Question Of The Day

How long can the current pullback on the Nifty last?

Publish date: 16th October, 2018

Pull back can extend, till the underlying instrument is crossing resistance levels without any major efforts. On Tuesday, the markets crossed an important resistance zone of 10540, without any significant barrier, which means it is heading for the next crucial level, which is around 10700. Pull back would end, if Nifty closes below 10520, which is lowest high of the current up move.

How long we should stay away from the Mid Cap segment?

Publish date: 15th October, 2018

Ever since March 2018, investors have been searching for investment opportunities in mid cap companies. However, our past experience tells us, the recent sell off and may be some more decline could offer significant opportunity to buy and hold select mid cap companies for multifold returns. Firstly, we should start looking for opportunities in those companies, which occasionally follow the trend of the economy. Our suggestion would be to study specific consumption, pharmaceuticals and FMCG related stocks from the mid cap segment to buy and hold.

Has Technology sector topped out?

Publish date: 12th October, 2018

Fall has been quite steep in technology stocks. Nifty IT index had made a high of 16360, and then witnessed heavy selling and fell to levels of 14410, which is nearly a 12% correction from the highs. Front line stocks have fallen between 10% to 15% and mid cap stocks between 20% to 40%. Numbers are worry some and suggesting massive profit booking or unwinding of long positions. Also, the rupee has started appreciating, which would mean that the upside for IT sector is capped. Our advice would be stay away from taking any bottom fishing view.

Are we decoupling from the Global market trend?

Publish date: 11th October, 2018

To answer this, we need to see the correlation between different markets in the short term & long term. In the long run, global equity markets follow their own domestic news flow, which decides the overall trend. But in the short term, global equity market follow similar path. In the short term, we sometimes witness declines on the back of global weakness, however in the long run, domestic news flow decide specific trend either up or down, which may decouple us from the global trend of the market.

How moving averages could be used to gauge the market breadth & which sectors outperformed the recent fall?

Publish date: 10th October, 2018

Market breadth can be identified by calculating the number of stocks trading, above or below a particular moving average. For example we can use 20-day SMA for gauging the short term breadth and 200-day SMA for longer term breadths. Market breadth gives one an overview of the market sentiment and helps deciding the future trend of the market. Currently, 6.6% of NSE500 stocks have closed above their 20-day SMA, which implies weak & oversold market breadth in the short term & 15.9% of NSE500 stocks have closed above their 200-day SMA. The common stocks, which have closed above their 20 & 200 day SMA are broadly stocks from IT, PHARMA sector, which have gained due to the depreciating rupee.

What is dampening the Indian stock market?

Publish date: 09th October, 2018

In the short term, the most dampening thing is sustained rise in Dollar Index. It indicates that the dollar is strengthening against world’s major currencies, which includes the Euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc. The euro holds the most weight versus the dollar in the index, constituting about 58 percent of the weighting followed by the yen at about 14 percent. In the month of August 2018, it was trading at 96.984, however, it then witnessed a quick correction to 94.22, beginning of September 2018, which helped our domestic indices to move into new territory at 11760. However, dollar index is rising again and currently trading at 96.11, which is certainly not a positive signal for world currencies, as they could further depreciate. For next few days, focus would be more on the trend of the dollar index, which would keep our currency under pressure.

Has the market seen its worse?

Publish date: 8th October, 2018

We don’t think so. It could be a big statement for the medium-term view on the market. However, in the short-term, the market definitely looks poised for decent pull back from current levels. On intraday basis, the market has formed double bottom at 10200 and it recovered back sharply. Data points related to PCR, India VIX and RSI were supportive when the market has formed double bottom. Nifty would validate to the formation if it crosses 10400 on Tuesday (in tomorrows date). The target of the formation is 10600 (Adding the height of the formation (200) to breakout level (10400) (10400+200=10600). It should be guarded with a stop loss at 10350.

Weakening rupee! What’s our take? Where do we see it heading?

Publish date: 03rd October, 2018

Rupee has witnessed consistent selling this calendar year from 64 to currently 73 against the dollar. We have also broken out of an ascending triangle formation above the level of 69, base of the formation seen at Rs 58. The target of the formation is 80 (Adding the height of the formation to breakout level, 69+11=80), which is our longer term target on the rupee. The current run-up has been overstretched and we expect some cooling down activity now and rupee could trade in a range of 69 and 74.

What is the mantra for making money in mid-cap stocks?

Publish date: 01st October, 2018

Well, the mantra is simple, Looking at the current fall the lesson we learnt from it was that if we want to make multi fold returns out of Midcap stocks then a “bulls-eye technique” will never work, our strategy should be to invest in several mid cap companies keeping a time horizon of more than 5 years.

Was this the ultimate bottom?

Publish date: 28th September, 2018

The market has retraced 50% of its entire up move from 9951 to 11760 . Higher opening in the next trading session and a break of 11035 (session’s high) could result in a pullback rally to levels of 11415 (61.8% retracement level of the fall). Failure to do so, could result in another round of selling, which could head downwards to 11775 (200 day SMA).

Have the oil stocks found their support?

Publish date: 27th September, 2018

Too early to say but it seems so. These companies have started falling much before the jump in crude prices. Currently, Brent crude prices are quoting at 82 and technically we feel that 90 should be upper cap in the medium to long term. Based on the thumb rule of “Stock market discounts predictable events well in advance”, we feel that experts must have discounted future price action in crude prices and must have started buying in quality companies from Oil & Gas sector.

Should you bottom fish in Banks/NBFCs?

Publish date: 26th September, 2018

Never catch a falling knife. Whenever there is uncertainty with respect to news flow, avoid bottoming fishing. However, in the past we have witnessed quality stocks of IT & Pharma sector rebounding sharply after hitting panic lows. Our strategy should be to buy quality stocks (one or maximum two) in tranches in such corrections, which rebound sharply when sector stabilizes.

on in crude prices and must have started buying in quality companies from Oil & Gas sector.

Is this the Bottom?

Publish date: 25th September, 2018

It depends upon further more clarity from Top authorities like RBI or Finance Ministry. In the absence of further clarity from Top sources preferably by tomorrow (26th Sept 2018), it could spoil the sentiment. However, technically, the market has formed a strong reversal pattern from lower levels that could lift indices to 11200 /11220 in best case scenario. Safe havens like private banks, pharmaceuticals and metals participated heavily in this recovery, which would add genuine steam to the short term up trend. The current wave/trend would turn uncertain and negative below 10950.

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