Nifty: market re-fueling in the air

Thought for the day

"I've had an exciting time; I married for love and got a little money along with it."

—Rose Kennedy (American, 1890-1995)

Word for the day

Megillah (n)

A lengthy and tediously complicated situation or matter. or A lengthy, detailed explanation or account:, e.g., Just give me the facts, not the whole megillah.

Malice towards none

NGT has banned vehicles older than 15yr from plying in Delhi with immediate effect.

Congress has moved Ms. Dixit, who was CM of Delhi for 15yrs, to UP.

First random thought this morning

No urgency is visible amongst the government quarters to handle the situation in the Kota (Rajasthan ) factories, where a number of young students committed suicide in recent months. Neither anyone is explaining how this is different from farmers' suicide? The 3 idiots (Amir Khan, Chetan Bhagat and Raju Hirani) are also not owning any responsibility for this.

Nifty: market re-fueling in the air

Technically, Nifty is gaining strength with each passing day. Nifty has so far absorbed a host of 'below expectation' results; in a disappointment for analysts and the traders waiting for a correction.

So far Nifty is not showing any sign of a material correction in the offing. This is despite the short term indicators continuously hovering at the border of overbought territory.

In my analysis, the reason for Nifty's apparent resilience is the frequent and sharp sectoral re-balancing. It is akin to a jet fighter's ability to refuel in the air, without any need to land on ground to refill its fuel tanks.

In few months we have seen, sharp and deep corrections in sectors like pharma (10-25%), IT (10-15%), PSU banks (5-12%), etc. The popular plays in the broader markets have also experienced 10-25% fall in prices.

I expect this trend to continue in next few months, as Nifty inches towards new highs.

I am closely watching a firm closing above 8710 on Nifty. I feel, this should lead it to new highs in a blink. For Bank Nifty the corresponding level would be 19450.

This week is eventful with BoJ, FOMC and F&O expiry lined up. This Monday morning however, Nifty and Bank Nifty are showing any intention to make a major move this week. The ranges 8330-8630 for Nifty and 18250-19150 for Bank Nifty may act boundaries.

 

 

Nifty: Preparing for an early Diwali

Thought for the day

"Anything that consoles is fake."

—Iris Murdoch (Irish, 1919-1999)

Word for the day

Puissant (adj)

Powerful; mighty; potent.

Malice towards none

A spate of mindless terrorist attacks on civilian around the world implies that the war on terrorism is near completion.

With their back to the wall, these extremists are indulging in the desperate acts of violence.

The key now is now to lose the focus and not open any window for them to escape.

First random thought this morning

Last week the former RBI governor D. Subbarao made some revelations about the RBi- Government relationship. Apparently, the revelations did not startled anyone. Perhaps everyone knows by experience or instinctively, what the former governor is trying to reveal

So not much ruckus from any quarter.

I guess the incumbent governor's memoire would also be treated with similar disdain whenever he decides to write.

Nifty: Preparing for an early Diwali

I have been maintaining that Nifty is most likely to breach it's all time high closing level (8996 recorded on 03 March 2015) around Diwali this year. Well, the probability of this happening is the higher now, than ever before.

In fact, there is a fair chance that Diwali may actually come early this year, insofar as the Indian equity market is concerned.

Though ~3% rally of last week has again created a overbought condition on the near term charts; the monthly and quarterly charts show little sign of fatigue.

Any correction in the near term therefore would be an opportunity to stock up Indian equities.

This week, Nifty faces a strong resistance at 8630 level and has good support in 8308-8323 range. Any fall below 8215 would be an opportunity to create aggressive leveraged positions.

For Bank Nifty, good support is present in 18300-18460 range. For creating aggressive leveraged position waiting for 17600 is advisable.

Short positions should preferably be avoided. In any case, all short positions should be held with a strict stop loss of 8716 spot Nifty.

FA-u-Q

Thought for the day

"Nothing gives us courage more readily than the desire to avoid looking like a damn fool."

