FIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 32.1 Billion. DIIs were net sellers of equity on Mon. and Thu. (Oct 14 and 17), but net buyers on the other three days of the week. Their total net buying was worth Rs 21.8 Billion, as per provisional figures.
According to a Nielsen report, India's FMCG market clocked a value growth of 7.3% during Q2 (Sep '19) - down from 16.2% during Q2 (Sep '18) - as rural growth dropped below urban growth for the first time in 7 years.
The IMF has supported India's monetary policy stimulus and recent reduction in corporate income tax, which are expected to help revive investment. However, India should address continued fiscal consolidation and the NBFC issues.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex got a sharp bullish boost as FIIs turned buyers during the week. The index breached the (blue) down trend line that has dominated the chart for the past four months.
The breakout hasn't been a technically convincing one yet, because accompanying volumes (not shown) were not significantly higher during the trend line breach. That can change if FIIs continue to buy, and small investors decide to join the bandwagon.
Daily technical indicators are looking bullish. MACD is moving above its signal line in bullish zone. ROC is poised to enter its overbought zone. RSI is above its 50% level. Slow stochastic has entered its overbought zone. More near-term index upside is possible, but some consolidation or correction may follow.
All three EMAs are rising, and the index is trading well above them in a bull market. If FIIs continue their buying spree, the market may celebrate a new index high by Diwali.
Just a handful of large-cap stocks - like RIL, HUL, HDFC Bank - are leading the rally. Small investors who are itching to jump into the market should follow a SIP mode when buying stocks. Avoid lump sum buying in beaten down small-cap stocks.
The stock market provides opportunities during bull and bear phases. However, buying near an all-time index high is not a great idea.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty rallied to breach the (blue) down trend line, thanks to strong buying by FIIs. The break out has not been a convincing one yet, but that can change if FIIs continue buying.
Weekly technical indicators are looking neutral to bullish. MACD and RSI are at their respective neutral zones, but showing upward momentum. ROC has risen to the edge of its overbought zone. Slow stochastic is rising above its 50% level. Some more near-term index upside is possible.
Nifty's TTM P/E has moved up to 26.94 - which is well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, and can limit near-term index upside.
Bottomline? Sensex and Nifty charts have breached their 4 months old down trend lines. A cut in corporate taxes, followed by FII buying have boosted bullish sentiments. Both indices might try to touch new highs by Diwali.
FIIs were huge net buyers of equity on Mon. Sep 23, but were net sellers on the next two trading days this week. Their total net buying was worth Rs 15.1 Billion. DIIs were net sellers of equity on Wed. Sep 25, but were net buyers on the first two trading days. Their total net buying was worth only Rs 22.8 Million, as per provisional figures.
The government is expecting a Rs 400 Billion shortfall in GST collections during FY 2019-20 due to the economic slowdown. That could put pressure on the compensation that state governments are liable to receive in case tax growth falls below 14% for the year.
India's apparel exports have revived by 4% YoY during the Apr-Jul '19 period after two consecutive years of de-growth of 3-4% per year. However, ICRA has reported a likely slowdown in growth during the rest of FY 2019-20.
The daily bar chart pattern of Nifty shows how the Finance Minister's fourth 'booster' dose - a cut in corporate taxes announced on Fri. Sep 20 morning - has turned around the bearish sentiment prevailing in the market.
A short-covering frenzy erupted, and the index soared like a rocket past its 200 day EMA and the upper Bollinger Band. Nifty gained more than 550 points (5.3%) in one day.
There was more fun and games on Mon. Sep 23. Huge FII buying propelled the index higher with an upward 'gap' of 90 points. Nifty tested the 11700 level intra-day and closed with a gain of more than 300 points.
Sanity prevailed on Tue. Sep 24. The index formed an indecisive 'doji' and closed just 12 points lower but still traded above the upper Bollinger Band.
Both FIIs and DIIs were in profit booking mode today (Wed. Sep 25). Nifty fell sharply below the upper Bollinger Band and partly filled the 90 points upward 'gap' formed on Mon. Sep 23.
Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI has made a U-turn before it could reach its overbought zone. Slow stochastic is inside its overbought zone, but has turned down. Some more correction or consolidation is possible.
Nifty's TTM P/E has slipped down to 25.92, but remains inside its overbought zone and higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering near the edge of its oversold zone, hinting at some near-term index consolidation.
The post-budget downward 'gap' of 26 points can provide resistance on the upside, in case bulls get adventurous again. The corporate tax cut has come as a sentiment booster to the stock market, but is unlikely to stimulate consumer demand in the near term.
