Sunday, April 17, 2016

Sensex is recovering after a year-long bear phase; which sectors will lead the next rally?

After touching a lifetime high in Mar '15, Sensex entered a down trend which has not yet been reversed after 13 months. However, the index has formed a small 'double bottom' reversal pattern in Feb '16 and been in a recovery mode since then.

Almost all sectoral indices have been affected by the prolonged down trend to a greater or lesser extent. As always, there are exceptions. One sectoral index has been in an up trend for the past 2 years. Another has been in a sideways consolidation for the past 13 months. Risk averse investors can buy the better stocks from these two sectors.

Those with a penchant for risk can play contrarian by picking stocks from the sectors that are on the road to recovery. Prudence demands that sectors still in doldrums should be avoided. 

BSE Auto Index

BSE Auto touched a 2 years high in Jan '15 and has been in a down trend since then. Thanks to lower petrol and diesel prices and a falling interest rate regime, auto sales are picking up. Even CV sales are on the rise, indicating economic recovery. The index is in bull territory above its three EMAs, but haven't yet reversed the down trend (marked by blue down trend line).

BSE Bankex

BSE Bankex also touched a 2 years high in Jan '15, and has been in a down trend since then. Its recovery from its Feb '16 low has stalled near its falling 200 day EMA. Large NPAs of PSU banks have kept the index subdued. Comparatively, private banks are performing much better.

BSE Capital Goods Index

BSE Cap. Goods touched a 2 years high in Jul '15, only to suffer a sharp correction. After dropping to a 2 years low in Feb '16, the index formed a 'double bottom' reversal pattern and moved convincingly above the blue down trend line. However, it is trading well below its falling 200 day EMA in bear territory.

BSE Consumer Durables Index

BSE Consumer Durables has been in a bull market for the past 2 years, pleasantly surprising the market with its counter-trend performance. The index touched a 2 years high in Nov '15, and has been consolidating sideways with a slight downward bias since then. It is trading above its three EMAs in a bull market.


A perennial market favourite, BSE FMCG fell victim to a down trend after touching a 2 years high in Feb '15. Two poor monsoons in a row played spoilsport for the sector. Early forecasts of this year's monsoon have indicated a rain surplus. The index has duly breached its down trend line, but it hasn't been a convincing breach yet.

BSE Healthcare Index

BSE Healthcare was in a bull market till Oct '15 when it formed a 'triple top' reversal pattern and entered a down trend. The index is trading below its down trend line and its 200 day EMA in bear territory. FDA strictures against several well-known pharma companies has put a question mark on future growth of the export market. Domestic market has also been affected by price control and government regulation against combined dosages.

BSE IT Index

BSE IT touched a 2 years high in Mar '15 and entered a sideways consolidation within a large 'pennant' pattern. Despite Rupee devaluation, IT companies have not benefitted much due to slow growth in Europe and visa strictures in USA. Market leaders should be able to overcome these near-term issues. Avoid the mid-cap and small-cap companies.

BSE Metal Index

BSE Metal has been a victim of the commodity down cycle - correcting more than 50% from its Jun '14 top. The index is facing resistance from its 200 day EMA. Contrarian investors can pick market leaders, but need to remain patient.

BSE Oil & Gas Index

BSE Oil & Gas has been correcting since touching a 2 years high in Jun '14. Despite lower prices in the international market, higher duties locally and price control have proved detrimental to profitability. The index is trading in bull territory above its three EMAs but remains in a down trend.

BSE Power Index

BSE Power is a sector investors should not touch with a 10 ft. pole. Too much government interference, rampant power theft and poor performance of state electricity boards have turned this sector into a basket case.

BSE Realty Index

BSE Realty is a clear avoid for investors. The index is in a 2 years long down trend and may not be able to reverse the trend anytime soon. However, there may be no better time like now to invest in an apartment or house for personal use. 

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