assault of a major event like Budget. In fact, post-budget the Nifty seems to have even breached the downside support around 4200-4250 zone. Now, it could be presumed that a narrow trading range of 4200-4400 is disturbed with a downside bias.

The highs of previous 2 sessions perched at Nifty 4460 will act as a strong Resistance for any possible up move. Near-term Resistance stands at Nifty 4350 level. Medium term Resistance for Nifty stands at 4650, which is a remote possibility of being tested in near term & could be ruled-out from the game as of now.

Whereas downside gates are open up to as low as Nifty 3800-3650. Nifty 3670 was the level from where the markets had bounced 600 points after positive election results. These levels could come handy as a support zone. There is a Gap of 600 points in between 3650-4350 which is partially filled upto 4150 and needs to be wrapped up fully over a period of time. Nifty targets of 3650-3800 on the downside could be a slow process or even a fast one if aided by global weakness.

In short-term horizon, Nifty target of 3800 seems quite likely as compared to 3650 levels. However, a gap fill-up upto 3650 can't be ruled out over medium term horizon.

The Above levels are forecasts for future and levels to watch out for, but not necessarily the certainty for the next market movement. These are still early days for markets and we need to see whether there will be an actual breakdown from the range as presumed and narrated above. Global cues and Quarterly results starting from next week will now play an important role in determining the trend from here.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Budget Rally or New Bull Run?

2009-06-26T16:34:00.000+05:30

Markets have started rallying again. Analysts have started speculating about the beginning of a new bull run. Pessimism has been pushed aside and optimism has again taken a front seat. Don't get unnecessarily sucked in at higher levels on the back of speculative and liquidity based rally before Budget to be announced on July 06 (Rail Budget on July 03). It is quite possible that the rally may last a bit longer even post-budget if the announcements are even trifle better than market expectations. Another reason that the rally may last a bit longer could be that markets would like to wait for India Inc's quarterly results for more clarity on earnings which would be announced in the month of July.

But, how much more legs can this linear rally have? Remember, the ongoing rally is largely liquidity led which can dry up anytime. When sentiment turns, the same analysts which are forking out psoitivity and optimism will tweak their views depending upon the situation.

I would say sell 10-20% of your portfolio at higher levels. Sell at higher levels on every rallying day in small quantities. Especially, square-up at least 70% of your Trading positions on or before July 06 to be on a safer side.

Kalindee Rail and Educomp Solutions:

Both Kalindee Rail and Educomp were in hibernation mode in today's market after a steep rally in last few sessions. But, they'll again start rallying before their respective 'B' day. Railway Budget is to be announced on July 03. So, Traders should exit and book profits to the extent of 70% in Kalindee until one day before Rail Budget and remaining they can still consider holding until July 06. Investors can still hold Kalindee with long-term perspective or they can as well sell 20-30% holding and stay invested in remaining. The entry call for Kalindee Rail was given at Rs.135/- as both for Trading and Investment perspective.

Sell 70-80% of your holding in Educomp stock from today to until a session before Budget. You can carry on with 20-30% of this Education counter for post-budget rally, if any. Government can no longer leave Education spending and reforms at bay. However, booking gains is must, do not remain stuck with trading calls. This stock may reach dizzying heights even from current levels of Rs.3500/- in a matter of next few sessions, more aggressively as we approach July 06.

In my posting dated June 02, Time to Re-think Strategy, I had recommended readers to exit part positions in expensive large-cap valuations and remain in cash or shift to Defensive counters like Dabur, Cipla, ITC, etc. Cipla has appreciated 20% since then and Dabur is showing around 10% gains from that day. On the other hand, heavy weight RIL is down 10% from the day of recommendation. The recommendation was only for part-liquidation or shifting strategy and not whole holding. L&T and BHEL are almost at same levels since then, but now with a positive bias.

Which Stocks shall lead before Budget:

These are not Trading/Investment calls. The time to take speculative position before budget is a bit behind us. Though, it may prove worthy to hold these stocks for next few days if you already hold them at lower levels. The below mentioned list is just a summary/guide as to which all stocks may find favour in next 10 sessions based on speculation and drama before Budget announcement:

1) IDFC
2) BHEL/L&T
3) REL/IVRCL/HCC
4) PFC/REC/LIC Hsg Fin.
5) Educomp/Everonn/Aptech/NIIT Ltd.
6) Kalindee/Titagarh Wagons
7) Torrnet Power
8) Rallis India
9) IOC/HPCL
10) SBI

Some erstwhile trading favourites based on Budget theme like Alok Industries, Bombay Dyeing, NMDC, MMTC, Coromendal Fertlisers, etc. have lost momentum in very near-term. It remains to be seen whether some of these stock can regain their lost sheen before the 'B' day.

NMDC sought support around its crucial support levels of Rs.360/- as discussed in the 'Comments' section by me, but the stock has still not picked up the momentum from there. The stock needs to cross Rs.395-405 zone to pick any kind of further momentum. Whereas MMTC needs to cross Rs.33500-35500 levels for signs of futher optimism in the counter. Textile favourite Alok Industries needs to cross Rs.24.50-26.50 for any fresh upside rally.

Hurdles In Following Strategic Plans

2009-06-19T16:37:00.000+05:30

In the 'Comments' section, an interesting query has been posted by Abhay pertaining to the likely hurdles in following the Strategy for Investment at different levels.

In the query, Abhay has registered some sort of apprehension on the use of strategy and consequently missing any upside momentum as stock prices keep moving upward. Though, he has not expressed this in writing, he is somewhat confused as to what should be done in scenarios when stock prices keep on moving higher on every bout of selling that an investor/trader uses by way of strategy.

The feeling could be roughly described as below:
(A) I sold some quantity of stock at Rs.X, but later the stock price went up to Rs.X+1.
(B) I again sold some quantity at Rs.X+1, yet again after I sold the stock price went up to X+2.
(C) Now, if I continue to sell some more at Rs.X+2, what if the stock rises to X+3?
(D) Hey, You never know... the stock may ultimately top out at an exuberant X+5 levels. If so, why should I sell now?
(E) In the meanwhile, what is Market Crashes down in near future?

Abhay's Query:
I had L&T at Rs.950/- I sold my 30% of L&T at Rs.1400/- after 2 days.
It rose to Rs.1650/- What should have I done, sell again or what? Strategy for investment plan is great... but it does have some limits. Can u please suggest the readers and me a better strategy, if any? I have short-term perspective on L&T.

In this posting, I shall try to address the above query in detail regarding how to use the strategy for Buying or Selling more fruitfully to avoid any 'Missed-out' Feeling. Whether we can use some other strategy? The posting seems to be a bit long, but i shall try to keep it as simple as possible:

The Pyramid Concept:

Lets take an example of a ‘Pyramid’. It is typically tapered at the top and it gradually broadens with more space as we go down towards its base. It consumes the broadest space at the base and most narrow at the top.

In strategy for buying and selling stock, we have to somewhat collate the same strategy as mentioned above for a Pyramid. The profits are small and limited as the stock starts its upward journey from your cost price. But, as the stock finds itself in the midst of momentum rally, the profit scope broadens. This is what will should try to inculcate in our strategy for trades to squeeze the maximum benefit from its follow-up.

Let me come directly to the query of Abhay in specific relation to his trade in L&T which he had bought at Rs.950/- for Trading purpose.

Trading Strategy:

1) Abhay has bought L&T @Rs.950/- (Let us assume he has bought 20 shares with an investment of Rs.19000/-)

2) Since he has bought this Infrastructure and Capital Goods stock just in time before an all-important event of Budget announcement, we will likewise strategize the trade keeping that in mind. So, we can factor in that the stock shall make bigger moves before the budget as the stock is placed at the sweetest spot to benefit from government’s emphasis on Infrastructure spending and development.

3) We will first create a strategy to sell the stock at specific intervals or at specific price points. Like, for example, the selling should be in small quantity at profits in initial stage. However, the selling should gain more aggressiveness as the stock rallies higher and we move closer to the base of ‘Pyramid’. And, at last stage of excessive euphoria, our selling should reach peak levels (at the bottom of the pyramid) when others are buying aggressively.

4) So, going by above planning schedule, we will strategize to book profits in L&T in 3-4 phases at different price points. The selling would be done in such a manner that Abhay should benefit more with every rally even after selling at lower levels but still at profits.

Phase 1:

First we would sell 20% (20% of 20 shares = 4 shares) of the stock at Rs.1200/-. Amount redeemed Rs.4800/- with a profit of Rs.1000 accrued on 4 shares bought at Rs.950/- and sold at Rs.1200/-.

Phase 2:

Second we would sell a large chunk of 30% (30% of 20 shares = 6 shares) of L&T at Rs.1450/- assuming that the stock has already appreciated a whooping 50% from Abhay’s cost of Rs.950/-. Amount redeemed Rs.8700/- with a profit of Rs.3000/- on 6 shares bought at Rs.950/- and sold at Rs.1450/-. We have got rid of 50% of the stock held until this phase- 20% in Phase 1 and 30% in Phase 2.

Phase 3:

Now, to the surprise of everybody the stock appreciated to Rs.1650/- in a matter of few weeks. No problems, we will sell another major 30% (30% of 20 shares = 6 shares) of our L&T scrip at Rs.1650/-. Amount redeemed Rs.9900/- with a profit of Rs.4200/- on 6 shares bought at Rs.950/- and sold at Rs.1650/-. At the end of this phase, we have almost sold-off all our stocks with barely 20% of the stock still left to be sold. But, herein lies the caveat. One should not under-estimate the ability of return generation from these left-out 20% stock, if they're sold at higher prices. The reason being, these remaining 20% would be sold at the 'BASE' of the Pyramid, which would yield attractive returns even from a small quantity.

Phase 4:

Now, we are skeptical whether the stock will move to Rs.1850/- or not since the stock has almost doubled from Abhay’s cost price in a compressed time horizon. Still we are left with a crucial 20% (20% of 20 shares = 4 shares) of the lot which Abhay had originally bought at Rs.950/-. Lets suppose that L&T moves to Rs.1850/- we will sell all the remaining 4 shares at this price. If this price does not come true, Abhay will have to maintain a Trailing Stop Loss of Rs.1650/- on the breach of which he has to sell all the remaining 4 shares. In fact, he can as well observe a Deep Trailing Stop Loss of Rs.1450/- if he is a high risk trader (in case he can bear some risk of holding the stock to once again test his luck for Rs.1850 sort of levels). We will presume that Rs.1850/- levels did not turned up and Abhay sold the remaining stock at Rs.1650/- as per our Trailing Stop Loss Strategy.

5) The Rising Pie: If you notice in above 4 phases, the profits have gone up in increasing order of value. Abhay managed to sell 50% of the stock in Phase 1 and 2 with substantial profits of Rs.4200/-. However, the same amount of profit of Rs.4200/- also got accrued from Phase 3 itself, indicating that a larger share of profits is garnered as we move up the value chain of the Phase wise strategy following.

6) If you go back and visit the phase wise selling as described above, one would notice that we sold the first chunk of 50% shares at a healthy average of Rs.1350/- and the remaining 50% sold at Rs.1650/-. The average of all shares sold comes to Rs.1500/- which is still 50% higher from Abhay’s buying cost. Once can argue, that the returns would have been 100% if Abhay would have sold all his stocks at Rs.1850/-, but is it possible to time your exit at the highs as per one's wish. It is almost impossible to time exit at the peaks even for the best of the best Analysts or Fund Managers.

7) Stock Reversal: One another scenario would be, suppose what if the stock stops its upward journey at Rs.1450/- and does not test higher levels from there? During such time, Abhay would have already sold 50% of the stock based on guidelines in Phase 1 and 2 as mentioned above. But, for the remaining 50% of the stock held, Abhay will have to maintain a Trailing Stop Loss based on Technical levels which could be around Rs.1200/- or Rs.1300/- as the case may be depending upon stock to stock.

8) Now, suppose the stock reverses after testing the Trailing stop loss levels of Abhay, than again, based on Technical levels Abhay (as a trader) shall re-enter the same counter by buying the stock on an upward break-out above the previous highs of L&T at Rs.1450/- with a strict stop loss and a probable target of Rs.1650/-. Traders should always trade with the trend.

9) Where is the Opportunity? Suppose the stock tests Rs.1450/- and starts its decline for a long time to come. In such case scenario, if Abhay would not have booked even the 50% gains as mentioned in Phase 1 and 2, we would have felt terribly uncomfortable in selling at lower levels. At some point, even his cost of Rs.950/- would be tested in some vicious down cycle dragging all his profits to nil. At such times, use of Strategy (including stop loss strategy) would come in handy in aiding a trader from taking any emotional decision for his trades.

10) In the long run, use of strategy will help you in entering and exiting your desirable stocks in a swift and a gradual manner without hurting your preset targets and disallow your decisions to be dictated by emotion-led calls. Use of strategy would also mean that a trader does not get stuck into his trade at any specific levels and gets to benefit from all the up cycles and down cycles of the industry.