A silver lining is that the festive season is almost upon us. Urban consumers may be able to open their purse strings - thanks to their Diwali bonuses. It is doubtful that rural consumers will be able to do likewise.
Small investors should avoid falling into the trap of 'buy' calls and big upside targets being suggested by experts on TV and pink sheets. An index barely 5-6% below its lifetime high is not providing a 'great buying opportunity'.
Stay invested, continue with your SIPs, get rid of non-performers in your portfolios, and be very selective in what you buy.
FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Sep. 20). Their total net selling was worth Rs 33.7 Billion. DIIs were net buyers of equity on all five days of the week. Their total net buying was worth Rs 48.2 Billion, as per provisional figures.
After three disappointing 'booster' packages, the Finance Minister hit the ball out of the park by announcing a significant cut in corporate taxes on Fri. Sep 20. Sensex and Nifty soared - trapping unwary short sellers - and business leaders sang 'Hallelujah'.
The GST council announced reduction in rates for hotels, outdoor caterers, precious/semi-precious stones but hiked rates for caffeinated drinks and railway wagons. No major relief was provided to auto and cement sectors.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex fell steadily on the back of sustained FII selling, and dropped to test support from the lower edge of the 'support zone' (between 35900 and 37100) on Thu. Sep 19.
There was a sea change in market sentiment after the FM announced corporate tax rate cut on Fri. Sep 20. The index did a sharp U-turn as traders rushed to cover their shorts. Sensex closed above its three EMAs in bull territory for the first time in nearly three months.
Daily technical indicators are turning bullish. MACD has crossed above its rising signal line in bearish zone. ROC has risen sharply to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has emerged from its oversold zone. Some more near-term upside is possible.
Small investors should avoid getting caught in the sudden euphoria. The devil is in the details. How many companies actually pay more than 25% tax? If they do, will they be willing to forego existing tax incentives? Will tax benefits be passed on to consumers, or used to pare debt? Will rural consumers rush out to buy two-wheelers, tractors and cars? Will MSMEs start opening new factories just because tax has been reduced by 3.5%?
Only time will provide answers to those questions. In the meantime, follow your asset allocation plan, continue SIPs, use the sentiment boost to get rid of non-performing stocks/funds and stay invested in good companies/funds for the long-term. That is the best way to build wealth - whether Sensex is falling or suddenly jumping northwards.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty breached the lower edge of the 'support zone' (between 10700 and 11100) intra-week, but bounced up sharply on Fri. Sep 20 to close above both its 50 week and 20 week EMAs for the first time since early Jul '19.
Reduction in corporate taxes - announced by the Finance Minister on Fri. Sep 20 - triggered a sharp technical bounce due to short-covering. Nifty closed at its highest level in eight weeks.
Weekly technical indicators are in bearish zones, but showing upward momentum. MACD appears to be forming a bullish 'saucer' pattern below its falling signal line. ROC has crossed above its falling 10 week MA. RSI has emerged from its oversold zone. Slow stochastic has started rising towards its 50% level. Expect some more near-term index upside.
Nifty's TTM P/E has moved up to 27.72 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.
Bottomline? Sensex and Nifty charts have broken out upwards after consolidating sideways for seven weeks. Sharp short-covering bounces were triggered by a cut in corporate taxes, which may not boost consumer demand in the near term. Stay calm, and follow your investment plans.
For the month of Aug '19, FIIs were net sellers of equity worth Rs 148.3 Billion. It was their fourth straight month of net selling. DIIs more than matched them. They were net buyers of equity worth Rs 209.3 Billion, as per provisional figures.
India's GDP growth slumped to 5% during Apr-Jun '19 - lowest growth in 6 years; much lower than 8% growth during Apr-Jun '18, and even lower than 5.8% growth during Jan-Mar '19.
India's fiscal deficit during Apr-Jul '19 stood at Rs 5.47 Trillion, which is nearly 78% of the full year (FY 2019-20) deficit target of Rs 7.03 Trillion. Revenue collection is weak due to the economic slowdown.
BSE Sensex index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "All four indicators are showing positive divergences...by rising higher while the index dropped lower. That is a clear signal that precedes a technical bounce."
Finance Minister's first 'booster package' was announced on Fri. Aug 23 after close of day's trading. Bullish fervour was evident on Mon. Aug 26. The index bounced up above the 37100 level and its 20 day EMA before facing resistance at its 200 day EMA.
On Tue. Aug 27, Sensex closed above its 200 day EMA but couldn't move above its falling 50 day EMA. Bear selling resumed on Wed., and the index closed below its 200 day EMA. There was more selling on Thu. Aug 29 (monthly F&O settlement day). The index dropped to close just below 37100.
