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Friday, October 24, 2014

BSE Sectoral Indices – which ones will lead the next leg of the bull market?

Sensex has undergone a bull market correction after touching a lifetime high in Sep ‘14. FII selling was the main trigger. With BJP likely to form a government in Maharashtra and Haryana, sentiments have turned positive again.

Except BSE Metals and BSE Realty indices, all the other 9 indices are trading above their rising 200 day EMAs in bull markets. Does that make Metals and Realty contrarian plays? The answer is: Yes, for metals; but No, for realty.

What about sectoral leaders for the next leg of the bull market? From the charts, Capital Goods, Oil & Gas and Metals seem to have the best potential. Needless to say, one needs to be stock-specific within each sector.

BSE Auto Index

BSE Auto Index_Oct14

Passenger vehicle sales slipped in Sep ‘14 but commercial vehicles are showing an up tick – which is a sign of an improving economy. After touching a high in Sep ‘14 with the Sensex, BSE Auto index underwent a bull market correction. The up move has resumed. With inflation moderating, interest rates are likely to come down in the not-too-distant future. This is a ‘buy on dips’ sector.

BSE Bankex

BSE BANKEX_Oct14

BSE Bankex underwent a sideways consolidation before firmly entering a bull market in Mar ‘14. The index is undergoing another sideways consolidation with an upward bias since May ‘14, and touched a new high during the week. PSU banks may appear to be contrarian plays, but they are still struggling with NPAs. Credit growth is still tepid, but should start picking up in 2015.

BSE Capital Goods Index

BSE Capital Goods Index_Oct14

After forming a ‘double top’ reversal pattern during Jun-Jul ‘14, BSE Capital Goods index twice corrected down below its 20 day and 50 day EMAs, but did not test its rising 200 day EMA. Economic growth is expected to rise during 2015-16, and interest rates are likely to come down. That should boost the prospects of the sector.

BSE Consumer Durables Index

BSE Consumer Durables Index_Oct14

BSE Consumer Durables index entered a bull market at the end of Mar ‘14 after spending more than 9 months in bear territory. The index formed a small ‘double top’ reversal pattern during Sep-Oct ‘14 and corrected briefly below its 20 day and 50 day EMAs before bouncing back into bull territory. Consumer sentiments are definitely improving – if Dhanteras/Diwali sales are any indication. The index should touch new highs soon.

BSE FMCG Index

BSE FMCG Index_Oct14

BSE FMCG index was one of the leaders till Jul ‘13. A year-long sideways consolidation ended with the index touching a new high in Sep ‘14. A sharp bull market correction ensued, and dropped the index below its 20 day and 50 day EMAs. Don’t expect any fireworks from the sector as rural demand is on a down-swing.

BSE Healthcare Index

BSE Healthcare Index_Oct14

With a rising population and increasing per capita income, BSE Healthcare index continues in a strong bull market. More stringent inspection by US FDA authorities may curb export prospects of domestic generic manufacturers. MNC pharma stocks should continue to do well.

BSE IT Index

BSE IT Index_Oct14

It has been a bit of a roller-coaster ride for BSE IT index. Export growth is sensitive to forex fluctuations and economic growth (or lack of it) in the western world. Despite recent correction, the index is in a bull market. Stick to the large-cap counters.

BSE Metal Index

BSE Metal Index_Oct14

A sharp rally after election result euphoria took the BSE Metal index to a new high in Jun ‘14. It has been a steady descent into bear territory since then, as reality hasn’t lived up to expectations of infrastructure growth. It may take another couple of quarters for infrastructure projects to resume in earnest. That means the time to buy is now.

BSE Oil & Gas Index

BSE Oil & Gas Index_Oct14

BSE Oil & Gas index went nowhere till it bounced up into bull territory in Mar ‘14. The index has managed to remain in bull territory despite a long sideways consolidation with a downward bias after touching a high in Jun ‘14. Deregulation of petrol and diesel prices should benefit OMCs. Low oil price in international market should benefit refineries.

BSE Power Index

BSE Power Index_Oct14

A ‘triple top’ reversal pattern ended a sharp rally during May ‘14. BSE Power index has drifted down to test support from its 200 day EMA. So far, the support has held. The sector is overly dependent on government policies. There is uncertainty about coal availability. When in doubt, stay out.

BSE Realty Index

BSE Realty Index_Oct14

A sharp rally into bull territory after a long bear market ended with the high touched in Jun ‘14. Note the negative divergences on ROC and RSI charts (which failed to touch new highs) and a ‘double top’ reversal pattern on Slow stochastic chart. BSE Realty index started a correction that has returned it back where it belongs – in bear country. Avoid.

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