Using Strategy in Investment:

Taking the same case scenario of Abhay from a long-term Investor’s perspective. Abhay bought 20 shares of L&T at Rs.950/-. Now, in a short span of time Abhay stands to earn a smart profit of Rs.500 per share at Rs.1450/- on L&T. What should he do?

11) Although Abhay has invested with a time span of 5-10 years, if he wishes to makes use of his portfolio investment held in L&T as a ‘Passive Trade’- he can sell 30% of the his stocks invested in L&T at around Rs.1450 to Rs.1650/-. By this, he will ensure that he is able to book profits in 30% of the stock held. But even still, he has a major 70% of the stock still invested to gain from any future upside momentum in the counter.

12) Buying Back Lower: In longer-term, Abhay will definitely get an opportunity to buy this 30% chunk back at lower levels of say around Rs.1200 or say Rs.1100/- or say even Rs.900/-. At that time, he can buy back those 30% chunk on dips, which sums up to nothing but lower averaging of his over-all cost for owning the stock. More aggressive but Passive investors could as well sell 40-50% of the stock around Rs.1650/- where valuations are more expensive for the counter. They can as well buy back some qty around Rs.1400 followed by Rs.1200 and even Rs.1100, as the case may be.

Footnote:

The follow-up of this strategy does have some specific hurdles. But, these hurdles are not strong enough that investors/traders can willfully shun the use of this strategy. The benefits from the use of the strategy clearly out-weighs the hurdles from the follow-up of the same.

Its somewhat similar to SIP (Systematic Investment Plan) facility that one avails of while investing in Mutual funds- investing in small lots at regular time intervals irrespective of market levels in order to benefit and brace from market volatility. Strong and Constant Perseverance in using the strategy for longer times to come will prove that the strategy has more pronounced benefits than hurdles.

The strategy concentrates on the aspect that when you book profits you dont book only part-profits and ride the up side momentum with the remaining shares held. On the other side, in the down trend, it ensures that you buy only in small but handful quantity on every larger dips. It sees to it that you an benefit in averaging on any further down side as the down leg deepens. Most of all, it ensure that your RISK is cut on both sides in any market condition.

Mid-cap Review: Alok, PFC, Kalindee & Videocon

2009-06-17T17:00:00.000+05:30

Mohit has posted a query in the 'Comments' section regarding Fundamentals, Trading and Investment perspective on some good fundamental Mid-cap stocks like PFC, Kalindee, Videocon and Alok Industries.

Bulls,
Can you write something or suggest some stocks which are good at current valuations or say if you can give some buying range for long term stocks. What are your views on Alok, PFC and Kalindee Rail on CMP from trading and long term view. Thanks.

Closing Prices as of June 17, 2009:
Videocon CMP: Rs.175/-
Kalindee Rail CMP: Rs.176/-
Alok Industries CMP: Rs.23/-
PFC CMP: Rs.196/-

Speaking about long-term Value proposition of Alok, Kalindee, PFC and Videocon - all of these 4 stocks (mid-caps) seem to be a good bet even at current valuations when contemplated from long-term perspective.

Determining Value in Optimistic & Pessimistic Phases:

For these 4 mid-cap counters, what we have seen till now is their stock price performance from Sensex 8000 to 15000 journey, the period of journey which can be co-related with the times of crisis and global slowdown. We're yet to see these stocks run on steriods like other mid-cap counters, which could be witnessed in the next leg of big rally.

But, gradually, as the economy comes out of the crisis and credit problems, the stock prices of these 4 mid-caps counters shall reflect more exuberance in the next leg of the bull rally from here. In times of optimism, the basis of determining valuations is different from that of pessimistic times. During pessimism. investors factor in the company's debt ratio, forex management, cash flows, promoter pledging of shares among many other factors.

During optimistic times, investors tend to be more occupied with fundamentals and earnings of the company and most of all Prospects of the company going forward rather than micro-factors which come under surveillance during bearish phases. So, the next leg of the rally, could be more return accruing in these four lagging but healthy mid-cap stocks.

Going Slow:

However, I am of the view that markets are a bit over-heated in medium-term perspective. So, it will correct substantially- if not now than at some point post-budget period. So, one can buy these stocks in a staggered approach rather than going in for bulk quantity, if the perspective is for long-term investment.

I may be wrong on my view towards markets and it can keep on moving higher even after Budget, but i need to hold some specific view for markets rather than going view less- and hence i take a stand that markets are a bit over-heated in the short-term and Budget would be the decisive event for the markets next big movement direction.

Trading Perspective:

From Trading perspective also, all the 4 can be bought (especially Kalindee & PFC) around current levels with strict Stop Losses for your trades. Stop Loss for Videocon could be around 145 levels, Kalindee could be around Rs.135 levels, PFC could be around Rs.160 levels and for Alok it could be around Rs.18 level. These Stop Losses are only for Traders and not Investors.

Staggered Approach:

Coming to the point of Ranges for Accumulation of these stocks, i would like to Again repeat that.... You should not have in mind the 'ranges' to buy for these stocks. Because that would ideally mean you're looking to TIME the entry into these stocks. And, there is no certainty that you will get these stocks at your desired prices. May be, it would be a better idea to re-view or hold such ranges for stocks which are extremely over-heated and you could wait for these stocks to correct substantially to start accumulating. Selective large-caps shows the tendency of being over-heated.

So, best approach would be to divide every Rs.10 that you wish to invest in to 3-4 parts and invest them on larger dips as the correction kicks-in. From VALUE perspective all the 4 mid-caps are still lucrative in terms of their stock prices. All are good fundamentals stocks and will provide very handsome returns during the next big rally. You must have patience to wait out until another such rally happens.

(Note: My forward looking statements in this posting for these 4 mid-caps does not mean to convey that they're roaring Buys at current prices. Just that their stocks prices could still be value yielding from current prices in the long-term horizon. One should remember, that if markets correct substantially in future, these stocks wont be able to show any contrary trend to the markets and even they will correct. May be, their correction would be limited to some extent based on the value in these stocks.)

Investors can also add Gitanjali Gems, Indiabulls Real Estate and Time Technoplast to the list of 4 mid-caps mentioned above for the long-term Value Investment perspective.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Structural Shift in Momentum

2009-06-11T19:50:00.001+05:30

Change of Baton

1) From what was clearly a tapered rally from expensive Large-caps to under-valued Mid-caps, is now turning its head from Mid-caps back to the Large-caps. There was no possibility of the benchmark indices moving higher without the support & participation of the leading heavy weight counters.

2) The expensive heavy weight stocks are back in the vogue what with an all-important event in the form of Union Budget not so far away. However, mid-caps are not the absolutely forgotten lot. There is still a bullish tend prevailing amongst the mid-caps but in ones which are left behind in the race of mid-cap momentum or the ones that stand to benefit majorly from the Budget announcements.

Passing the Parcel

This shows to a great extent that mid-caps, which had under-performed big time during the last 3 months to their larger counterparts, are no more in 'Comfort Zone'. Speaking comparatively, even large-caps are no less cheap than their smaller counterparts. But, perhaps, they can support the ongoing phase of euphoria more strongly on the base of their superior fundamentals.

It is difficult to predict the top of this 'Mini' bull phase of last 3 months. But, we can keep tracking the signs the markets are providing. Like, for example, we saw Large-caps bloom in the initial part of the rally from Sensex 8000 to 10000 levels. Later, from Sensex 10000 to 12000 levels, we got to witness large-caps being valued in the 'Fair Valuations' Zone. At the same time, mid-caps which had under-performed from Sensex 8000 to 10000 levels , started catching in the later part of the Sensex journey from 10000 to 12000 levels.

In the later part of the excess euphoria from Sensex 12000 to 15000 levels, based on combined effects of excess global liquidity & re-rated fundamentals of India on the back of Political stability and likely Reform movements, we witnessed large-caps attaining euphoric valuations which needed support on the base of 'Forward Earnings' estimates. Mid-caps & Small-caps rised vertically as if there is no tomorrow.

Now, we're witnessing that the baton is being passed on from mid-caps to Large-cap as benchmark indices are up to test newer highs. These are times of euphoria where 'Greed' factor takes the front seat and if investors do not exercise caution, they may be in for some sort of pain when markets witness even a mild correction in the rally. Investors should adhere to patience and not make fresh purchases until there is a meltdown of the over-exuberance in the short to medium term horizon. Though, they can ride the momentum on the back of their already invested portfolio.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Indian Markets: Upgraded but still Synchronized

2009-06-08T12:41:00.000+05:30

Indian stock markets rallied from lows of Sensex 8000 levels to 12000 levels followed by a thin volume jump of 2000 points on the back of positive verdict of Indian public on the Political front. And now that markets is gradually sustaining above Sensex 14000 levels, it can be termed as up gradation of position of India on the global map more so on the back of positive and stable outlook on the Political front.

But, that does not mean that Indian stock markets may have 'decoupled' from global markets. India still remains in sync with global momentum and trend. The benchmark indices of Indian markets still moves in sync with positive global momentum. Likewise, when the ongoing positive global momentum receives a jolt, it would be difficult for India to shrug-off the trend beyond a point.

However, we can say that there is, indeed, an up gradation on Indian fundamentals amongst the Emerging market clutch. And this we will see when global markets correct, that Indian indices will enjoy an up gradation to the extent of Sensex 2000-3000 points (even when there is correction) on the back of reform-oriented and disinvestment-led stable government on the Centre for next 5 years led by UPA.

Call Dated: June 04, 2009
Short-Term Trade: (Strictly for High Risk Traders)

Buy Educomp (CMP Rs.2950)
Buy Around Rs.2800-3000
Target: Rs.3330-3530-3700
Stop Loss (SL): Rs.2740-2585
This trade is recommended strictly for High risk Traders.
The second stop loss of Rs.2585 is for those traders who can bear deeper SL.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Status of Trading Calls

2009-06-03T12:32:00.000+05:30

Call Dated June 01, 2009
Buy Bajaj Holdings & Investment
Buy Around: Rs.370-400
Target Rs:422-470-500
Stop Loss: Rs.355-340

Call Status: (CMP Rs.490)
First 2 Targets Achieved with in 2 sessions.
Book At least 60-70% Gains
Profit Return: 20%

Call Dated May 28, 2009
Buy Reliance Capital
Buy Around: 930-950
Target Rs.1060-1125
Stop Loss: Rs.845

Call Status: (CMP Rs.980)
None of the Targets Achieved till now.
Call remains Open.
If satisfied with 3% Returns, Sell 20% of the Stock held.

Call Dated May 25, 2009
Buy PFC
Buy Around: Rs.190-194
Target Rs.225-240
Stop Loss: Rs.169

Call Status: (CMP Rs.203)
None of the Targets Achieved till now.
Call remains Open.
If satisfied with 7% Returns, Sell 30% of the Stock held.

Call Dated May 22, 2009
Buy Kalindee Rail (Investment + Trading Call)
Buy Around: Rs.125-140
Target: Rs.158-180
Stop Loss: Rs.120

Call Status: (CMP Rs.174)
1st Target of Rs.158 Achieved.
2nd Target of Rs.180 almost Achieved.
Call to Book 30% Profits at Rs.158 already given earlier.
Today At CMP Rs.174 Book another 30% Gains.

30% of stock sold at 17% Profits
30% of the stock sold at 30% Profits today.

The above strategy is for Traders.
Investors can sell 30% of the stock at CMP Rs.175 with a 30% Gains.
Remaining 70% to be held by investors for some more time at least.

Call Dated May 20, 2009
Buy BHEL
Buy Around: Rs.1900-2050 (Average Rs.2000)
Target: Rs.2300-2500
Stop Loss: Rs.1800

Call Status: (CMP Rs.2140)
None of the Targets Achieved as yet.
Call remains Open.
If satisfied with 7% Returns, Book 30% profits at CMP 2140.

Call Date May 20, 2009
Buy Videocon Industries (Investment + Trading)
Buy Around Rs.105-120
Target: Rs.150-160
Stop Loss: Rs.90

Call Status: (CMP Rs.193)
Sold 40% Profits at Rs.150
Sell another 30% Profits at Rs.193/- Today.

40% stocks sold at Rs.150 at 25% Returns
30% stocks sold at Rs.193 at 60% Returns.

The above call to sell is for Traders
Investors can hold on to this stock for long-term or
Sell 30% of stock held with 60% profits.

Call Dated May 14, 2009
Buy Gitanjali Gems (Investment Call)
Buy Around: Rs.45-75

Call Status: (CMP Rs.135)
Sell 30% of stock held at 70% Profits
Hold Remaining 70% as Investment.

