Wednesday, July 3, 2019

Nifty chart: a midweek technical update (Jul 03, 2019)

FIIs were net buyers of equity on Mon. Jul 1, but were net sellers on Tue. and Wed. (Jul 2 and 3). Their total net selling was worth Rs 4.7 Billion. DIIs were net sellers of equity on Mon., but were net buyers on Tue. and Wed. Their total net buying was worth Rs 3.8 Billion, as per provisional figures.

Almost all auto makers in India recorded YoY decline in sales in Jun '19 owing to weak consumer sentiments. Maruti, Toyota, Tata Motors, Ashok Leyland, Honda showed double-digit declines. Hyundai, Bajaj Auto, TVS Motor showed single digit declines. M&M car sales grew 4%, but CV sales declined 15%.

Nikkei India's manufacturing PMI fell to 52.1 in Jun '19 from 52.7 in May '19 due to slower order growth leading to slower output and employment growth. A number above 50 indicates expansion.

GST collection in Jun '19 dipped to Rs 999.4 Billion from Rs 1 Trillion in May '19 and 1.13 Trillion in Apr '19. The government needs to collect more than Rs 1 Trillion every month to meet its fiscal target.

The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Is this the beginning of a pre-budget rally? If it is, it will provide a good opportunity to book some profits."

After closing just above its 20 day EMA on Tue. Jun 25, the daily bar chart pattern of Nifty used its short-term moving average as a support, and steadily climbed above the 11900 level. This may be a good time to book partial profits.

The 20 day EMA has formed a bullish 'rounding bottom' pattern. All three EMAs are rising, and the index is trading above them in a bull market. The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'. 

Daily technical indicators are looking bullish. MACD has crossed above its falling signal line in bullish zone. RSI is above its 50% level but not showing much upward momentum. Slow stochastic has risen quickly to enter its overbought zone, and can trigger some correction or consolidation.  

Nifty's TTM P/E has moved up to 29.30, well inside overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone. Near-term index upside may be limited.

Buying in a few large-cap stocks that have comparatively higher weightage in the index has pushed Nifty higher, while the broader market has lagged behind. If you own stocks of RIL, HDFC/HDFC Bank, TCS then your portfolio should be doing great.

Unfortunately, most small investors stay far away from such 'expensive' stocks. If most of your holdings are in mid/small cap stocks, you may have to undergo more pain. The budget on Jul 5 is unlikely to boost the 'animal spirits' of Indian entrepreneurs. 

Let us hope that the LTCG tax on shares/mutual funds gets abolished. That should give a temporary boost to Nifty - and provide a great profit-booking opportunity. Q1 (Jun '19) results are expected to dampen bullish sentiments further.

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