On Fri. Aug 30, FIIs were net buyers along with DIIs. Sensex formed a 'reversal day' bar (lower low, higher close) and climbed above the 37100 level but closed below its 200 day EMA in bear territory.
The index gained more than 630 points (1.7%) on a weekly closing basis. The 'support zone' (between 37100 and 35900) provided very good support to Sensex during Aug '19. Will the support hold during Sep '19? The poor GDP number can turn out to be the 'joker in the pack'.
Daily technical indicators are looking neutral to bearish. MACD is rising above its signal line in bearish zone. ROC is facing resistance from its 10 day MA in neutral zone. RSI is seeking support from its neutral zone. Slow stochastic has dropped from its overbought zone.
Finance Minister announced a second 'booster package' after close of trade on Fri. Aug 30. This time it was a proposed merger of 10 smaller PSU banks to form four larger banks. Will it positively influence credit off-take in the near-term? Seems very unlikely.
The stock market wants 'big bang' labour reform and land reform plus scrapping of LTCG to revive bullish sentiment. Instead, it is getting peripheral reforms in dribs and drabs and lectures on fitness, holidays within India, and 'all is well' in Kashmir. Be prepared for more listless index performance - if not a crash.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty moved above the 11100 level intra-week - as it had done in each of the past three weeks - but failed to move above its 50 week EMA once again.
The index corrected to close inside the 'support zone' (between 11100 and 10700) for the fifth straight week, but gained almost 194 points (1.8%) on a weekly closing basis.
Weekly technical indicators are looking bearish and oversold. MACD is falling below its signal line. ROC is below its falling 10 week MA, and is trying to emerge from its oversold zone. RSI has slipped inside its oversold zone. Slow stochastic is moving sideways along the edge of its oversold zone.
Nifty's TTM P/E has moved up to 27.27 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up inside its oversold zone. Some near-term index downside or consolidation is possible.
Bottomline? Sensex and Nifty charts are at long-term support zones. A couple of 'booster packages' announced by Finance Minister has failed to revive bullish sentiment. A lower-than-expected Q1 (Jun '19) GDP figure and the ongoing US-China trade spat are not going to help the cause of bulls. Small investors should stay on the sidelines, but not stop their SIPs.
FIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 11.3 Billion. DIIs were net buyers of equity on Mon. and today, but net sellers on Tue. Aug 7. Their total net selling was worth Rs 0.7 Billion, as per provisional figures.
According to an IMF report, RBI will need to gradually tighten monetary policy further due to rising inflation driven by higher oil prices, a falling Rupee, a pick-up in domestic demand and a recent hike in procurement prices of major crops by the government.
IMF also described GST as a "milestone reform" in India's tax policy but suggested a simplified dual rate structure as the multiple rates could lead to higher costs of compliance and administration.
The daily bar chart pattern of Nifty touched new highs on all three days this week as bulls have taken complete control. All three EMAs are rising, and the index is trading above them in a bull market.
Note that the 900 points rally from the Jun 28 low of 10558 is looking eerily similar to the 1100 points rally from the Dec 6 '17 low of 10033. The index had moved further and further above its rising 20 day EMA followed by a 1200 points correction.
Such sharp rallies are unsustainable for long. Keep a close watch on the (purple) up trend line drawn from the Jun 28 low. A downward breach of the trend line can trigger serious profit booking.
Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. RSI and Slow stochastic are rising inside their respective overbought zones, but showing negative divergences by failing to touch new highs with the index.
Nifty's TTM P/E has moved up to 28.23 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, and hinting at some more index upside.
A few large-cap stocks are continuing to lead the rally. Mid-cap and small-cap stocks have undergone corrections but are still trading at elevated values. More than 1500 stocks are trading below their 200 day EMAs, which is an extremely worrying sign.
No need to sell off in panic. Let your asset allocation plan guide you. Continue with monthly SIPs. But control your impulses to hunt for 'multibagger' stocks at a lifetime index high.
FIIs were net sellers of equity on Mon. & Tue. (Apr 9 & 10) but net buyers today. Their total net selling was worth Rs 16.2 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 11.2 Billion, as per provisional figures.
Nifty managed to gain 85 points (0.8%), but is facing resistance from its 50 day SMA (at 10425) and has formed a small 'hanging man' candlestick pattern that can end the recent rally from the low of 9952 (touched on Mar 23).