Call Dated May 14, 2009
Buy Alok Industries (Investment Call)
Buy Around Rs.12-16

Call Status: (CMP Rs.26)
Sell 40% of stock at 90% Profits

Call Dated May 8, 2009
Buy Suzlon
Buy Around: Rs.68-74
Target Rs.92-111
Stop Loss: Rs.66

Call Status: (CMP Rs.157)
Both Targets Achieved
Book Maximum Gains.

Call Dated May 8, 2009
Buy HCC
Buy Above 65
Target: Rs.72-89
Stop Loss: Rs.61

Call Status: (CMP Rs.119)
Both Targets Achieved.
Book Maximum Gains.

Call Dated April 24, 2009
Buy IDFC
Buy Above 82
Targets: Rs.95-109

Call Status: (CMP Rs.125)
All Targets Achieved
Book Maximum Gains.

Time to Re-think Strategy

2009-06-02T17:03:00.000+05:30

Indian equity markets have rallied a whooping 80% in last 3 months. The rise was linear in fashion and a non-stop rally as if resembling a 'Mini' bull run. Indeed, valuations of most of the large-caps, especially selective index heavy weights, are no more in the 'Comfort Zone'. In fact, some stocks are way ahead of their current earnings performance & to support their high valuations the Analyst community have to use Forward Valuations method while recommending such stocks to their audience.

How to Shield oneself from Euphoria?

During such times, when euphoria is strong and momentum seems unstoppable, investors don't like to sell stocks with valuations beyond their comfort zone. The hope that stock will rally forward even from prevailing high valuations, does not allow the investor to book profits. Their calls are led by emotive decision to keep holding their paper profits. They are reluctant to book even part-profits.

During such times, there are few options that investors can exercise to take cautionary steps. I will divide this strategy into 2 different options in detail:

1) Book Profits in Small parts & Accumulate Cash:

Under this option, selling should carried out in those stocks where valuations are beyond the support from current earning performance. As markets rally further, the ability of such counters to appreciate further in terms of their stock prices is limited to the extent of their valuations. In fact, many-a-times, it so happens that until the over-all market momentum is up, such stocks may rise along with markets but not in line with market performance.

It is advisable to book profits in small parts on every rise in such counters. When markets starts it course of correction, these will be the stocks which will be hit hardly in the initial part of the down leg as panic is fraught where valuations are excessive or fundamentals are not up to the mark. Over here, in large-caps, the fundamentals may be sound; but valuations may be on the higher side, thus triggering sharper correction when market downturn begins.

As smaller tranches of these stocks are sold, investors can accumulate cash from sale of such stocks in anticipation of market weakness over a period of time.

2) Shift to Defensive Category Stocks:

If you don't wish to follow the above mentioned strategy of staying in Cash during an up turn, the other optional strategy could be Selling aggressive stocks or stocks with high valuations. And later switch-on to stocks from defensive category and low beta characteristics. The stocks from Defensive space holds limited potential of correcting when markets are in mid of a down turn.

At the same time, investors' wish of not liquidating even a small part of their portfolio could also be fulfilled as they do not have to liquidate their portfolio but re-jig it depending upon the current situation. They can still take advantage of the up turn in the markets to the extent of price appreciation in the defensive category stocks which of course would be limited to a certain extent during the up turn.

Summary:

1) Liquidate a part of portfolio especially where valuations have gone for an over-drive. Accumulate cash to the part of the portfolio that is liquidated & use it once the down turn is more sustained and the over-exuberance is out of the context. However, you can still benefit from any incremental rally from here in the remaining major part of the portfolio they should would be still intact and invested.

2) Liquidate a chunk of the aggressive stocks and shift the accrued money to stocks from Defensive category which tend to correct relatively much less than over-valued stocks when the tide turns on the bourses. This will also ensure that you need not sit on hard cash just as the up turn wears out its last stage of euphoria.

Some stocks from Defensive Category:
Cipla, Dabur India, ITC, Marico, Glaxo Smithkline Pharma.

By using the strategy of latching on to Defensive stocks, your portfolio may underperform for a while unless the up turn continues its remaining steam. But, one another possibility which can not be ruled out is that, if indeed this is the last stage of the ongoing 'Mini' bull phase, usually such euphoric rallies end with a last leg of rally in all left-out stocks and sectors including Defensive stocks.

So, if this scenario turns out to be true, you can still benefit from price appreciation from Defensive category stocks too. One such recent example is a lagging 'Hotel' sector which showed a good move even on a slightest of a good news in the industry.

(Note: The above mentioned strategies can be used not just in the context of over-heated large-cap stocks but also any other stocks be it mid-cap or even small-cap which have appreciated substantially over last 3 months. Take, for example, you can sell some 20% of your portfolio where the stock prices have over-heated in last 10-15 sessions and shift to Defensive stocks from the accrued money.)

Dated: June 01, 2009
High Risk Call -Opportunistic Trading Bet:

Bajaj Holdings & Investments (CMP Rs.390/-)

Buy Around: Rs.370-400
Target: Rs.422-470-500
Stop Loss: Rs.355-340

Rationale: This mid-cap stock has been an under-performer in the ongoing mid-cap momentum. Bajaj Holdings & Invst. is the holding company for Bajaj Auto & Bajaj Finserv. Both the companies have rallied sharply on the bourses in last 2-3 months.

But, this holding company has not much to show in terms of price appreciation. It has fared only as a market performer & not an out-performer like other mid-cap stocks. Traders who wish to play on this aspect of under-performance can bet on this stock with above targets and Stop losses.

Its a high risk call as markets have appreciated sharply to the extent of Sensex 1000 points since last 1 week.

Tring!... Tring!... Tring!...

2009-05-29T16:51:00.000+05:30

Time is Ripe to Exercise Caution

Tring!... Tring!... Tring!... No, its not a School Bell. Well, not even a Telephone Ring. Than What? May be, an Alarm Bell.

Actually, I just want to convey that stock markets don't ring such 'bells' before they start correcting. They do not provide warning bells stating that, "This is enough mate. Now, pack your bags & stay away from markets." We ourselves have to catch the market signals the cues of which can be in various diferent forms, not necessarily explicit in nature.

Yes! Be cautious... Read this post till last to understand what I mean to say. We may already be in the last stage of the ongoing 'Mini' bull phase which has followed directly from the lower tip of bear market phase. The momentum is strong. Stock are flying high resembling the exuberance of the tip of any bull phase. The momentum may last a bit longer. But, who knows till when? Can you time the exit at the right moment? Not really!... you have to exercise caution & strategise your part-exit plan.

Current Market Scenario:

1) Large-caps are quoting at Expensive Valuations.
2) Mid-caps already catching up & Some even Fully Valued.
3) Small-caps have been moving up from Circuit to Circuit.

Exuberance Levels: High, with Sensex gaining 80% in 3 months.
Nearest Event: Budget & Corporate Results after 1 month.

Part 1: Denial Mode

First the markets recovers from the depression with an all round pessimistic mood and sentiment. Usually, Insurance companies, especially the Bid Daddy L.I.C., keeps munching equity stocks at such times. It plays an important role to support markets at lower levels with the mandate from the Centre. At such time, investors are in denial mode to buy, they think markets will further move down. Then the markets further recover all of a sudden leaving most investors in the lurch. There is a feeling of being left out due to such unexpected rise. They still don't buy aggressively as mood is largely negative.

During this stage, all the counters from different market capitalization are largely under-valued & in over-sold territory.

Part 2: Feeling of being Left Out:

Just as the rally grows into larger proportion investors jump in expecting another big up move. No, the markets still don't go down from there. It rises further to give the feeling of optimism to the cash waiting on side lines. Investors pump-in yet another bout of funds to capture the bullish trend. Regarding Mutual funds, they are the wiser people who entered during the first or second round of euphoria. Foreign funds usually enter aggressively when markets show some signs of positive recovery.

By this stage, Large-cap counters are not under-valued. Though, mid-caps & small-cap are relatively under-valued and in the grip of pessimism.

Part 3: The Real Exuberance

During this stage, the real exuberance is witnessed in terms of buying. Straight gains are made day after day. Positive cash inflow is continuously witnessed with every passing week. Large-cap counters become fully valued during this stage. Still, there is further room for up side in them on the back of momentum.

Mid-caps are the flavour of the season during this stage of market ruled by sheer momentum and exuberance. Small-caps gradually find their feet and they rise the fastest with a series of up circuits on the bourses. Large-cap counters usually rise at a slower pace but their up ward momentum is not completely lost.

Part 4: The Final Countdown:

The last phase of the exuberance is characterized by Analyst visions going forward into future for the company's prospects and earning potential. Large-cap counters start being valued on not current year valuations, but 1 or 2 years down the line. This is the first and perhaps the last sign to exercise complete caution.

During this stage, Mid-caps catch up with their lag to large-cap counters. This stage witnesses participation of the retail traders more actively with the perspective of making some quick gains from the market momentum. Small-caps, usually, are in up circuits with unavailability of sellers on the bourses.

The extra exuberance in the last stage is often forged and supported with new 'logic' that are put forward by the Analyst community such as 'Decoupling Theory', 'Upgraded Fundamentals', 'Strong Potential for the Economy' and so on. The momentum of the last few weeks is attempted to be stretched as much as possible.

Prolific Gains, witnessed in individual stocks, to the extent of whooping 10-15% are notched on an almost daily basis. The proportion of returns which usually take 1 year in Debt instruments like FD, PPF, etc. are usually acquired in time as short as few countable sessions from equity markets. Till when can such times last?

Exercise Discipline & Control:

During this stage, caution should be exercised with utmost discipline, patience and perseverance. Investors would find the situation extremely terrible of being missed-out by huge extent. They have to control the urge of entering the markets at such moments. Traders should apply Strict Stop losses to their each and every trade. If they don't do so, markets will retract in a big way some time or other & at such times traders will be left with their trading favourites which shall eventually turn into papers when their value goes down. When the value starts falling, traders won't feel like exiting their positions at nominal gains or even losses.

The above does not mean to convey that a huge correction is on the anvil. Nor does it mean to say that the markets won't go up any more. It simply is a cautionary posting to put the readers of this blog on a 'Warning' note that valuations are no more cheap as may be 3 months ago. On that note, even a small correction of 10-20% should not be ruled in coming times. The momentum can take markets up- to surprising & unexpected levels, but the crux of the matter is that you won't be able to time out during such exuberant times with ease. Greed takes over from the fear factor during such times of euphoria, from which you have to save yourself swiftly.

Same Old Evergreen Strategy:

The last stage is the hogged by the moment of uncertainty. There is lack of clarity as to what the next big leg of trend would be. Whether markets will stay afloat or give up substantial gains? During such scenarios, my first posting of this blog related to 'Strategy for Investment' would come healthy.

This time, you have to follow 'Sell in small qty on Every Rise' and not 'Buy in Small qty on every Dip'. Minimize your risk with every rally. Accumulate cash with every bout of sell-off you exercise on incremental rallies. The main benefit of using this strategy is, you cut your risk to the extent you sell. But if markets rise, you still tend to benefit from the rally as your major portfolio still remains invested and that you have sold only a fraction of your stocks and portfolio. The money and opportunity that you lose from any potential rally is far less than the benefit that accrues to you for your remaining 'invested' portfolio.

Dated: May 28, 2009
POSITIONAL TRADING CALL:

Reliance Capital (CMP 945)
Buy in 2 Small Tranches:
1st Buy around CMP 930-950/-
2nd Buy around Rs.860-880/-
Stop Loss: 845/- (Closing Basis)
Target Expectation: 1060-1125

High Risk Trading Call:

Ind Bull Real-estate (CMP 215)
Buy Around 215-220/-
Stop Loss: Rs.190/- (Closing Basis)
Target 1: 248/- Target 2: 280/-

Has the Market Trend Changed?

2009-05-26T11:24:00.000+05:30

Two queries are posted in the 'Comments' section regarding the Trend of Indian equity markets and its prospects from here, now that there is a major positive in terms of political stability and likely reform movements expected to be announced in the upcoming Union Budget. In this posting, i will try to address both these queries which has a common base and content as my reply.

First query was from Mohit which he had posted on May 16, 2009, the day when poll results were announced. I had purposely kept his query pending as the trend was unclear for next few days. And that it would have been more prudent for me to let the high volatility, which would follow after such a sharp unilateral move, to subside and find its feat in next one week time. So, now I will take up his query in detail in this posting. His query is as follows:

Dear Viral,
What do you think would be new developments after good election results do you think long term investors should invest now or wait for some time. Please write on new entry prices for blue chips and core portfolio stocks.

Do you think we have missed the bus and the new highs would me made in markets and we would not see previous lows or even 10k levels in coming times

There is somewhat a similar type of query but a little more detailed in nature from Santy in the 'Comments' section of my previous post. The query revolves around scepticism about current index valuations and as to what could be the right time for investors to jump into markets from next few years of time horizon. His detailed query is as follows:

Hi Viral,
Unlike most people predicted, that the market will lose 10-15% post the election , it has surprised everyone and is now trading in 14k zone. Look like unless something major like Satyam happens we don't see the market going down much from here.I have couple of questions in this regard?

