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Sunday, August 19, 2012

Which sectors will lead the Sensex into a new bull market?

In the previous update to the technical analysis of BSE Sectoral index charts three months back, ‘defensive sectors’ like FMCG and Healthcare were in bull markets that prevented the Sensex from falling down too much. The Auto sector was also holding its own.

Most of the other sectors were in bear markets and dragging the Sensex down. Ever since the Sensex touched its Jun ‘12 low, a flood of FII inflows have changed the bearish sentiment to the point where negative economic news and new scams are being ignored. The Sensex is on the verge of entering a new bull market.

Small investors should start looking at the sectors which are likely to lead the Sensex during the next up move.

BSE Auto Index

BSE Auto Index_Aug12

After touching a 52 week peak in Apr ‘12 – thus outperforming the Sensex – BSE Auto index faced a sharp correction and dropped below all three EMAs. It has been trading sideways with an upward bias and is back in bull territory. All three EMAs have come close to each other. Technical indicators are looking bullish. A sharp up move is likely.

BSE Bankex

BSE BANKEX_Aug12

BSE Bankex has been in a bull market since Feb ‘12, except for a brief drop into bear territory in May ‘12. PSU banks have kept the index from moving up, while private banks have kept the index in a bull market.

BSE Capital Goods Index

BSE Capital Goods Index_Aug12

BSE Capital Goods index is struggling to get out of a bear market. As soon as the economy starts to turn around, this sector should be in the forefront. That doesn’t mean one should buy just any stock from the sector, as many of them have been performing poorly. Stock picking skills will be rewarded.

BSE Consumer Durables Index

BSE Consumer Durables Index_Aug12

Technically, BSE Consumer Durables index has been in a bull market since Feb ‘12. The brief drop into bear territory in Jun ‘12 was not confirmed by a ‘death cross’ of the 50 day EMA below the 200 day EMA. The index has been in a sideways consolidation for the past few weeks, but should start to move up.

BSE FMCG Index

BSE FMCG Index_Aug12

BSE FMCG index has just gone from strength to strength over the past year. In football terms, this sector is like a good goalkeeper who doesn’t get beaten too often. Because of its ‘defensive’ nature, stocks in the sector are perennially expensive and trade at high P/E ratios. Very low debt, little capital expenditure by established players and strong cash flows make this one of the best sectors to invest in.

BSE Healthcare Index

BSE Healthcare Index_Aug12

BSE Healthcare index is in a clear bull market. If FMCG sector is the goalkeeper, then Healthcare index is a stopper back that tackles opposing strikers before they can take a shot at goal. Small investors must include a few stocks from FMCG and Healthcare sectors in their portfolio to protect the down side during bear markets.

BSE IT Index

BSE IT Index_Aug12

BSE IT index is struggling to get out of a bear market, facing strong resistance from its 200 day EMA. Technical indicators are looking overbought. Some correction or consolidation is expected before the index can move into bull territory. Disappointing performance of Infosys has kept the index subdued.

BSE Metal Index

BSE Metal Index_Aug12

BSE Metal index is in a bear market, trading below its falling 200 day EMA. Economic slow down has hurt the sector, as capital expenditure and new projects have been kept on hold by many companies. At the first sign of economic revival, stocks from the sector should start moving up. Patient investors may start adding stocks of established companies with global reach.

BSE Oil & Gas Index

BSE Oil & Gas Index_Aug12

BSE Oil & Gas index breached its Dec ‘11 low, but is making a determined effort to get out of a strong bear grip. The recent spurt in the price of RIL has helped the index recover to a large extent. But the index is looking overbought. Some correction or consolidation is likely.

BSE Power Index

BSE Power Index_Aug12

BSE Power index tested its Dec ‘11 low in May and Jun ‘12, but did not breach it. That doesn’t mean it will get out of its bear market any time soon. The government should relook at its policies for the sector – otherwise private players who entered the sector will slowly move away. Too many ministries with their own agendas are hurting the growth of the sector. Without adequate power, India’s GDP will grow in low single digits.

BSE Realty Index

BSE Realty Index_Aug12

BSE Realty index is drifting along in a bear market, with no real sign of a revival. Investors should avoid stocks in this sector. Invest in real estate instead. At least there will be some return on investment.

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