India's 'Goldilocks economy' is getting derailed by rising oil prices and major scams in PSU and Private banks. Expectations of significant improvement in India Inc's Q4 (Mar '18) results may be belied.
The daily bar chart pattern of Nifty broke out convincingly above the downward-sloping channel (refer last week's update) and the 20 day EMA on Thu. Apr 5.
The index continued its rally above the 50 day EMA and the resistance level of 10400 into bull territory. However, the rally from the Mar 23 low has been a bit too steep. Such steep rallies can't be sustained for long.
Nifty is in the process of retracing the entire 1220 points fall - from the Jan 29 top of 11172 to the Mar 23 bottom of 9952. Fibonacci retracement levels of 38.2% and 50% give upward index targets of 10418 and 10562.
The first target has already been met today. Since technical targets are never exact, a Fibonacci retracement zone has been marked on the chart between 10400 and 10550. This zone is likely to provide strong resistance to the rally.
Looming above the Fibonacci retracement zone is an ominous dark cloud - the 33 points downward 'gap' formed on Feb 5. It seems unlikely that this particular leg of the rally will be able to conquer the 'gap'.
A more likely scenario could be some near-term consolidation or correction followed by a stronger attempt by bulls to get past the Fibonacci retracement zone.
Note that the 61.8% Fibonacci retracement level of the 1220 points correction (from Jan 29 top to Mar 23 bottom) is 10706 - which happens to be just inside the downward 'gap' formed on Feb 5.
Conquering the 'gap' will be of utmost importance for Nifty bulls, but it may not happen in 2018. As per 'theory of gaps', the index down move should resume if and when the 'gap' is partly or completely filled.
Daily technical indicators are looking bullish. MACD is rising above its signal line and is poised to enter bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is well inside its overbought zone, and can trigger a correction or consolidation.
Nifty's TTM P/E has moved up to 25.86 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone, and can cap index upside.
At a time like this, with Q4 (Mar '18) results around the corner, waiting can be an excellent strategy. However, planned SIPs should be continued.
The Indian stock market indices have come off their Jan '18 tops and have been consolidating sideways for the past 4 weeks. There is every possibility that there will be some more consolidation or correction at least till Mar 31 '18.
From Apr 1 '18, the re-introduced LTCG tax comes into effect. That can put a near-term floor on the indices. From mid-Apr, Q4 (Mar '18) results season will start.
If Q4 results of India Inc. show any improvement over Q3 results - as they are expected to do - buyers may overwhelm sellers, and stock indices can resume their upward trajectory.
This may be as good a time as any to start preparing a 'buy list' from companies that have performed well in the previous three quarters.
How to choose which companies to put on the 'buy list' from the several hundreds that declared good results? The best place to start is to read their annual reports, and choose the ones with the strongest balance sheets.
Given below are links to three introductory articles published in investopedia.com to get you started on balance sheet analysis:
1) 5 Tips for Reading a Balance Sheet
2) Reading the Balance Sheet
3) Breaking Down the Balance Sheet
There are several links in the above articles which can help you to dig deeper into balance sheet analysis.
If you don't feel excited about analysing balance sheets and identifying good companies for investment, fret not. You can start SIPs in highly-rated equity and balanced mutual funds, and leave all the analysis to fund managers.
(Wishing all visitors, regular readers, g+/fb/twitter followers and newsletter subscribers a safe, colourful and happy Holi.)
FIIs were net sellers of equity worth Rs 15.4 Billion during Mon. Feb 12 and Wed. Feb 14 (Feb 13 was a holiday). DIIs were net buyers of equity worth Rs 11.9 Billion, as per provisional figures, but were net sellers today.
The Index of Industrial Production (IIP) at 7.1% showed good growth in Dec '17, but was lower than 8.8% in Nov '17. Low base effect was partly responsible for the growth. However, IIP was only 3.7% during Apr-Dec '17, compared to 5.1% during Apr-Dec '16.
India's retail (CPI) inflation fell a little to 5.07% in Jan '18 against 5.21% in Dec '17, as food inflation softened.
The following comments appeared in the previous midweek technical update on Nifty: "The 33 points downward 'gap' formed on Mon. Feb 5 can act as a resistance zone for future up moves. Also, any attempt to rally by the index will induce profit-booking by investors wishing to lock-in tax-free LTCG till Mar 31 '18."
The 'gap' is looming like a dark cloud for bulls. The 6 days of trading - after formation of the 33 points downward 'gap' on Feb 5 - has not only occurred below the 'gap' but also below the sliding 50 day EMA.
The falling 20 day EMA has slipped below the 'gap' today, and can also act as a resistance to any near-term rally. A re-test, and possible breach, of the Feb 6 intra-day low of 10276 seems quite likely.