1) Do u think it is right time for investors to jump in and start accumulating keeping in mind a 3-4 year horizon?
2) Don't you feel the valuations are too high now?
3) If we do have to start accumulating , then till when? Till Sensex reaches 17-18k mark and then put a hold ?One just gets the feeling that we have missed the bottom and no way market is going to go back to the 8-10 k range. So why wait ?Please let me know your thoughts.

Global Economics:

You just have to visit a few steps back to the last quarter of Calendar year 2008 when pessimism was at it peak and the road to recovery seemed as far as at least 2-3 years of time frame. The bear phase triggered by a deep recession in the Western countries and a sharp slowdown in the next Growth engine of the world - the emerging markets, seemed vicious and entangling the world into more and more signs of trouble.

However, gradually, as the pessimism witnessed its catastrophic low during the October 2008, global markets were back on its way for some consolidation at the higher levels. Some specific parts and industries of the Global economy witnessed a mild recovery in the early part of the Calendar year 2009 which triggered a sharp rally in the global financial markets.

Political Stability:

Indian equity markets swung along with positive cues in the initial part of the rally. Gradually, it seemed that Indian markets lagged a bit behind as compared to other emerging markets. However, the day of May 16, 2009, proved to be a game changer for the Indian markets in terms of fundamental shift for the Indian economy.

The Congress-led UPA were elected as a winner by the Indian public. UPA emerged as a virtual majority for the shot at forming new Central Government, this time without the support of the Left party which proved a major hump in the UPA's stint during the previous 5 year term. Indian benchmark Indices BSE Sensex rose2000 points on May 18, 2009. It was the sharpest rally that the any markets of the world had ever witnessed in a single trading session. The Sensex jumped from 12000 levels to as high as 14000 in a single day.

Is there a Fundamental Shift?

Foremost question that comes to the mind of any investors or traders is whether there is any fundamental shift on the ground level to support this kind of euphoria?

The answer could be nothing has changed in one day except the political stability for next five years. Fortunately, that in itself is a biggest positive phenomenon to happen for the Indian economy. A stable government on the centre with a free hand towards pushing Reforms and Disinvestment process would prove to be a major booster to the economy in the years to come.

There is nothing on the ground that the economy can boast of for a change in fundamentals right away. But, markets don't work on present scenario. Markets are way ahead of the ground reality & it speculates right into the future. The current euphoria clearly factors in that the new government will kick-off new reforms movements & likely disinvestment plans in major PSU companies to raise funds and act towards tightening high fiscal deficit in next few years.

The dream of a stable government for next 5 years in itself could be a big positive for markets. Now, that this prospect of stability is coupled with Reform movements, Disinvestment plans & further incremental Stimulus package for the economy, it is but obvious that markets would give a big thumbs-up to all recent developments.

Will FM Disappoint?

The role of Finance Ministry assumes great importance in the eyes of equity markets. Pranab Mukherjee has been delegated the portfolio of Finance Minister. It is said that India, indeed, needed a FM with political background rather than a technocrat for this elite post.

This is from the perspective of new reforms and other initiatives which could be kicked-off more smoothly under a leadership of an able minister. The Union Budget is expected to be out around July end and markets are having a close eye on sectoral reforms & social reforms for the stability of the economy. The FM is also expected to raise money from crucial funding exercises like disinvestment in major PSU companyies. The proportion of disinvestment could be range from as little as 5-10% in profit making PSU's and as best case scenario it could be as high so that government reduces its stakes in these companies to as little a majority 51% stake.

Even a small 5-10% stake sale would garner a big substantial sum for the government which could be used to develop infrastructure projects, filling fiscal deficit, spending for social sectors like education, rural unemployment, rural health programme, etc.

Where are Market Headed Next?

In the medium term horizon, markets will remain range bound. Sensex has graduated to 14000 levels from 12000 levels with a big cause. It would be naive to believe that we would test those 12000 levels again any time soon. Most of the large-cap stocks are no more as cheap when compared to their Earnings performance. This will further bind the market to remain in a tight range if it wants to sustain in the Nifty 4000-4500 range.

That is the reason as to why mid-caps witnessed a sharp rally in last one week. They were laggards to a big extent when compared to valuations in large-cap stocks. Most of the mid-caps have already rallied 70-90% in a week’s time & some have, in fact, rallied more than whooping 100% by margin.

Markets are currently gasping for breath in the form of News & Events to sustain at current higher levels. The next news event is still at least a month away in the form of Union Budget or Corporate Results which ever is earlier. Until then, markets can be expected to hover from Nifty 4000 to 4500 levels.

Medium-term Downside Risk:

Nifty consolidated in the range of 2500-3150 for almost 5 months. Later it witnessed a break-out raising hopes of a new range altogether which could span from 3150-3850 broad range. But, poll results proved to be a complete surprise. Markets had clearly not factored in this case scenario of a clear majority for any specific Political Alliance.

The win of Congress-led UPA alliance came as a surprise to the markets which got reflected in ‘Panic Buying’ by the market participants raising market bar by almost 20% in a single session. The new range has come on the anvil at Nifty 3800-4500 range.

With this, the risk of re-test of previous 52 week lows of Nifty 2500 could be ruled out once and for all. Now, speaking about worst case scenario (whatever it's triggers be), would bring downside risk at Nifty 3150 which is an extremely strong support zone. The all-important resistance at Nifty 3150 for the old 5 month trading range of Nifty 2500-3150; would now prove as a very strong support from here on. The corresponding figures for the benchmark index Sensex would be rougly around 10500 levels.

Is Re-test of Nifty 3150 eminent?

A re-test of Nifty 3150 may not necessarily be eminent. But, a re-test of Nifty 3150 would put Indian indices on a very strong footing as that would amount to big consolidation commencement a start of a new bull wave. But, a re-test of Nifty 3150 won’t be so easy to come by now that we’ve a very stable government at the centre. Possibly only the negative global cues could act as a trigger if we were to re-tests Nifty 3150 over medium-term horizon.

However, there are other crucial supports on the downside from current levels, the re-test of which could be more eminent over a period of time than perhaps Nifty 3150 levels which could be more so a target for the worst case scenario. There are crucial supports at Nifty 4000 and 3500 which will provide a strong guard against any further downside risks.

Are Valuations Too Expensive Now?

Valuations in many large-caps are, of course, expensive. In fact, valuations of some heavyweight large-caps like RIL, ICICI and HDFC to name a few, are way ahead of their current earnings performance. Even particular large-cap FMCG stocks looks a bit over-valued as they have not under-performed during the pessimistic times.

Oil & Gas major Reliance Industries currently trades at a P/E multiple of 21 times at the prevailing stock price of around Rs.2200/- levels. Even financial conglomerate ICICI Bank trades at a steep premium valuation of 22 P/E multiple. Housing loan provide HDFC Ltd. quotes at a steep premium of 27 in terms of P/E multiples.

However, there are still some large-cap stocks which could provide some bit of value even from current levels especially from PSU Banking sector. Though, even they have appreciated quite a bit in last couple of months, they atleast don’t look excessively expensive as compared to their private counterparts.

Is it Right Time to Buy for Long-term?
Have you missed the bus? Don’t fret…

When speaking from investment for 3-4 years perspective, I feel that valuations of most of the large-caps are a bit over-valued at this point in time when compared to their earnings performance. That does not mean that markets will come down very soon. Momentum is strong right now. When Momentum and liquidity takes front seat, valuations have to temporarily take the back seat. Eventually, a jolt will ensure that the fundamentals start dictating the terms again once exuberance is built in excess quantity.

Also markets have rallied to the extent of whooping 75% from Sensex 8000 to 14000 without any time consolidation. This makes the rise too steep, too soon. Markets can not keep on rising unilaterally permanently. It has to take a breather at some time once excess are built to a big extent.

Before we get next big up move in longer-term, I expect markets to consolidate or test lower levels as a step towards showing more solidarity for a larger up move. Take one more case – suppose even if the current momentum-led drags market to higher levels from here, sooner or later the much needed cool-off will be witnessed & the current levels will again come sometime in future. In fact, may be even lower levels. So, long-term investors should not get a feeling of left-out from the rally. They should stick with their present portfolio & ride the ongoing momentum. At least, they could see their losses getting trimmed out.

Note: I would rather recommend like to ask why would investors like to TIME the market entry? There is nothing guaranteed in stock markets. Neither downside, nor upside. Go for a Strategic approach. Buy some small quantity even now & more only on larger dips. I would like to remind investors of the strategy that i had posted in my 1st ever blog post of this site. Please go through it again, it makes decision-making process easy & less dictated by emotional calls. It saves one from timing the volatilty of the market.

Near-term Outlook

Coming to very near term, markets have crossed Sensex 12000 with a cause of a big positive from Political front. This would ensure that we’re not to go back in the old zone so soon. Markets will hover around Sensex 13000 to 15000 zone for some time. Later it has to be seen what kind of resistance is being witnessed at higher levels. It has to be determined as to what kind is liquidity on the side lines makes the beeline for the market entry.

Many left out Mutual funds with huge cash positions have to ensure that they deploy the cash gradually into the markets to shield themselves from the ongoing momentum led bullishness. This will ensure that an able support is determined at every dips and lower levels.

The Big Bull:

A very big resistance and a test for markets will be around Nifty 5250 & Sensex 17000 levels. By above, I do not mean to convey that these levels could be tested. I just need to convey that this is the zone which could differentiate between a dawn of a new bull phase and lingering in the ongoing bear phase. Markets will find strong resistances around Nifty 5250 zone and Sensex 17000 levels. That will be the true test of the current rally.

Summary of the Post:

1) Are Large-caps Expensive?: Yes
2) Are Mid-caps Expensive?: Partly Yes
3) Is it Right time to buy for Long-term?: May be Not
4) So when to Buy for Long-term?: Wait for a substantial Dip.
but at that time don’t fret to buy when there is all-round selling.
5) What are Medium-term Supports?: Nifty 3800-3500-3150
6) How much has Indices appreciated from Lows? : A whooping 75%
7) Short-term Outlook: Range bound in Nifty 3800-4500 zone
8) Are Indian Markets still Coupled with Global cues: Yes
9) What could be the best time to buy for Long-term? Around Sensex 12000
10) Will Markets test Sensex 12000 soon? No, it will test patience.

Trading Call for Short-Term:

Power Finance Corporation (CMP 190)
Buy in 2 Small Tranches:
1st Buy around CMP 190-194
2nd Buy around Rs.175-180/-
Stop Loss: 169/- (Closing Basis)
Time Frame: Around 45-60 days
Target Expectation: Rs.225 when Nifty reaches 4500 levels
which is the upper band of our short-term range.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Mid-caps vs. Large-caps

2009-05-23T11:41:00.000+05:30

A query has been posted in the 'Comments' section by Antriksh Patel on the behaviour of stocks from different Market Caps viz., Mid-caps and Large-caps. The query is relating to why mid-cap tend to give superior returns as compared to large-caps.

Hi Viral,
Nice article once again. I eagerly wait for your articles to come.
One query related to stock market behavior - "Why do the mid-caps tend to give better gains then the large-caps; what is the logic behind this behavior. I have observed that the large - caps have hardly doubled whereas mid caps has multiple 3 to 4 times. I can't understand this."Kindly throw some light on this.

Thanks,
Antriksh Patel

The Bigger First:

There is a belief that Mid-caps usually out-perform Large-caps by a big margin. But there is a rider to this notion. Usually, mid-caps out-perform large-caps during times of extreme exuberance and optimism. The rally in mid-caps can not bloom in a great way until such times of confidence and drama as we're witnessing right now. Whereas, on the other hand, large-caps are foremost to lead the rally when there is change of sentiment from pessimism to optimism. The benefit of first flight to safety is usually reserved for large-caps with sound fundamentals during recessionary times.

A large-part of the market pie, in the initial period of change of sentiment, is savoured by large cap stocks in form of rally in these counters where fundamentals and financial positions are strong and sound. Once this rally graduates into such a mode that the valuations of the large-caps looks expensive, there is a shift in market attitude. They tend to shift their money from large-caps to mid-caps where the valuations might have lagged & there is some degree of safety on terms of stock valuations.

Bridging the Valuation Gap:

The rally from large-caps tapers to mid-caps thus bridging the ‘Valuation Gap’. But, for this to happen, most of the large-caps must be fully valued or to the extent that such big counters deserve to be rated at. Later on, as market participants find it hard to justify more sanguine valuations for these large counters, the large-caps become stable at their higher-end and the markets enter the consolidation zone or may be even a small correction.

