Bucket Full of Expectations !!

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.

Trading Strategy: Buy on Dips, Support will Come!

'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.

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.