Daily technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at more index consolidation below the 50 day EMA.
Nifty's TTM P/E has inched up to 25.37 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating at the edge of its oversold zone - hinting at some more consolidation or correction.
Near-term bearish sentiment is increasing by the day as misfortunes keep befalling the market. First came the shock of the 10% LTCG tax. Then, news of Indian exchanges stopping data services to overseas stock exchanges in a misguided effort to tie down FIIs from fleeing.
Today's news of a Rs 110 Billion fraud involving at least four banks may be the proverbial straw that will break the camel's (FIIs?) back. [Warren Buffett had once commented: "There's never just one cockroach in the kitchen" about a scandal in Wells Fargo bank].
Small investors need not panic. Don't stop your SIPs. But refrain from bottom fishing because Nifty is nowhere near bottoming out yet.
Why do I like FMCG stocks? Predictability of earnings. Plus the fact that most companies are almost debt free, generate huge cash flows, pay regular dividends and grow steadily whether it is a bull or a bear cycle in the market.
But aren't they expensive? Sure they are. So are BMW cars and Harley Davidson motorcycles. Just as you can (and probably do) buy expensive vehicles using EMIs, you can buy expensive FMCG stocks using SIPs.
Colgate and HUL - two of the better known stocks in the FMCG sector - gave very little capital gains for nearly 18 of the previous 24 months. But they have 'caught fire' during the past 6 months - thanks to demonetisation and GST.
The balance of power is shifting from the unorganised to the organised sector. The FMCG sector will be one of the biggest gainers of this shift. If you have avoided the sector because it is 'too expensive', it is time for a rethink.
Colgate
Colgate's stock has tested the patience of long-term investors. But long-term investors know the benefit of patience.
After moving sideways in a broad range of about 200 points - giving longer term trading opportunities, the stock has rallied sharply to close at a high of 1128 on Jul 3 '17.
Overbought technical indicators that showed negative divergences by failing to touch new highs with the stock have triggered some profit booking. The dip is providing an entry opportunity.
HUL
HUL's stock moved sideways within a 160 points range - testing the patience of long-term investors. But their patience has been well rewarded.
The stock rose sharply to close at a high of 1124 on Jun 21 '17. But all four daily technical indicators touched lower tops. The combined negative divergences led to a correction down to its 20 day EMA, which has provided good support.
The stock can correct/consolidate a bit more.
The best way to accumulate HUL is to spare 10K or 20K from your monthly savings and just go on buying for the next 5 years. (I can assure you that it is better than paying EMIs on a BMW or a Harley - both of which are depreciating assets.)
FIIs have turned net sellers of equity again. Their total net selling during the first three days of the trading week was worth Rs 6.4 Billion. DIIs were net buyers of equity worth Rs 3.1 Billion, as per provisional figures. Nifty has corrected about 1.3% from its Jun 6 top of 9709.
India's CPI inflation dipped to a record low of 2.18% in May '17 against 2.99% in Apr '17, mainly due to lower food prices. RBI will now be under pressure to reduce the repo and reverse repo rates.
The IIP number for Apr '17 slipped to 3.1% against the revised figure of 3.75% for Mar '17. The manufacturing sector, which constitutes more than 77% of the index, grew only 2.6% in Apr '17 against 5.4% in Apr '16.
The following comments were made in the previous mid-week update on the daily bar chart pattern of Nifty:
"The rally from the Dec 26 '16 low features several corrective moves towards the rising 20 day EMA that has kept the chart technically 'healthy'. Another correction towards the 20 day EMA will provide Nifty the technical strength to move convincingly above 9700."
Nifty's corrective move from the Jun 6 top of 9709 is now testing support from the 20 day EMA. Will the support hold - as it has done for the past 6 months?
There is no reason why not. Despite FII selling this week, the index has managed to cling on to the 9600 level on a closing basis.
However, if FIIs continue with their selling, a fall towards 9500 can't be ruled out. The index is trading above its three EMAs in a bull market. The dip is providing an adding opportunity.
Daily technical indicators are in bullish zones, but looking a bit bearish. MACD has formed a 'rounding top' reversal pattern and crossed below its signal line in bullish zone. RSI is moving sideways in bullish zone after falling from its overbought zone. Slow stochastic has fallen sharply from its overbought zone.
Nifty's TTM P/E has slipped a little to 24.29, still much above its long-term average. The breadth indicator NSE TRIN (not shown) has nose-dived into its overbought zone - limiting index upside.