Gradually, investors start flirting where the valuations are in 'Comfort Zone' i.e., in battered Mid-caps but with good fundamentals & performance. From then, the 'Circular Flow' among Mid-cap starts where the trend of rally in mid-caps circulates among themselves from one clutch of mid-caps to another thus attempting to make the rally more inclusive & universe in nature.

Small & Sweet:

Generally speaking, Mid-caps are those companies who are relatively in early stages of business as compared to large-caps. Many mid-caps may also be involved in fast growing businesses or even special Niche segments of the market with unique product/service offerings. These companies may also have fast growth potential on the back of smaller business volume and relatively smaller base of their balance sheet size.

All these factors tend to come in final calculation while determining the company’s growth rate and its stock valuation. And, lastly, market stability and exuberance also plays its part in the last say about stock price valuation in mid-cap counters.

Volume Game:

Where as, Large-caps are usually past this phase and are into big volume game and may not exhibit the same rate of appreciation in growth as may be mid-caps with smaller base of balance sheet size. A small company, which operates on a relatively smaller balance sheet size, can grow at the rate of a few numbers of times (example, double or triple). Where as, a large-cap company grows in terms of few Percentage number of growth (example, 30% or 40% growth) on its already high base of balance sheet size.

Law of Gravity:

Whatever goes up, has to come down. During times of pessimism, the Mid-cap stocks are the ones which take severe beating in comparison to large-caps. Those very same reasons which lead to a steep rise in stock prices of mid-caps can come at play to support the reasoning of the slump in their stock prices during pessimistic times. Smaller balance sheet size would facilitate relatively lower leverage to tap sources to raise capital during times of crises. During such times, the financial performance of mid-cap companies can witness sharp fluctuations on account of volatility in incoming orders for their businesses, ability to raise funds, flight of capital from equity investments, etc.

However, if the fundamentals of some selective Mid-caps are really strong and sound from all perspectives like growth potential, financial standing, corporate results and governance, ability to raise funds, operation in Niche segment of business line, high growth potential, etc., they can as well depict stableness & low fluctuation as may be attributed to Large-caps stocks. That's not all, they can as well provide superior returns during up turns as compared to large-caps and still exhibit strength on the downside during slowing times.

In short, investment in mid-caps provides potential to grab high returns with the rider of high risk involved in them if the bet does not fall right & the company faces problem in shift engagement and continuation of its normal business activities, especially during hard times.

Small-cap Call : Investment + Trading

Kalindee Rail Nirman (Engineers) Ltd.

Value Buy Zone: Rs.125-140 (CMP Rs.138)
Short-term Target: T1 Rs.158/-, T2- Rs.180/-
Time Frame: 45-60 days; Rationale: Rail Budget
Medium-term Target: T1 Rs.180/-, T2 Rs.230/-
SL for (Short-term) Traders: Rs.120/-

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

Trading Strategy: Buy on Dips, Support will Come!

2009-05-21T18:24:00.000+05:30

'Buy on small Dips' Strategy mentioned above is meant only for Traders & not for Investor fraternity. Time for 'Value Picking' is a bit behind us. The current euphoric rise only warrants trading bets & not investment bets at this point in time. However, even investors will get opportunities at a later period. Wait for it.

Remember, markets always keeps giving chances, just that you have to grab it with both the hands. Investors have to hold their breath for some time unless the excess euphoria & valuations are driven-out. Markets will test the patience of investors, as every dip will be bought in from here on. Traders, on the other hand, have to move-on with strict Stop Losses for their tardes irrespective of market levels. There is plenty of opportunities and rationales for the traders to commit themselve to fresh trades even from here.

There is a query from Jamesvaikom in the 'Comments' Section regarding suspicion and a feeling that even Mid-cap stocks are gaining weight in terms of valuations and that even they are showing weakness in the recent market consolidation.

Sir,

I think now even mid caps start showing some weakness. I think it is time to book profit even in mid caps and sit on cash. I think buy on dips after strong rally may be like catching falling knife. what is your view.

Sensex has unilaterally raised from the trough of 8000 levels to a whooping 14000 levels in a small duration of past 2 months time. Most of the large-caps are no more in the 'Comfort Zone' in terms of Valuations. In fact, many mid-caps have gradually shown steep rise to the extent of 15-25% in every passing session. This even as benchmark indices are cooling-off its heals after a big band Range expansion of 20% rise in one session.

Nifty had made an intra-day top at 4500 levels on May 19, 2009. This high was sustained for hardly half hour before profit booking smartly kicked-in. The closing for the day was around 4300 levels. Since than the markets are consolidation what with most of the heavyweight stocks in the index looking far more over-priced in very near-term horizon.

What Next?

What next could be the course of the markets from here? Markets are in a hibernation mode and in an Accumulation zone. Nifty has corrected to 4200 levels as on day's closing.

At current situation, most of the Equity Mutual Funds are holding large chunks of Cash deployable in the equity markets. The post-election rally from Sensex 12000 to 14000 was like a 'Lull' in which no body could participate as it was based on a thin Volume of approximately Rs.3000 crore. Most of FII or MF or Retail Investors missed this gap of 2000 point Sensex rally created on May 18, 2009, on the back of surprising Poll outcome.

Mutual Funds, which are sitting on record Percentage of deployable Cash ranging from 10-25%, will be looking to enter the markets in a slow manner on every dip. All market dips will prove as a boon for these fund houses to infuse money into the markets to reduce their chances of under-performance to indices, in case markets continue to move forward until announcement of upcoming Union Budget.

Along the way, as we have already started witnessing Mid-cap momentum, it is a clear reflection of increased Retail participation in the small counters where usually large institutions remain cautious and away from being too aggressive at.

Mid-Caps Faltering?... Not Really!

Mid-Cap shall show signs of weakness or tiring out during the Sessions when makets fall sharply. Though, they may regain their lost sheen & recover their Momentum as soon as Benchmark Indices settles in a small Consolidation Range within next few Sessions. However, it is recommendable to keep an eye on the 'Valuations' of the stock specific mid-caps before indulging aggressively into each one of them.

Although, there could be a puzzling rider to above discussed strength in Mid-caps. The rally in mid-caps could be a 'Pass-on' game. Some mid-caps may gain momentum, and the positive rub-off may be passed on to other category of mid-caps. Thus, a large universe of mid-caps could catch fire and value to engross and elevate the momentum play.

What with important event like Budget as a next destination, market participants and punters are very much likely to bet on stocks and sectors which are likely to benefit from crucial Budget spending, reforms & initiatives. The Budget related punting has already started. At the same time, markets will also have its eyes open wide and clear as to which crucial portfolio at the centre are being mopped by which prominent leaders.

Sectors that are expected to be in lime light are PSU stocks led by chances of Disinvestment, Banking Stocks led by chances of Reforms, Capital Goods and Infrastructure stocks led by increased spending on Indian infrastructure, Power stocks led by quickening of Power reforms, Education sector stocks led by government's commitment towards Education & most importantly Agricultural stocks led by boost to Irrigation and Agri Projects and spending.

Adjustment of Valuations over Medium-term :

From Medium-term, markets are likely to be over-stretched at this point in time. But, in short-term the momentum is strong and infusions of cash from fund houses at every lower levels are likely to offer downside support to the markets around Sensex 13500-13000 levels at worst.

However, as discussed in above paragraph, over medium-term horizon the valuations certainly look expensive. So, that will be adjusted over next 2 months time depending upon the outcome of Budget and all-important Corporate Results. Gradually, markets as a whole, will adjust its valuations depending upon the final hearing in Corporate Results & actual Performance.

And, that will be the moment of 'Reality Check' for the Indian Stock Markets. Till than, i hope, that the Party Continues... Please note, I may go wrong in predicting all the above said Analysis. But, now that markets have shown a clear cut upside breakout post-poll results, Traders ought to latch on to this 'short-term' bullishness with a trade on the long side. Next, the decisive tide will flow-in, when rest of the factors like Budget outcome and Corporate Results will start dictating the fundamentals, not before a month long time.

Trading Idea & Strategy: PSU major BHEL

2009-05-20T17:11:00.000+05:30

Antriksh Patel has asked a query on L&T and its Prospects until its Results announcement. Presuming from his query that his investment perspective is only until Results announcement for the stock which is 35-45 days away from now, he seems to be having sight on the Short-term prospects of L&T until around Mid-July 2009.

Hi Viral,
I think L&T is slowly and gradually gaining momentum.
Till the results it can touch 1700. What is your say?

For this, I have presented an alternative for short-term trading purpose in a PSU stock - BHEL. In the current situation, L&T may be prone to a small downside before it makes fresh highs. The stock has jumped sharply from Rs.950 before election results were announced to Rs.1350 at today's closing. No doubt, the momentum is strong in the counter and it has shown amazing strength even in the last couple of day's of extreme volatility.

But, here is what i have to say for trading in BHEL and what strategy can be adopted to minimize the risk of trading in this counter with appropriate strategy to be used as follows:

Dear Antriksh,

FROM SHORT-TERM PERSPECTIVE...

L&T could be, indeed, one of the top contenders to benefit from renewed infrastructure spending that may likely be announced during the Union Budget some 35-45 days from now.

But, speaking in terms of price appreciation in last few days in L&T and BHEL, perhaps BHEL is a better contender to benefit from dual reason of Infrastructure & Power sector spending and also Disinvestment prospects in PSU stocks by the Central Government.

Also, L&T at today's closing has still not corrected substantially from its peaks since election rally. Whereas BHEL has given up half the gains witnessed post-election rally to till date as on today's Closing level of Rs.2040/-.

However, BHEL and L&T are both expensive seen in terms of Valuations. But, in short term one can play with BHEL by buying as per below mentioned strategy with view of 30-40 days holding period:

Suppose You wish to invest Rs.16000 for Short-term Trading:
Buy BHEL 5 shares @Rs.2040 (CMP)
Buy BHEL 3 shares @Rs.1850-1900 Range

Once you Buy the stock @Rs.2040, you need not worry whether the stock goes down or up in next few sessions. You can still average at lower levels until Rs.1850-1900 since you have staggered your trading amount of Rs.16000 into 2 parts of Rs.10,000 and Rs.6000.

If the stock goes up after buying the initial quantity of 5 shares @Rs.2040, no need to think about remaining quantity. At least, you have invested 60% of your amount & you'll be rewarded to that extent, even in times of high uncertainty in present times.

Trading Idea for BHEL :

Buy in 2 Tranches at Rs.2050 & Rs.1900
Target 1: Rs.2300
Target 2: Rs.2500
Stop Loss: Rs.1800 (Closing basis)
Time Frame: 30-45 days.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Mid-cap Mania: Videocon Target Achieved

2009-05-20T12:34:00.000+05:30

Momentum Tapering from Large-caps to Mid-caps:

In my posting dated May 14, 2009, it was clearly mentioned that the current market rally will gradually taper in favour of mid-caps as large-cap stocks are increasingly getting over-valued at upper levels. Comparatively, mid-caps are big under-performer in terms of Valuations and that the 'Valuation Gap' needs to be filled to some extent.

Unless a majority of the mid-cap universe with sound fundamentals does the catching-up game in terms of valuations, we would gradually witness tapering of the current rally amongst large-caps in favour of mid-cap counters where there is still a cushion of 'Valuation Gap'.

At some point of time, even if the current momentum is to survive, the rate of appreciation amongst large-caps would cool-down and slowly pass-on the baton to mid-cap counters. When such a phenomenon of rally tapering from large-caps to mid-caps would take place, the markets are expected to take a breather and settle into range bound movement. (Posted on May 14, 2009)

This will see most of the large-cap stocks cooling their heals around current levels. This will also lead to a small consolidation pattern in Nifty and Sensex as major market movers cool-off. But the momentum will shift to mid-caps for some period of time unless there is consolidation among large-cap counters to some extent.

However, some selective PSU, Infrastructure, Education and Agricultural related stocks will continue to remain in limelight irrespective of the large-cap or mid-sector they fall in. This selective out-performance is expected to on the back of prospects of stable government at centre which would lead to some positive reforms, divestment, boost to infrastructure spending, etc. as may be likely announced in the upcoming Union Budget which is 35-45 days away from now.

Videocon Industries: Target Achieved

Videocon Industries: Buy Videocn in the range of Rs.105-120 with a quick target of Rs.150-160 with in few sessions. Strict Stop loss for this diversified conglomerate should be placed at Rs.90. CMP Rs.122.
(Posted on April 24, 2009)

The stock did not make any substantial move even on markets rising continuously since Sensex 8000 levels. The stock had under-performed big time since market recovery a couple of months ago. Traders were time and again reminded in my subsequent postings to persevere with the trading call with a strict SL of Rs.90/- where the stock rests at a strong support zone.