—Dean Koontz (American, 1945—)

Word for the day

Churrasco (n)

Meat cooked over an open fire.

Malice towards none

Is it time to appoint a Rural Economist as RBI governor?

Since, we have already tried market economists, development economists, career bureaucrats and bankers.

First random thought this morning

Close to full marks in quantitative subjects like Mathematics and Physics is fine.

But in humanities?

This is absurd!

This suggests that we still living under the Macaulay's spell. We are not allowing our children to think freely and express their thoughts in their language. We want them to be conformist in the colonial sense.

FA-u-Q

With so many emotions running concurrently, the present atmosphere in the Indian equity market distinctly resembles a traditional Indian wedding ceremony.

The market participants are happy, greedy, fearful, somber, repentant, hopeful, jealous, boastful, swaggering, inebriated, hasty and ruined all at the same time.

This is neither new, nor unusual. Most periods of market surge against all odds have seen witnessed similar scenes. The most recent being 1Q2015 and prior to that 1H2007.

In these times, it is common to frequently hear some uncomfortable questions (FA-u-Q). Overwhelmed with hope, fear and greed, these questions are uncomfortable because I cannot answer those questions with any degree of certainty or confidence in the argument. Some of the questions, I am afraid to hear are as follows:

How much more from here?

The potential upside in a rising market and downside in a falling market are always daily rolling targets. Technical targets are usually conditional (e.g., “if market rises above this level, it could go to that level else…) and generally do not account for exceptional moves. Price targets based on fundamental valuation and historical discounting trends are dependent on materialization of multitude of complex forecast regarding likely revenue, profitability, cash flows, capex, project execution, policy environment etc.

At the close of the market on 12^th July 2016 I could say that if Nifty sustains above 8418 level and manages to close above 8530, we could see it going to 8650 level soon. Else, it would fall to 8328 and then to 8060 level. However, if 1QFY17 results disappoint, GST bill is not passed in monsoon session, CNY devaluation accelerates, Brexit process starts earlier than expected, and/or July sales figures for auto and cement remain sluggish, we may see market correcting sharply.

If this does not make sense, well it actually does not. I am just trying to evade a straight answer to an uncomfortable question.

This stock is 2x in past three month. Is it still a buy?

The broader market indices are at all time high. Over 100 stocks have risen more than 100% in past three months. The question is how much more these stocks could rise?

Again there could be no straight answer to this. I can just remind that the markets are not that inefficient these days. The information arbitrage has diminished materially in past few years. The 'Eureka' movements have to be rare. If these are frequent, there must be something seriously amiss.

Should I buy midcap or large cap

Large cap ‑ midcap-small cap; long term ‑ short term; value investor – speculator etc. is nothing but jargon created to unnecessarily complicate the process of investment and compel investors to seek professional advice.

Stocks like Nestle, Britannia, Colgate, ABB, AB Nuvo, Ashok Leyland, Hind Zinc, BEL, Bharat Forge are termed midcap.

Investors who bought large cap RIL, HUL, Sun Pharma, Bharti Airtel etc. a year ago are regretting. While those who bought micro cap stocks in sugar, textile, cement etc. sectors are rejoicing.

In my view, the approximate correct answer would be buy the companies which are relevant in today’s context, for the period they are likely to remain relevant at today’s price.

Nifty willing to move up, waiting for some tailwind

Thought for the day

"Somebody asked me about the current choice we're being given in the presidential election. I said, Well, it's like two of the scariest movies I can imagine."

—Dean Koontz (American, 1945—)

Word for the day

Velleity (n)

A mere wish, unaccompanied by an effort to obtain it.

Malice towards none

Will adopting Calendar Year as Financial Year help the cause of "Ease of Doing Business" and "Integration of Indian Economy into Global Economy (Globalization)"?