Stay invested, and continue with planned SIPs. Avoid any impulsive buying near a market top.
FIIs were net buyers of equity worth Rs 8.74 Billion during the two days of trading this week. DIIs were net sellers of equity worth Rs 1.61 Billion, as per provisional figures.
Nifty crossed above the psychological barrier of 9200, its previous (Mar 17) top of 9218, and rose to touch new intra-day and closing highs.
The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to a 5 months high of 52.5 in Mar '17, from 50.7 in Feb '17. A figure above 50 indicates expansion.
The RBI Governor is likely to keep interest rates unchanged in the policy meeting tomorrow in a continued effort to contain inflation.
The daily bar chart pattern of Nifty has resumed its up move after partly filling the upward 'gap' that formed on the chart on Mar 14 (refer last week's post). The index is trading well above its three rising EMAs in a bull market.
Daily technical indicators are looking bullish. However, RSI and Slow stochastic have re-entered their overbought zones. All three indicators are showing negative divergences by failing to touch new highs with the index.
Nifty formed a 'dragonfly doji' candlestick pattern today, which is a sign of indecision. Also, the distance between the index and its 200 day EMA has increased to 740 points - making the chart technically susceptible to a correction.
Nifty's TTM P/E remains above its long-term average at 23.49. The breadth indicator NSE TRIN (not shown) is turning down near the upper edge of its neutral zone - hinting at some more upside.
A stronger Rupee against the US Dollar and reasonably stable oil prices is attracting FII inflows, which is helping the index to move higher.
Some one holding long positions from lower levels can continue to hold, but with a trailing stop-loss. Partial profit booking may also be a good idea. Any corrections can then be used to add. New entrants can enter in SIP mode.
FIIs were net sellers of equity for the second month in a row. As per provisional figures, their net selling during Nov '16 was worth a huge Rs 199.8 Billion. DIIs were net buyers of equity worth Rs 182.8 Billion.
On a closing basis, Nifty lost 401 points (4.6%) during the month - even after it recovered 309 points from the month's low of 7916 (touched on Nov 21).
The unexpected shock of demonetisation of high-value bank notes has been discounted by the market. A combination of short-covering and value buying has triggered a recovery of sorts.
For the past three months, the daily bar chart pattern of Nifty has remained below the down trend line - showing bear domination after a strong rally from the Feb 29 low (of 6826) to the Sep 7 top (of 8969).
Time wise the index spent 3 months in correcting a 6 months long rally. Retracement level wise, the index has retraced 49% (close to the Fibonacci 50% level) of the 2143 points rally.
Note that the down trend was already two months old when the index crashed on Nov 9 - struck by a double whammy of Trump's election win in the US Presidential elections and Modi's bank-note demonetisation.
In the previous mid-week update, three technical reasons were given why Nifty was unlikely to breach the 'Support-resistance zone' between 7900-8000. The sharp pullback (of 309 points in 7 trading sessions) shows that the correction was used as a buying opportunity.
How much further can Nifty move up? Several resistances can soon put paid to the current leg of the rally.
Nifty is facing resistance from its falling 20 day EMA. Looming overhead is the 'Support-resistance zone' between 8300-8400. The 200 day EMA is close to 8300 and the 50 day EMA is nearly at 8400.
Even if Nifty can move above 8400 - and the probability appears low unless FIIs resume buying - the down trend line at 8525 will provide strong resistance.
Daily technical indicators have corrected oversold conditions, and are showing upward momentum but remain in bearish zones. Another 1-2% up move is possible before bears resume selling. The index has closed below its three EMAs in bear territory for 13 trading sessions in a row.
Nifty's TTM P/E has slid down from 23.31 at the beginning of the month to 21.61 today; an improvement, but still above its long-term average. The breadth indicator NSE TRIN (not shown) almost reached its oversold zone before turning down - suggesting that the rally may continue a bit longer.
Don't worry if you missed buying during the previous week's dip. Buy according to your asset allocation plan and SIP, and stay invested for the long-term.
FIIs turned sellers with a vengeance after returning from a long weekend. In the two days of trading this week, their net selling in equities touched a whopping Rs 43.1 Billion. DIIs were net buyers of equity worth Rs 22.4 Billion, as per provisional figures.
On the first day of the winter session of Parliament today, opposition parties pilloried the government's mishandling of the fallout of last week's demonetisation of Rs 500 and Rs 1000 bank notes.
News on the macroeconomic front was mixed. Both CPI and WPI inflation declined in Oct '16, increasing the possibility of another interest rate cut by RBI. However, the trade deficit widened in Oct '16, as gold imports doubled from a year ago.