Finally, the stock has made a move post-election results now that mid-cap mania has just started. The first target of Rs.150/- is achieved on intra-day basis just as I am writing this post over here. Anyways, the idea, over here, is not book full profits in Videocon as the momentum may have just started in the counter. I would like to recommend traders to book profits in Videocon on below mentioned criterions:

Criterion for Traders depending on their Risk profile:

Low Risk Traders: Book 70% Profits @Rs.150/-
Medium Risk Traders: Book 55% Profits @Rs.150/-
High Risk Traders: Book 40% Profits @Rs.150/-

Book profits depending on the category you fall in and ride the upside momentum in the ongoing mid-cap momentum. For all traders the Trailing SL strategy to be used at Rs.125/- instead of our original SL of Rs.90/-. This will ensure that even if the stock reverses its gains, traders could still exit at nominal profits @Rs.125/-.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Traders: Book Gains On Rise

2009-05-19T11:38:00.000+05:30

Most of the trading calls reached both their targets as on May 18th and 19th. However, most of the targets were reached on the back of positive surprise on the Political front which was welcomed by the markets with both the hands.

My Blog Post dated April 24, 2009 titled as "Nifty Outlook & Trading Ideas for Next 15 Sessions":

CRUCIAL 200 DMA RESISTANCE:
Now, markets shall take a breather for some time around current levels or within a narrow Nifty range of 200-300 points lower from here as a pull back approach. Then again, markets are likely to re-test Nifty 3450 (for 1 or 2 times) to check its resistance strength. If in final analysis, markets succeed in crossing crucial Nifty 3450 level, we may well be in for a surprise rally towards Nifty 3850-4250. These ultimate targets of Nifty 3850-4250 may well be the highest point of current bear market rally, if we succeed to cross over 3500.

Nifty Traders: Traders can go Long on Nifty in around 3450-3500 range (preferably above 3500 closing) with upside Targets of 3850-4250 & observe a Strict Stop Loss of Nifty 3300 levels. Please note that the Stop Loss to be observed on Closing basis.

Trading Ideas for Upcoming 15 sessions:

1) IDFC: This company from NBFC space has run up smartly from Rs.60 to reach Rs.75-78 range. If IDFC manages to conquer Rs.82 levels as a weekly close, it will graduate swiftly to its next target of Rs.95-109 in a quick period of time on the back of break-out on the upside. CMP Rs.75.
2) BHEL: Heavy Engineering major BHEL can be bought around Rs.1550-1630 with a Target of 1800-1950. Strict Stop Loss of 1500 is a must for trading in this Power Equipment major. CMP Rs.1639.
3) Videocon Industries: Buy Videocn in the range of Rs.105-120 with a quick target of Rs.150-160 with in few sessions. Strict Stop loss for this diversified conglomerate should be placed at Rs.90. CMP Rs.122.
4) Power Finance Corporation: If this Power Finance company sustains above Rs.160 for 2 consecutive days it will witness a break out for Targets of Rs.185-195. Stop loss for this stock can be observed around Rs.140-145. CMP Rs.157.
5) Power Grid Corporation: Power Transmission major PGCIL would witness a break out if it manages to sustain above Rs.105 for next week closing. The stock can later on soar to Rs.120-130 without much patience. Stop Loss Rs.90. CMP Rs.100.
6) L&T: This E&C giant is most likely to cross Rs.1000 & touch Rs.1050-1100 if Nifty manages to sustain above 3500 for next week.The stock will lead the rally along with other heavy weights to prop up the markets from here.

To Read full posting in detail, click below:
Nifty Outlook & Trading Ideas for Next 15 Sessions

Except for Videocon Industries all other stocks have touched its 1st and 2nd Targets on the 15th Session since the posting was made on this blog. Power Grid has just reached near to its 1st target at Rs.118/- as I am publishing this post over here. My suggestion to the Traders who took calls on these calls should book 60-70% gains today itself and cut their risk for their trading bets. However, with the remaining 30-40% held they can ride the ongoing momentum for a bit longer as the trend has turned ultra-positive in very near-term horizon.

In my posting dated May 08, 2009, Trading targets for Suzlon and HCC have also been achieved.

Note: The above posting is only for Traders who took calls based on above recommendations. A separate posting will be sent directed towards Investors and how to approach markets at a later date. Do not confuse this posting with Investment ideas. Right now, even i am reviewing market position and its nature of behaviour.

Remember, in Times of Uncertainty & Indecisiveness…
Strategy for Investment

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Value Picks: Mid-caps for Long-Term

2009-05-15T11:16:00.000+05:30

Value Mid-caps for Investment at Current Prices:

1) Videocon Ind. (Rs.90-125)
2) Gitanjali Gems (Rs.45-75)
3) Alok Industries (Rs.12-16)

Concept of Value Buying:

Speaking about just a couple of months back, there were many Mid-caps on the block which could be termed as pure 'Value' Picks from long-term investment perspective. However, since then, benchmark index Sensex has moved up about 45% from around 8000 levels to 12000 in a very short span of time. As expected, a large part of this rally was driven by Index heavy weights; while the performance of a large part of the mid-cap universe was quite a laggard when compared to a stupendous appreciation in valuations of selected large-cap stocks.

In fact, over here, it could as well be said that some selected mid-caps have completely ignored the ongoing market rally and are still very near to their 52 week lows. However, there may be specific reason for each of such counters as to why the market participants have conferred the under-weight rating for which these stocks missed-out on participating in the market rally in a substantial manner.

The reasons could differ from company to company. It could be sharp recession in US for export-oriented companies heavily dependent on Western countries or it could also be intense competition from around the globe for others. On the other side, for domestic demand oriented companies, it could be slowdown in demand for their goods or services on the back of consumer mentality of curtailing expenditures for the time being during the slowdown period. We would discuss more on this under-performance of some mid-caps in the later half of this posting.

Tapering of Momentum from Large-cap to Mid-caps:

Unless a majority of the mid-cap universe with sound fundamentals does the catching-up game in terms of valuations, we would gradually witness tapering of the current rally amongst large-caps in favour of mid-cap counters where there is still a cushion of 'Valuation Gap'.

At some point of time, even if the current momentum is to survive, the rate of appreciation amongst large-caps would cool-down and slowly pass-on the baton to mid-cap counters. When such a phenomenon of rally tapering from large-caps to mid-caps would take place, the markets are expected to take a breather and settle into range bound movement.

Value Picks among Mid-caps:

Over here, it is important to note that most of the mid-cap stocks have almost doubled from their 52 week lows. But, even so, the area where these mid-caps lagged in comparison to their counterparts from the large-cap space is 'Valuations'. Even as most of the leading mid-caps have doubled, their valuations are still not as stretched as some of those index heavy weights. In this posting, I'll discuss about prospects of three such mid-caps where the rate of appreciation or for that matter even valuations are relatively lower as compared to other mid-cap counters.

Videocon, Alok & Gitanjali Gems:

Gitanjali Gems: Firstly, among the three value mid-caps mentioned above, the risk of downside is relatively lower in case of Videocon and Alok Industries as compared to Gitanjali Gems simply due to the fact that the stock has doubled in a span of 2 moths. Gitanjali Gems is a top-most leading player in the branded gems and jewellery market of India. It is one of the leading players in the jewellery retailing business with leading brands like Nakshatra. The company has also expanded into US which is one of the biggest jewellery retail market. The company has also recently expanded into Lifestyle products like international designer brands, watches, leather accessories, cosmetics, etc.

Glittering Value: The stock price of the company has appreciated more than 100% from its 52 week lows on the back recent Buy back announcement by the management. But, still the stock quotes at not so expensive valuations. Even though this stock has appreciated more than double from its lows, I have included the stock as it is way off from its all-time highs of Rs.450 and quoting at a Price to Earning multiple of 4.5 times.

Steady Sailing: As this posting is related to long-term investment in the stock, we will have a look at the trend of past performance of the company to have a rough idea about the stability and growth of the company's historical performance. Going back to F.Y.2004-05, the company's Sales was Rs.1350 crore. It gradually increased to Rs.1620 crore for year F.Y.2005-06, Rs.2220 crore for the year F.Y.2006-07 and Rs.2650 crore for the F.Y.2007-08. The same trend is also visible in the front of Net Profits for the company. This trend of increasing sales & profits clearly suggests that the company has a very good demand for its products domestically & internationally.

Concerns: However the above information is relating to the period when the current global rot and slowdown was not as pronounced until F.Y.2007-08. The global recession got more pronounced in the later half of the Calender year 2008. So, it is important that we put a spot light on the performance of the company in light of the results of various quarters of F.Y.2008-09 as well.

The company's Sales for the quarter ended December 2007 was Rs.575 crore. The company's corresponding sales figure for the quarter ended December 2008 are at Rs.550 crore only, a figure lower by Rs.25 crore than a year ago period. This clearly suggest stagnation of fresh demand for its products hit by global slowdown. However, the company's sales were relatively higher in the quarter ended March 08, June 08 and Sept 08 at around Rs.700-800 crore for each of the three quarters. But, even still, it reflects stagnation of demand which previously used to grow Q-on-Q.

Videocon & Alok Industries: On the other hand, it can be said Videocon & Alok has almost missed the seat in the bus ride from Sensex 8000 to 12000.All the 3 mid-caps are hit in someway or other by the Global Slowdown. On one side, the counter of Videocon is hit by lower tendency of consumers to spend on electronic goods during severe slowdown which is expected to gradually revive as the world economy stabilises and recovers over longer duration.

Alok Industries: Alok Industries is a very good pick to invest from the lagging Textile sector. It is one of the few stocks which has shown robust business model & performance as compared to other textile players on a consistent basis. On the other side, the stock of Alok Industries is still quoting at 87% discount to its life highs of Rs.105/- on the back of high Debt-Equity Ratio and increased competition from other cheaper destination sources.

This vertically integrated textile company has presence in 3 broad categories viz., Textile, Retail (H&A Stores) & Realty. The company has expanded its textile business in last few year both domestically & internationally. The company is also involved in distribution of textile products to the US supermarket chains. In near-term, the company is likely to benefit from depreciated rupee value at Rs.50.

Financial Performance of Alok: The company has a robust business model with increasing trend in its Sales for the last 5 years of comparison. The company's Sales for F.Y.2004-05 stood at Rs.1225 crore followed by Rs.1420 crore, Rs.1830 crore, Rs.2160 crore and Rs.2965 crore for the F.Y.2005-06, F.Y.2006-07, F.Y.2007-08 and F.Y.2008-09 respectively. This indicates a good demand for the company's products even whilst the ongoing global slowdown.

However, the Net Profits of the company has not tagged its course along with the trend of rising Sales along the last 2 years indicating pressure on its margins. Though, a part of this pressure on margins can also be attributed to the increasing cost of interest year after year on its debt position.

Major Concern for Alok Industries: The major area of concern for Alok Industries is it's high Debt-Equity Ratio. Though, with the recent Right issue by the company, the high debt ratio is likely to moderate to some extent. However, most of the company's interest liabilities for its long-term debt is subsidized under textile promotion scheme.

Financial Performance of Videocon: Videocon has been witnessing declining profit & sales since the onset of the ongoing slowdown. The company has been reporting declining net profits post March-June 2008 quarter. The fall in profits is even more alarming since Oct-Dec 2008 quarter to date.

Comparing its latest results for the quarter eneded January-March 2009 with its profits in the corresponding quarter in the previous financial year... the net profits have come down from Rs.251 crore in the quarter March 2008 to Rs.73 crore in the quarter March 2009.

The sales & profits of the company are adversely impacted by the current slowdown. However, the company has taken various steps to diversify its business right from Consumer electronic goods to Oil & Gas business. The company shall retain the lost ground as and when the recovery is visible in the economy over the longer duration as and when the consumers are willing to shell out more from their pockets.

Evaluating Downside Risks in case Markets Corrects:

Before concluding this post, we have to take a round-up about the prospects of the stock price movement of these 3 value picks in case markets take a 'U' turn from here or crash sharply to re-test its previous lows.

Gitanjali Gems can come down much aggressively as compared to Alok and Videocon in light of the fact that the stock has doubled up in last couple of months. Though, the down side looks reasonably capped on the back of buy back announcement by the company above the three digit mark which is a substantial premium to its current price. Also, the down side may be limited on the back of the company's strong fundamental standing as one of the few leading players from the Niche segment of emerging organized space of jewellery and retail branding. Investors can accumulate this stock in the range of Rs.45 to Rs.75 depending on the market fluctuation and opportunities.

The down side for textile player Alok Industries is also expected to find a cap around its Face value of Rs.10 and its Right Issue price of Rs.11. Whereas, over longer duration with a slight recovery in leading western countries and to some extent even domestically, the demand for products manufactured and distributed by Alok Industries is expected to remain robust and well diversified. Interested investors can accumulate the stock in the range of Rs.12 to Rs.16 on dips.

The downside support for Videocon Industries is placed around Rs.80-90 in the Medium term horizon. The stock is already closing below its book value and has strong downside cap around Rs.80 where its 52 week lows are placed.

