Market Outlook & Diwali Wishes

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.

Correction: A Cool-off to Say the Least

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/-

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?

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.

Structural Shift in Momentum

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.

Time to Re-think Strategy

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.

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.

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

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/-

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.

Has the Market Trend Changed?

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.

Market Review: Stock Specific Winners & Laggards

In the 'Comments' Section of my previous posting on Small-caps, Mr.Antriksh Patel has raised a query on status of Stock Specific Trends in selected Large-caps & Mid-caps. He has asked for predictions for individual stocks regarding their trend and whether they have bottomed out or not. Which stocks are likely to re-visit their lows and which stocks would out-perform markets as a whole.

Dear Viral,

"You have been posting wonderful articles, and they are a great help to me and hope the same for all others who are here as well. I think now the bottoms of the majority of large caps like Larsen and Tubro, RIL, Tata Steel, Sterlite Industries and Sesa Goa will change. How about predicting them. I tried to do that but could not.

Moreover the stocks where FII holding is quite high viz. Jain Irrigation, Educomp, Financial Technologies they might revisit to the same (earlier) bottoms. I would like to have some insight onto this."


As such it is difficult to predict whether individual stocks, large-caps and mid-caps, have bottomed out or not. More so, unless there is absolute defiance from fundamentals, most of the stocks are likely to re-visit their lows or somewhat near-by, when market tries to re-test its lows, if at all. That is why we should adhere to staggering our buying decisions so as to not attempt to Time the market.

In this post, i will be comparing the STOCK TREND of a few large-cap stocks and mid-caps stocks since Sensex touched 8000 levels just 20-25 days back. Since then, some stocks have shown largely bullish trend yet somewhat tiring out over a period of certain percentage of rally.

On the other hand, some stocks are found to be late movers in the current bullish momentum, but they’re gradually picking up steam and are gearing up for substantial rally even from here. While some stocks from Large-caps segment have moved promptly along with market rally, they may already be somewhere around the ‘Fair Value’ zone.


'LIKELY' BOTTOMED-OUT LARGE-CAPS:

Few stocks that looked as bottomed-out to me during the recent market testing of Sensex 8000 levels are Reliance Industries, BHEL, ACC, Grasim, Infosys, ONGC, NTPC, BEL, Power Grid, Cairn, Sterlite Industries & most of the Auto stocks especially two-wheelers.

Most of these stocks smartly remained away from re-testing or coming even near to their lows witnessed in October 2008. This even as stock indices re-tested the lows established in October 2008. While Grasim has almost doubled since its October lows, the stock of Reliance Industries gained significant support on the down side on the back of commencement of production of Gas from its KG-D6 block. The stock found support at Rs.1200 way before Rs.950 odd tested during October 2008.

On the other hand, Sterlite Industries was a clear out-performer in the Metals pack on the back of robust cash position and minimal debt-equity ratio in the current slowing times. Both the Power utility majors NTPC and Power Grid showed significant support on the downside on the back of robust business prospects in the power sector. None of the two utility companies were even near to their 52 week lows.


WEAKER LARGE-CAPS:

On the other hand, some stocks which seemed weak were HDFC, HDFC Bank, Reliance Communication, Bharti Airtel, ICICI, SBI, DLF, Reliance Capital, TCS, L&T, Sun Pharma, Ranbaxy and Axis Bank.

Most of the Banking and Finance stocks have got the mention in the above list of laggards. Not even public sector banks were spared in the recent draught of liquidity towards journey to Sensex 8000 including government owned SBI. Even both the Telecom majors- Rcom and Bharti Airtel- showed surprising bit of weakness as compared to the stocks from other sectors where slowdown is more pronounced than fast growing Telecommunications space. Real-estate major DLF was not spared either. In fact, all interest rate sensitive stocks except Automobile stocks fared worst in the recent meltdown to Nifty 2600 a month ago.

Understandably, L&T showed weakness on the back of huge stake in fraud-hit Satyam Computers & Ranabxy’s stocks was adversely effected due to the set back from non-approval from US FDA of some drugs from Poanta Sahib plant.


MID-CAP MANIA:

Strong examples of bottomed out stocks from Mid-cap were Tata Comm, IVRCL Infra. Suzlon seemed to be re-testing its bottoms but revived at the right time along with market rally. Stocks that looked weak were IDFC, Videocon, Punj Llyod, Indian Hotels, HCC, I. Bulls Finance & Parsvnath Developers.

The stock that lagged during the recent meltdown & rally from there to 10500 levels is Indian Hotels. The hotel major from Tata Group continued to be a loser on the back of recent terrorist attack on its Mumbai based Taj hotel and also on the back of sharp slowdown across the globe which directly affects its client base mostly from abroad. Parsvnath Developers continue to feel cash crunch even as Indian stock market recovers in last one month.


PROMPT BOUNCE BACK:

Some stocks showed tendency of prompt bounce back, taking cues from markets were LIC Hsg, FT, Educomp, I-Flex. These stocks showed tendency to swing along with markets either based on news, niche sector of operation or underlying fundamentals of the stock.

I-Flex stock started rallying even before markets touched the trough of Nifty 2600 on the back of rumours of Open offer from the parent company Oracle. LIC Housing Finance seems to be the only stock to have led the recover amongst the Banking & Finance sector while the markets lifted itself from the recent lows of Sensex 8000 levels. Educomp continues to be the best pick for betting on the Online education sector but valuations quite a bit of concern at current high levels.


SLOWLY PICKING UP STEAM:

While some stocks which under-performed during the initial phase of market rally, they larter on picked up steam & participated actively ongoing rally during the last 8-10 sessions, are Reliance Communication, IDFC, Videocon, Torrent Power, Adlabs.

In the recent run up from Nifty 2600 to 3400, the large-caps were front runners only to taper down the advantage of rally to front line mid-caps in last one week. Some laggards of the recent 2800 point Sensex rally have started to take signals from the current bear market upturn. These stock are slowly picking up steam and have showed signs of recovery before they rally even more from here.


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.

Reliance Industries has advanced very smartly from the recent lows of Rs.1200 to around Rs.1700, a whooping 40-45% increase in a matter of 25 days as a major index stock. Cement and Viscose major Grasim Industries has clearly doubled from its trough of October lows of around Rs.831 to current price of Rs.1593. Two-wheeler majors Hero Honda and Bajaj Auto have led the recent rally even before four-wheelers come into the picture. However, Hero Honda has proved to be a ‘DEFENSIVE’ stock in the current bear market which is already more than 12 months old.

Tata Steel has rallied from the lows of Rs.150 to Thursday’s closing levels of Rs.260. The stock was a laggard in the metal space on the back of high debt-equity ratio on acquisition of Corus. The stock with high debt ratio may not have too much wings to move ahead from here, especially, after witnessing a whooping 70% rally from its recent lows.


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 possiblity that they move faster to catch-up with their lag against the market on the back of their buoyant fundamentals.

BHEL was a market out-performer in the initial 1000 points of Sensex recovery from 8000 levels. But, since its annual result announcement the stock has remained an under-performer in the later part of the current market momentum. The stock may positively participate in the rally if 200 DMA on market indices is taken out.

Some mid-caps that may fire up from here are Videocon, Indian Bull Finance & Thermax. Any incremental rally that may need support to move forwards may find push from large-caps like Reliance communications, SBI and BHEL.


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 RESISTENCE:

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.


A Request to Readers:
Readers are requested to post their view/query/suggestion in the below given 'Comments' section. They can share their thoughts, positive or negative, through this interactive Comments section which will make the blog much more interesting for the readers themselves, in gauging the response to the article & knowing different view points of various investors/traders.


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.