The daily bar chart pattern of Nifty is still in the process of assessing the consequences of the bank notes demonetisation. So far, the assessment isn't good for bulls.
As per anecdotal evidence, buying and selling in wholesale and retail markets, shopping malls, jewellery and electronic stores have come to a grinding halt.
Consumption may not revive in a hurry even if the RBI can ensure adequate circulation of new bank notes to replace the demonetised ones.
The likely negative impact on the bottom lines of FMCG, Consumer Discretionary and Jewellery companies has sent their stocks on a free fall.
Nifty has sliced through the long-term 'support-resistance zone' between 8400 and 8300 like a knife through butter, and has closed below its 200 day EMA in bear territory for three consecutive days.
Daily technical indicators are looking oversold. Buying support that emerged today was used by bears to sell again. Some more correction is likely.
The bullish 'flag' pattern has been replaced with just a down trend line. Why? Because of the bearish 'rounding top' reversal pattern visible on the 50 day EMA.
The chart is turning bearish by the day. A deeper correction may be in the offing. The zone between 7900-8000 is the next likely support.
If that support zone also fails due to continued FII selling, Nifty can revisit the Apr-May '16 lows (7500-7700).
Nifty's TTM P/E has fallen below 22, and is entering fair valuation territory. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, and hinting at some more correction.
The index has so far corrected about 11% from its Sep '16 top of 8969, and retraced 45% of its gains from the Feb '16 low of 6826. No need to hit the panic button just yet.
It may be prudent to stand aside and let the current volatile phase play out. If you have SIPs in place, continue with them.
News of the surprisingly unceremonious sacking of the Tata Sons Chairman sent a shock wave through the Indian stock market. The initial reaction was a sell-off in most of the stocks of Tata companies.
As Cyrus Mistry refused to back down without a fight and chastised the Tata Sons board of directors for their unprofessional attitude, FIIs voted with their feet.
Their total net selling in equities touched nearly Rs 24 Billion during the first three trading days of the week. As per provisional figures, DIIs were net buyers of equity worth Rs 17 Billion - not enough to prevent Nifty from dropping below its 20 day and 50 day EMAs.
The daily bar chart pattern of Nifty made an unsuccessful attempt to break out above the downward-sloping channel within which it has been trading for the past 8 weeks.
Many small investors - particularly those who entered the market last month - may be wondering whether this is the early stage of another bear phase.
The chart structure doesn't suggest that. As long as the 200 day EMA is rising and the index is trading above it, bulls remain in the driver's seat.
As suggested in last week's post, the index appears to be forming a 'flag' pattern, which is quite a reliable 'continuation' pattern.
That means the current corrective phase should end with an upward breakout from the downward-sloping channel.
Can the index correct some more? How much further can it fall? What will be a good level to start buying?
Daily technical indicators are looking bearish and showing downward momentum. Nifty's TTM P/E remains higher than its long-term average at 23.30. The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone. Some more correction is likely.
Downside supports can be expected from the 8500 level; the lower edge of the 'flag'; the 'gap' formed on Jul 11 '16; and the rising 200 day EMA.
Support levels can get washed away in a wave of selling. FIIs have turned bears, which should be a worrying sign for bulls. However, buying is likely to emerge in the zone between 8500 and 8300 - which has four strong supports.
Quit worrying about when and at what level to start buying. It requires skills that elude even experienced investors. Small investors should not even bother to try.
Just select fundamentally strong companies that have delivered good and steady performance over many years. Accumulate them slowly and dispassionately.
If you haven't yet mastered stock-picking skills, SIP into an equity fund or a balanced fund.
The Indian economy is back on the growth path. Liquidity is sloshing around. FIIs are buying. The stock market has shaken off the bears and is rising towards its lifetime high.
You are either a smart investor who entered at lower levels and are enjoying the bull ride. Or, you are a new investor feeling anxious whether to enter the market now or wait for a correction.
Either way, you may be interested in catching hold of the 'next Eicher Motors' or the 'next Page Industries' or the 'next Yes Bank' and becoming a 'Crorepati'.
Successful investing requires more than luck and pluck. It requires serious hard work, discipline and patience.
Most of the hard work - or 'due diligence' - should be done before buying a stock. What is 'due diligence'? It is the process of investigating all available information about a company whose stock you are thinking of purchasing.
What does 'all available information' include? Financial information available from Annual Reports. Stock price history available from stock exchanges. Brokerage reports. Industry reports. Reputation of company management.
That seems like a lot of 'available information' to investigate. What if one doesn't have the time or know-how to do all this investigating? Isn't there a shortcut?