Six other Stocks that could be considered for Value Buying on 15-20% Dips from Current prices:

1) Everest Kanto (Rs.90-120)
2) Patel Engineering (Rs.120-160)
3) Aditya Birla Nuvo (Rs.360-440)
4) Glenmark Pharma (Rs.120-150)
5) Bank of India (Rs.180-220)
6) PVR (Rs.60-80)

Note: Currently, Nifty is trading in a new range of 3150-4250 after a 5 month consolidation in the old range of 2500-3150. Whenever markets revert back to around Nifty 3150-3250 levels in future, the upper ranges mentioned for the above 6 stocks may be tested. At such times, long-term investors can start accumulating these Value mid-cap. However, more quantity to be bought only on larger dips as and when the lower range of the bands are reached near to.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Investment Opportunities in PSU Banking Stocks

2009-05-13T11:47:00.000+05:30

There is a query from Vikas in the Comments section regarding investments in PSU Banking stocks as related with its Dividend yielding capability acting as a 'likely' Fixed income opportunity.

Hi Viral,

My question to you is ... will it be better to invest in PSU banks. Banks like IOB & Andhra Bank has declared a dividend of 45% i.e., Rs 4.5/- per share.

I've noticed that most of the PSU banks gives regular dividends on YOY basis ( so your equity investment in these banks , more or less act as FD in the long run- as you get regular returns from them).

Please let me know your views on the same?

Vikas

My Reply:

To this, i would like to say that, there certainly is a degree of truth in his way of thinking. But, the point is not absolutely taken as there are many other stocks, both from public and private sectors, with past history of good dividend yielding track record and robust performance.

Most of the PSU stocks from sectors other than Banking & Financials are also well known for good dividend yields. Being Public sector companies, these PSU stocks are impliedly obliged to fill-up the coffers of the central government (and of course, other shareholders too) by the way of regular dividend outflows on account of their majority stake in the Companies.

Coming to the Private counterparts of PSU compaies... many leading private sector companies with good cash flows are also not behind in doling out good dividends on a consistent basis. In fact, many companies also have implied policy guidelines of forking out as much as 30-50% of their quarterly profits as dividends for their shareholders.

However, the above does not mean that i am against investment in PSU Banking stocks. In fact, PSU Banks is a very good sector to invest your money with a tangible bit of safety quotient. PSU banks have a certain stricter regulatory guidance than high flying private sector banks in terms of lending operations & risk taking.

Though, during times of optimism, PSU banks also have to deal with a bit of hump with issues like expansion, raising capital, etc. due to the same regulatory hurdles. In the current scenario of severe slowdown, PSU banks have somewhat caught up with market share of private sector banks to some extent. In stead of looking at PSU banks as purely Dividend yielding stocks, i would like to recommend you to stick with only Top 4 banks from Public sector.

My 1st Preference would be banking major State Bank of India (SBI). If you prefer Mid-caps among PSU banks there are some very good banks like PNB, BOB and BOI to choose from.

Now, from Valuations point of view SBI is a bit expensive when seen from the lows of Rs.900 it has established a couple of months back. Though, the stock would provide good investment opportunity for Accumulation below Rs.1150/- to start with & more on dips.

Among BOB, PNB and BOI...

BOB looks the most expensive but this largely backed by its robust performance in quarterly results. PNB is a relatively cheaper stock in terms of valuations and is biggest PSU bank after SBI. However, even this stock has almost doubled since its lows of Rs.300/- BOI certainly looks cheapest of all the major PSU banking stocks. However, this lag is on account of relatively disappointing results in comparison to other PSU banks. Anyways, the fundamentals of BOI are too strong to lag so much behind in terms of valuations.

From investment perspective, investors need to hold out for now before plunging in for buying fundamentally strong PSU Banking stocks. At the most, investors can hand pick few units of BOI which is relatively reasonably valued in comparison to other Banking stocks. However, investors can consider accumulating these stocks on large dips during a big pull back for the current rally.

In my List of Favourite stocks in the previous blog posts, i had clearly given a Buy call for SBI and BOB from investment perspective. But, remember... personally, i would prefer to have a nice blend of PSU banks & private banks in my portfolio, preferably in favour of private banks.

BANKING & FINANCIAL SECTOR: (15% of over-all Portfolio)

10% - Banking (6% PVT Banks + 4% PSU Banks)
05% - Non Banking Financials (NBFC)

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Medium-Term Broad Range: Nifty 3150-4250

2009-05-11T11:37:00.000+05:30

There is a query from Dark Knight Abhay in the Comments section regarding Market Outlook from the Short-term horizon. He has bought a few trading stocks around Nifty 3600-3650 levels.

Hi Viral,
You commented earlier that if nifty has a weekly close of 3550,it may touch 3800-3850 levels. So do you still recommend that one should hold on till 3800?

My Reply:

In very short term , Nifty is largely range bound in 3600-3720 narrow band. Previously, when i had recommended an upside break-out for Nifty at 3500 levels which was a crucial hump for the markets, the recommended levels of 3550 was only for confirmation of risk-free new break-out trend. This break-out indeed happened for the good, and we tested almost 200 points higher @Nifty 3700 during one of the trading sessions in the previous week. A 200 point break-out on Nifty above 3500 is a good appreciation in actual terms.

In very near-term, markets are undecided about its next move & thus consolidating in 3600-3720 range. May be, quite possibly, markets are somewhat over-bought what with a humongous rally in Nifty since 2600 levels witnessed just a couple of months ago.

Dear Abhay...My targets of Nifty 3850-4250 are from the perspective of MEDIUM TERM broad range and not short-term horizon. Just like we consolidated for 5 months in 2500-3150 range , the next big trading range for markets from now on may well be 3150-4250.

That does not mean Nifty 3850 are up for grabs in a unilateral fashion in a vertical climb-up. Markets should, ideally, move down or consolidate before touching such dizzy targets. One never knows... may be, market consolidation within Nifty 3600-3720 could as well be a part of that much needed cool-down. In any case, if market surprises by unilaterally inching up following positive global cues, than the upside would definitely be capped around Nifty 3800-3850 before any other major up-move towards 4000-4200.

But, all-in-all, chances of a big cool-down in the range of 3150-3350-3720 is high for next few months seeing at the proportion of market rally we have had in last two months.

For Your Trading bets...
For BHEL, IDFC & Videocon i've clearly mentioned targets and Stop loss levels in my previous postings. IDFC looks strong unless it can sustain above Rs.82 on closing basis. BHEL has a strong support at Rs.1500. Two other calls were given in my previous post on Suzlon and HCC which are depicting strong trend on the upside. Stop losses are a must for any kind of trade be it for short-term or medium-term.

CONCLUSION:

My View: 3150-4250 is Medium-Term Broad Range.

Option 1: From here markets look over-bought in very near term outlook & Nifty may as well take a breather with Support @3500 & ultimate support @3350.

Option 2: Markets may surprisingly keep on rising if constantly backed by positive global cues. But, then, there may be an upside cap around 3800-3850 in short-term.

Chances for option 1 to fructify is strong, but one cannot rule out a small up-move from 3700 to 3850 in near term driven by continuous momentum around the globe. Momentum can sometimes over-ride fundamentals & valuations. Political outcome has the capacity to turn any form of trade on its heads.

I would say, book Part profits even in your short-term trades. When markets are so much inflated in so little a time horizon, it is better to play safe partly. Reduce your risk but still don't give up all your positions. Fresh Buying is recommendable around Nifty 3500-3550. And, an Aggressive Buy is thoroughly recommended around 3350-3450 range for Trading purposes.

Long-term Investors:

Investment Buying to be done around Nifty 3150-3350 range. Long-term Investors should wait with patience and perseverance. Markets have given a break-out on the upside after a long consolidation of 5 months. The old range of Nifty 2500-3150 holds no more & a new range of Nifty 3150-4250 has developed which will stay over here for quite some while. So, for those who missed value plucking around the bottom of Nifty 2500, can plunge in around Nifty 3150-3350 range which is somewhat a starting point of 3150-4250 broad range.

Most of the long-term investors have had a missed out feeling of not being able to buy around market bottoms. So, now these unleashed funds will come out for shopping on every dips and support the market on every dip and consolidation. So, funds on sidelines should maintain caution & patience. In the short-term, it would be difficult to see markets below Nifty 3350-3400 levels.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

The Global Rally Continues !!

2009-05-09T11:54:00.000+05:30

Markets the world over have gained substantially in last 30-40 days. Nifty has gained from 2600 to 3600, a whooping 1000 point rise, in such a short span of time. A substantial 40-45% rise in index speaks a lot about where the rally has primarily originated from - the Large cap stocks. Heavy weight stocks like RIL, ICICI, HDFC, SBI, L&T & ONGC have dragged the index to soaring heights. However, even the sectors like rate sensitive Banking, Auto & Real-estate were at the forefront of leading the current rally.

Short-Term Market Strength Signals:

Speaking about market movement in last 1 week, they have largely remained range bound in Nifty 3600-3700 band. The markets looked over-bought around Nifty 3700 levels, which would mean either a consolidation in a narrow range of Nifty 3600-3700 or a pull-back to the nearest support zone i.e., Nifty 3350. Markets have chosen to remain range bound in the narrow range instead of correcting to nearest support zone of Nifty 3350 levels.

This act of consolidation is providing signs of strength & a signal to the fact that bulls are in no mood to let off gains even for a while. Whatever corrections are witnessed are on intra-day basis, giving spurts of opportunities for disciplined traders at the lower end of the narrow band.

On the other hand, markets are showing lots of Resistance on the upside around Nifty 3720 levels. It needs to cross over Nifty 3750 to head upwards for another quick rally. A major hump in the even could have been in the form of Stress test in US for its banking fraternity. The event has passed through without much hiccups and this could act as a trigger to help Nifty move above 3720 in the upcoming week.

Nifty Traders:

Risk-taking Traders can Buy Nifty around 3600-3620 with a SL of 3550 on a closing basis & wait for a break-out from Nifty 3720 for making substantial profits. Risk-averse Traders should wait for a substantial dip to bet for a long position around Nifty 3400-3450 levels with a SL of Nifty 3320 levels on the downside.

Playing within a Narrow Range: Contra Traders who would like to move in opposite trend direction can Short Nifty around 3700 with a SL of 3750 & narrow Target of 3620 on the downside.

Technical Stock Specific Calls:

Before moving forward with fresh calls for traders, first let me update the trading calls provided in my
previous post on this blog for stocks like BHEL, IDFC, PFC, Power Grid, Videocon & L&T.

1) BHEL call stock is active with a buy call in the range of Rs.1550-1630 & SL of Rs.1500.
2) PFC call is also active with 2 consecutive closings above Rs.165 & target of Rs.185.
3) Power Grid call is still not activated as the stocks has not yet managed to close above Rs.105.

4) IDFC call is active as the stock has managed to cross Rs.82 levels for 2 consecutive closing.
5) Videocon call is also active with a SL of Rs.90 & a target of Rs.153.
6) L&T has touched Rs.1000 during a couple of trading sessions & is on its way towards Rs.1050-1100 if markets manage to hold above Nifty 3600 levels.

Fresh Trading Call:

Active Call: Buy Suzlon Energy on every dip in the range of Rs.68-74 with Upside targets of Rs.92 in the short-term & Rs.111 in the medium term. SL for short-term traders to be Rs.66 & that for Medium term traders to be Rs.56 on the downside. The stock has shown unusual strength in the past week by sustaining above Rs.72 with strong volumes. CMP 74/-

Signal Call: Buy Hindustan Construction (HCC) only if it breaks above Rs.65 (SL to be Rs.61) on the upside. Traders with high risk taking capacity can buy the stock even at current price of Rs.61-63 with SL of 55. Targets for all traders to be Rs.72 & Rs.89/- on the upside.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Stock Market: The Barometer of Economy's Health

2009-05-09T00:59:00.000+05:30

Stock markets are barometer of the economy's health & prospects for the times to come. Markets are nothing but a decisive way towards collective trend of thinking of its participants. The market trend specifies the direction of thinking, regarding optimism or pessimism, in the mind of the market participants. Likewise, a volatile market reflects intense fluttering of ‘UNCERTAINTY’ in terms of whereabouts of forces that dictate market trend.

Stock markets are usually ahead of the ground realities like actual GDP performance and Economic conditions of the country. Like, for instance, the Indian equity markets started plummeting from the early part of the calender year 2008 around the month of January, whereas the worst was experienced by the actual economy in the later half of the same calender year 2008 around the quarter October to December of the same year.

Due to this specific nature of market's tendency of estimating visibility into the future, the movement of the equity markets are based on estimates of the company's future earnings prospects and visibility. That is the reason as to why market's shall often forgive the disappointing performance of company in current period of contention, only if its future earning prospects is healthy and clear.

