How is Nifty faring against Asian Market indices?

Lately, there has been a lot of talk about how some FIIs have been spooked by the retrospective MAT notices and poor Q4 results from India Inc.

Short-term funds in particular have been on a selling spree that has led to a 10% correction in Nifty – after it touched a lifetime high in early Mar ‘15.

So, what are FIIs doing with the funds pulled out from India? A look at the comparative charts of six Asian indices clearly show that Nifty is not the sole sufferer.

Only Hang Seng has outperformed Nifty – and that too only during the past month.

Hang Seng vs. NIFTY (in green)

The 1 year closing chart of Hang Seng underperformed Nifty till mid-April ‘15. But after touching a 52 week high, it has also faced a correction, and may be forming a head-and-shoulders reversal pattern.

Jakarta vs. NIFTY (in green)

The Jakarta Composite index has consistently underperformed Nifty dirong the past year.

Korea KOSPI vs. NIFTY (in green)

Korea’s KOSPI index spent several months in negative territory, but managed to eke out a small gain during the past year – but has clearly underperformed against Nifty.

Malaysia KLCI vs. NIFTY (in green)

Malaysia’s KLCI index has spent the past year in negative territory, and has been the worst performer among the Asian indices.

Singapore STI vs. NIFTY (in green)

Singapore’s Straits Times index has mimicked Jakarta’s moves – making a small gain but underperforming Nifty throughout the past year.

Taiwan TSEC vs. NIFTY (in green)

Taiwan’s TSEC index tried to keep pace with Nifty, but dropped off from Aug ‘14 onwards. It managed an 8% gain during the past year, underperforming Nifty by 50%.

Small investors should take heart. The present corrective move in Nifty is an opportunity to enter good large-cap stocks. You will reap the benefits when Nifty touches 12,000 (yes, it will – in the not-too-distant future).

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 24, 2015

The retrospective MAT claim on FIIs came down drastically from an estimated Rs 40000 Crores to a more realistic Rs 600 Crores. Any MAT exemption claims by FIIs located in jurisdictions having double-taxation treaties with India will be settled within a month.

Despite these clarifications, FIIs were in no mood to relent and hit the sell buttons on their equity and debt holdings. The bulk deal on Ranbaxy equity was the sole exception. Buying by DIIs could not prevent Sensex and Nifty from closing about 3.5% lower for the week.

Q4 results declared so far remain mixed. Private sector banks delivered a good set of numbers. But large IT services companies showed top and bottom line weaknesses. Both indices are near important and strong support levels. Any breach of these support levels may lead to  bigger corrections.

BSE Sensex index chart

The daily bar chart pattern of Sensex tested the lower edge of the ‘support-resistance zone’ between 27350 and 28800, and managed to close just above it.

The rising 200 day EMA is just below 27350, and should act as a strong technical support. Why? Because bulls know that a breach of the 200 day EMA can lead to a much bigger correction. So, they will try their best to prevent it.

Daily technical indicators are looking bearish, and a bit oversold. MACD is falling below its signal line in negative territory. ROC is below its 10 day MA and entered its oversold zone. RSI is falling rapidly towards its oversold zone. Slow stochastic has reached the edge of its oversold zone.

Some more correction can not be ruled out, but the odds are beginning to favour a bounce up at any time. A resumption of the bull rally may require some consolidation around current levels.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty dropped sharply below its 20 week EMA, but stopped just short of testing support from the lower edge of the ‘support-resistance zone’ between 8180 and 8630.

All four weekly technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC has dropped well below its 10 week MA to its lowest level since Feb ‘14. RSI and Slow stochastic have crossed below their respective 50% levels.

A test of support from the lower edge of the ‘support-resistance zone’ and the rising 50 week EMA appears likely. A fall below the 50 week EMA (at about 8100) can take Nifty down to 7850.

A high volume bounce-up from current levels can send the bears scurrying to cover their shorts. So, remain cautious but stay invested. The bull market isn’t coming to an end any time soon.

Bottomline? BSE Sensex and NSE Nifty charts are feeling the effects of the retrospective MAT overhang, and have dropped to the lower edges of their ‘support-resistance zones’. Both indices are in long-term bull markets. Stay invested. Maintain appropriate stop-losses and use the correction to add to existing stocks in your portfolios.

Nifty chart: a mid-week update (Apr 22 ‘15)

FIIs have been in serious selling mode during the past few trading sessions. Demand notices sent by the Income Tax department for paying Minimum Alternative Tax (MAT) on past capital gains have sent alarm bells ringing.

MAT on capital gains have been removed from Apr ‘15 onwards by the Finance Minister. The junior FM, Jayant Sinha, tried to assuage FII concerns by clarifying that investors based in jurisdictions that have tax treaties with India will not be subject to MAT.

That may have led to the late buying surge in the stock market today after five straight days of correction.

The daily bar chart pattern of Nifty formed a ‘reversal day’ pattern (lower low, higher close) after dropping close to the lower edge of the ‘support-resistance zone’ between 8180 and 8630.

Can the index correct some more? The answer would have been an emphatic ‘No’ had the volumes been stronger today. Even if the index corrects some more, it is likely to receive strong support from its 200 day EMA (which has merged with the lower edge of the ‘support-resistance zone’).

Technical indicators are looking bearish. MACD is falling below its signal line in negative territory. ROC has dropped sharply below its 10 day MA into negative zone. RSI has slipped below its 50% level. Slow stochastic has fallen to the edge of its oversold zone.

The blue Up trend line 2 had tracked Nifty’s bull rally from its Aug ‘13 low. But it was breached in Mar ‘15, followed by a pullback that failed to convincingly cross above it. That should be good enough reason to discard it.

Note that a single breach of a trend line does not mean that the bull market has ended (or, will end soon). A less steep trend line (Up trend line 3?) may need to be drawn from the Feb ‘14 low. That can be done after Nifty bottoms out – if it has not already done so.

Remember that as long as the 200 day EMA keeps rising and Nifty trades above it, all corrections are to be treated as bull market corrections. That means, ‘buy the dips’.