Fortunately, there is. You can leave the 'due diligence' to experienced fund managers by starting a SIP in a diversified equity fund or a balanced fund with a track record of 5 years or more.
You will still get the benefit of good long-term returns - provided you hold on to the fund units for the long-term - without the hassle of going through Annual Reports, Brokerage Reports and Price charts.
In fact, a SIP in a good equity fund or balanced fund is the best way for new investors to start investing in the stock market.
However, if researching companies excite you and making outsize returns from the stocks of less known and 'undiscovered' companies gets your adrenaline pumping, then performing 'due diligence' won't seem like a chore.
So, prepare a 'watch list' of companies based on their past, current and likely future performances and start your 'due diligence' to prepare a shorter 'buy list'.
Haven't done proper 'due diligence' before?
Read the article by Ryan Barnes: Due Diligence In 10 Easy Steps
In his well known investment book "The Intelligent Investor", Benjamin Graham has explained several investment principles that have withstood the test of time.
If you haven't heard of Graham, he is considered the 'guru' of value investing and was a teacher of Warren Buffett. Graham's book is recommended reading for all small investors.
To appreciate and understand Graham's value investing principles, here are three time-tested ones:
1) Margin of Safety
It means buying a stock at a price below its intrinsic value. What is intrinsic value? Investopedia.com defines it as the true value of a company's stock based on all aspects of the company's business, including qualitative and quantitative factors. That means putting a value to the company's reputation, business model, competitive advantage, as well as calculating its financial ratios to assess profitability, sustainability, financial prudence.
A DCF (Discounted Cash Flow) method that takes into account a company's free cash flow and weighted average cost of capital is often used to calculate intrinsic value. But even such a calculation is subjective, as it requires certain assumptions to be made about future earnings that may or may not turn out to be accurate.
Is there an easy way to figure out 'Margin of Safety'? One way is to compare the average 'earnings yield' of a company (inverse of the P/E ratio) over a period of 5 to 10 years with the fixed deposit rates of banks. If the average E/P is more than the current FD rate, you have some 'Margin of Safety'. (Otherwise, you may be better off investing in a bank FD.)
Note that higher E/P means lower P/E, which usually happens in bear markets or when a company is not performing well. A company with strong fundamentals in a bull market is likely to have a high P/E ratio and hence low E/P - not leaving much 'Margin of Safety'.
'Margin of Safety' can also be thought of as 'buy low and sell high'.
2) Profit from Volatility
A young investor had once asked John Pierpont Morgan, the famous American financier, banker and art collector, what the stock market will do on that particular day. Morgan had responded: It will fluctuate.
Warren Buffett had said: Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
Volatility is an integral part of stock market movements. Sometimes a market fluctuates so rapidly and wildly that it scares off most investors. But irrational market movements can be your friend, because it allows you to avail of sudden extremes of low or high prices.
If you are a long-term investor and not a day trader, there can be a couple of ways you can benefit from market fluctuations. First is 'Rupee Cost Averaging' (or, SIP), where you invest a fixed amount of money at regular intervals, which smooths out day-to-day fluctuations. Second is investing in a balanced fund, which has a mix of stocks and fixed income instruments; stock price fluctuations are 'balanced' by steady returns of fixed income instruments.
For novice investors, or, for those who don't have the time or inclination for detailed fundamental and technical analysis before buying a stock, regular investment of monthly savings in a good balanced fund is an excellent way to build wealth for the long-term without much effort.
3) Know Thyself
You know yourself better than anyone else. At least, you definitely should. Your investment style and strategy should depend on your personality. Otherwise your market returns will not be up to the mark.
Are you an active and enterprising investor, who loves nothing better than to dig out less-known small-cap or mid-cap companies and then do detailed analysis of their annual reports for selecting future multibaggers? Or, do you prefer to be a passive and defensive investor, who hates bothering about the economy, inflation rate, currency fluctuations, price chart patterns?
Do you enjoy the adrenaline rush of picking an unknown stock based on a friend's recommendation and seeing it rise into the stratosphere, or, would you rather make a detailed financial plan and asset allocation plan and then regularly invest according to your plans to achieve your investment goals?
Only you have answers to such questions. And there are no right or wrong answers. The bottomline is that your personality should match your investment strategy.
However, remember that wealth can not be built by constant activity of buying and selling. It is built by buying with a 'Margin of Safety', using volatility to book part profits and re-entering at lower levels, and holding on for the long-term to get the benefit of dividends, rights issues, bonus issues and stock splits.
Read more about the three timeless principles.
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