Nifty Outlook & Trading Ideas for Next 15 sessions

2009-04-25T11:36:00.000+05:30

Nifty Outlook:

Technically, Nifty has established a weekly close above 200 DMA levels which is perched around 3450. Though, for a confirmation of this trend of sustenance of Nifty above crucial Resistance of 200 DMA, we will wait to determine a weekly close above 3500 for the upcoming truncated week.

A weekly close above Nifty 3500 levels would mean an uptrend which could stretch as high as 3850-4250 on the upside. On the downside, Nifty has a strong support at 3300 and 3120. In my previous to previous post dated April 10, 2009 following content was posted for readers on Nifty Technicals:

CURRENT MARKET TECHNICALS:

We have successfully crossed crucial levels of Nifty 3240 which acted as a strong resistance for the last 5 and half months. This level of 3240 proved resistance for 4-5 times in the last few months. Now, the next resistance is at Nifty 3450 level which incidentally is an all important 200 DMA levels.

CRUCIAL 200 DMA RESISTANCE:

Now, markets shall take a breather for some time around current levels or within a narrow Nifty range of 200-300 points lower from here as a pull back approach. Then again, markets are likely to re-test Nifty 3450 (for 1 or 2 times) to check its resistance strength. If in final analysis, markets succeed in crossing crucial Nifty 3450 level, we may well be in for a surprise rally towards Nifty 3850-4250. These ultimate targets of Nifty 3850-4250 may well be the highest point of current bear market rally, if we succeed to cross over 3500.

INTERVAL TIME FOR TRADERS:

Traders can remain cautious around Nifty 3400-3500 levels. They can book some gains around 3400 levels and wait for the volatility and pull back to fall out. They can again retain their long position if Nifty 3500 are crossed over which may engulf a new round of short-term rally. Nifty 2900-2950 should be an absolute Stop Loss for all kind of intermediate Long positions for the trading fraternity.

A 'Contra' call for traders would be to short the Nifty around 3400 levels with a Stop Loss of 3500 & book gains with initial target of 3240-3120.

As mentioned above, the markets faced resistance at Nifty 3410 and pulled back to 3310 for couple of days. Again markets have come back to re-test the crucial 200 DMA resistance and almost managed to sustain with a weekly close above it on the back of strong hold from bulls.

Nifty Traders: Traders can go Long on Nifty in around 3450-3500 range (preferably above 3500 closing) with upside Targets of 3850-4250 & observe a Strict Stop Loss of Nifty 3300 levels. Please note that the Stop Loss to be observed on Closing basis.

Stock Specific Trends:

In the same posting, i have made a narration of few more stock specific trends especially large-caps and mid-caps. Most of these stocks were predicted to have been topped out in short-term unless Nifty makes a fresh up move above its 200 DMA resistance.

SIGNS OF TIRING OUT:

These stocks are expected to take a small breather if the current rally is, in deed, to continue forward even from here: Reliance, Grasim, ONGC, Hero Honda, Bajaj Auto, Tata Steel among large-caps.

All the above stocks except Grasim (which inched a bit higher in last 1 week) seemed largely stuck to their ground as most of them had rallied sharply in the recent run up of markets as a whole. RIL continues to remain perched around Rs.1700-1800 levels, ONGC is stuck around Rs.800-900 and Hero Honda remains bound in 1000-1150 range in spite of better than expected results. Tata Steel made a high of around Rs.290 and slipped to Rs.240 odd only to recover around Rs.260.

Though, these stocks are likely to further their winning streak if Nifty manages to sustain and move forward above 3500 levels. These stocks will slowly move to make higher tops but at a slower pace than other markets laggards.

Dark Horses:

DARK-HORSES FOR SHORT-TERM RALLY:

Stocks to watch out for sharp bounce in the upcoming times are Bajaj Finserv, IDFC, LIC Hsg, Patel Engineering, I.Bull Finance, Videocon Industries, A.B.Nuvo, Thermax, R.Comm, SBI & BHEL. This mix of large-cap & mid-cap stocks have not moved up appreciably as compared to other stocks. And there is every possibility that they move faster to catch-up with their lag against the market on the back of their buoyant fundamentals.

The above writing has presence in my same posting dated April 10, 2009. Bajaj Finserv, LIC Hsg, Thermax, Rcom, SBI and BHEL have moved at a faster clip in the last 15 days of market movement. While SBI has graduated from Rs.1000 to Rs.1300, Bajaj Finserv has rised from Rs.150 levels to Rs.230 levels. LIC Hsg Finance has moved exuberantly from Rs.230 to Rs.340 at yesterday's closing. IDFC has witnessed a sharp run up from Rs.50 to Rs.75 during the period.

In my previous post dated April 15, 2009 on Implication of Satyam Acquisition, a clear cut Sell call was given for Tech Mahindra around Rs.370-380 zone. The stock had slumped to Rs.310 levels before recovering to Rs.340 along with markets.

Trading Ideas for Upcoming 15 sessions:

1) IDFC: This company from NBFC space has run up smartly from Rs.60 to reach Rs.75-78 range. If IDFC manages to conquer Rs.82 levels as a weekly close, it will graduate swiftly to its next target of Rs.95-109 in a quick period of time on the back of break-out on the upside. CMP Rs.75.

2) BHEL: Heavy Engineering major BHEL can be bought around Rs.1550-1630 with a Target of 1800-1950. Strict Stop Loss of 1500 is a must for trading in this Power Equipment major. CMP Rs.1639.

3) Videocon Industries: Buy Videocn in the range of Rs.105-120 with a quick target of Rs.150-160 with in few sessions. Strict Stop loss for this diversified conglomerate should be placed at Rs.90. CMP Rs.122.

4) Power Finance Corporation: If this Power Finance company sustains above Rs.160 for 2 consecutive days it will witness a break out for Targets of Rs.185-195. Stop loss for this stock can be observed around Rs.140-145. CMP Rs.157.

5) Power Grid Corporation: Power Transmission major PGCIL would witness a break out if it manages to sustain above Rs.105 for next week closing. The stock can later on soar to Rs.120-130 without much patience. Stop Loss Rs.90. CMP Rs.100.

6) L&T: This E&C giant is most likely to cross Rs.1000 & touch Rs.1050-1100 if Nifty manages to sustain above 3500 for next week.The stock will lead the rally along with other heavy weights to prop up the markets from here.

7) Investment Idea: Long-term investors can grab Gitanjali Gems if it falls back in the range of Rs.35-55 for some reason. It is a leading mid-cap from Gems & Jewellery space with bright prospects from long-term horizon.

NOTE: Readers are requested to keep any eye on break-out signal levels wherever mentioned specifically in above Trading calls. Like for IDFC, PFC & PGCIL levels to watch out for are Rs.82, Rs.160 & Rs.105 respectively, above which those stocks should witness a break-out. So, short-term trade should be executed only if such signal levels are crossed over.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.

Satyam Acquisition: Implications on Stakeholders of Satyam, Tech Mahindra and Larsen & Toubro

2009-04-15T13:17:00.000+05:30

Although Tech Mahindra was supposed to be an underdog in the race to acquire fraud-hit Satyam as against the heavy weight L&T, the company went away with the trophy with highest bid of Rs.58 per share from the three bidders. The list of other two edged out bidders include L&T and Wilbur Ross with their respective bid at Rs.45.90 and Rs.20 per share. With this deal Tech Mahindra catapults into 4th largest IT Company in India after TCS, Infosys and Wipro.

Below I am discussing the implication of Satyam acquisition by Tech Mahindra and its effects on various stakeholders of Satyam, Tech Mahindra and Larsen & Toubro.

Implications for Satyam Stakeholders:

1) Cost of Satyam shareholders who bought the stock during the initial phase of bull phase is estimated to be around Rs.300-350 per share.

2) Likely Open Offer from Tech Mahindra would come at paltry Rs.58/- per share. Though, the bid turned out to be the highest bid among the 3 bids received, the amount is too small to compensate long-term investors who have invested in the outsourcing giant Satyam even before the time of euphoria of bull run 5 years back around Rs.300-350 per share. However, the fundamentals are no more the same as then, after the being fruad-hit.

3) In the final analysis, the genuine long-term shareholders would continue to remain the ultimate losers even after finding a new owner for their company. Though, over a period of next 2-3 months as more certainty prevails over the stock's fortune related with its actual re-stated accounts, the stock may witness revival from the current depressing levels.

4) Uncertain prospects for 45000 odd Satyam employees what with the deal not binding Tech Mahindra to retain majority of the employees.

5) Positive for Satyam clients as now there would be more clarity and certainty. Clients would be in more comforting position with a new owner on the anvil.

Implications for Tech Mahindra Stakeholders:

1) Tech Mahindra cannot strip the company nor can it sell Satyam through a piecemeal approach.

2) Tech Mahindra to acquire Satyam at approximately Rs.2900 crore for a 51% stake. On the other hand, the company hardly has Rs.500-700 on its books.

3) The remaining amount to be raised through raising debt. This could be from NBFCs or even an equity offering at a later stage.

4) Almost 60% of the Tech Mahindra’s revenues comes from British Telecom which incidentally also holds 31% stake in Tech Mahindra. The company’s big part of operations is concentrated in Telecom outsourcing.

5) With Satyam acquisition, Tech Mahindra gets hold on diversified services ranging from ERP to Engineering services.

6) Problems of integrating the diverse business of both the companies. Lower expertise of Mahindra’s in areas other than Telecom outsourcing Vertical.

7) Increasing uncertainty regarding re-stated accounts and class action lawsuit liabilities.

8) With a quick process of bailing out Satyam, Tech Mahindra may be able to control flight of clients to other outsourcing majors.

Implication for L&T Stakeholders:

1) L&T lost out to acquiring fraud-hit Satyam Computers in view of strategic importance to Infotech arm.

2) L&T’s current cost of 12% stake in Satyam is pegged at around Rs.80-90 per share.

3) The company is not be allowed to sell its holding in Satyam for next 6 months.

4) I feel that L&T shall not sell its stake in Satyam at any less than Rs.125-175 per share in farther future.

5) L&T shareholders are content as of now on failing to acquire fraud-hit Satyam and likely strains on its Balance sheet, uncertainty on re-stated accounts and implications of lawsuits filed abroad.

6) But, shareholders should understand that, as a preliminary affair, the stock price was initially battered on account that L&T holds stake in Satyam and the company is fraud-hit leading to slump in its stock price. The shareholders gave thumbs down to L&T on account of mark-to-mark losses that L&T may have to suffer for its stake in Satyam. This loss-making stake continues to remain unchanged even with changed ownership till date.

MY CONCLUSION:

For Tech Mahindra Share holders:

Though Tech Mahindra has managed to acquire Satyam and catapult the combined entity in the top league of Indian IT firms, the company holds only to the extent of Rs.500-700 crore on its books and the remaining amount needed for acquisition of Satyam may need to be funded via raising debt through financial institutions or offering equity at a later stage.

Add to this leveraged buy-out, the high uncertainty of the current standing of Satyam on the back of delay in producing re-stated accounts and a series of lawsuits filed abroad on account of fraud.

Also, Tech Mahindra has gone on to bid for the company without having a detailed view on Satyam’s financial position and carried on basing expectations with this regard, is a matter of concern. Integration of new diversified services that has been acquired by Tech Mahindra form Satyam needs to be balanced out what with the acquiring company having limited exposure and experience in fileds other than Telecom outsourcing vertical.

For long-term shareholders of Tech Mahindra, I would recommend exiting from this company and rather prefer to shift to other Large-cap companies like Infosys or TCS which are more of CASH RICH companies with superior record of performance over years. Also the stock price of Tech Mahindra has rised appreciably from a trough of Rs.200 to Rs.365 in a short span of 1 month. Whereas other large-cap IT companies have not witnessed such a strong rally in the same period under contention.

This decision to prompt me to recommend an exit from Tech Mahindra, is more so after looking at the leverage buy-out that the company may have to make & stifling speculation factor of which the company would be a part of unless existing liabilities & re-stated account positions of Satyam Computers is not clearly known.

For Satyam Computer Share holders:

For Satyam shareholders with high cost of acquisition can keep holding their stock with a medium to longer horizon. They need not supply their stock in the likely Open Offer from Tech Mahindra at Rs.58 per share. As more clarity on Satyam’s accounting standing and liability whereabouts come out, the stock shall eventually rise if such numbers and liabilities tend to be better than market expectations.

Now, the shareholders should not be too concerned about the Satyam shares re-testing those trough levels as now it has a new and a recognized owner to its support. Though, the recommendation to hold Satyam is not long-term call but a medium-term view.

Short to Medium Term Call: Hold Satyam Computers
Medium to Long Term Call: Sell Tech Mahindra
Short to Long Term Call: Hold L&T

Note: The above views on calls related to Tech Mahindra, Satyam and L&T are my personal views views and suggestions for the respective stocks. Investors/Traders should do their own research & due-diligence. They should act as per their suitability, trading strategy & knowledge.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.