First random thought this morning

Traditionally popular Hindi films have highlighted the contemporary trends and problems, like gold smuggling, food hoarding, drug abuse, unemployment, Naxalism, terrorism, mafia dominance, corruption, child and women abuse, etc.

The glamorization of traditional sports like Hockey, running and wrestling in recent films indicates that these sports are regaining their popularity. Whatever the reason, these have the potential to be developed as a major source of employment and state revenue (entertainment tax and tourism).

Nifty willing to move up, waiting for some tailwind

Nifty consolidated last week, ending almost unchanged from the previous week. Though both domestic and foreign funds were net sellers, the non-institutional buying supported the market well. As suggested last week, the Greed continues to be dominant sentiment at present.

This week also most of the action may be witnessed in the broader markets.

Nifty is placed much better as compared to two week ago in terms of trading indicators. However at present it lacks the required momentum to make a decisive move in either direction.

The present consolidation pattern may continue this week also. A risk on trade in global market on the back of strong US job data and likely further monetary easing by ECB and BoJ, could provide some tailwind.

Positive developments on GST legislation, a couple of result surprises could add to the momentum in the following week.

For now, Nifty has a strong support around 8065 level and faces resistance in 8388 -8418 range. Two consecutive close above 8418 may take Nifty to 8560-8630 range in no time. For Bank Nifty a good support exists at 17300 level. A close above 18460 may take it beyond 19K mark soon.

 

 

Sum of the Parts

Thought for the day

"The word 'iconic' is used too frequently - an icon is a statue carved in wood. It was shocking at first, when I got that reference. It was a responsibility, and it's impossible to live up to - you're supposed to be dead, for one thing."

—Debbie Harry (American, 1945-)

Word for the day

Supererogatory (adj)

Going beyond the requirements of duty.

Malice towards none

Mostly sycophants and court poets do serious harm to their masters by imposing (undeserved) greatness on them.

First random thought this morning

Uttrakhand is struggling again. Mother Nature is furious. Deities do not want millions of revelers to crowd their abode with all their paraphernalia - SUVs, packets of potato wafers, cola cans, beer bottles, etc.

Why the Religious cannot appreciate this simple fact that Deities made the faraway, secluded, and difficult to reach mountains their abode because they wanted the pilgrimage to be an act of penance and not picnic.

Sum of the Parts

Last week I spent two nights walking the streets of Old Delhi. The atmosphere there was amazing. The aroma of great food supplemented the peoples' enthusiasm and gaiety well. I did not see any reflection of Dhaka, Brussels, Istanbul, Turkey or Kairana there. People from all faiths and socio-economic strata mixed well and all appeared happy.

This morning, while leaving for school, my daughter did not forget to remind that I need to book ticket of "Sultan" starring Salman Khan, first thing in the morning. "For me too", my wife a devout Hindu, shouted from the puja room.

From my various trips across the country and overseas, I have discovered that at individual level, people of all faith and cultures are much more friendly and compassionate to each other at individual and family level. But this goodwill is not necessarily shared at a wider society or community level.

A classic case in point could be Dr. Subramanian Swamy who may share good relations with his Muslim son-in-law but still show hostilities to the Muslims in general.

I find that the sum of the parts (SOP) of Indian society is much superior, harmonized, cohesive and acceptable than the aggregate picture, especially the one presented in media discourse of political narratives.

Despite occasional flaring up of passion due to localized events, Indian people are more or less at peace with their immediate neighbors. and friends from different faiths and communities.

Although SOP has been a popular method of valuing conglomerates with interest in diversified businesses; it has not yielded the desired results in most cases.

Perhaps drawing courage from the social context, analysts have traditionally valued conglomerates, like L&T, Jaiprakash Associates, ITC, HCC, AB Nuvo, etc. on SOP basis. The results have been mostly disappointing.

In most cases, we have seen the inferior parts impeding growth of the relatively superior parts. The cross subsidization of low yielding businesses by the parts with superior return profile has mostly diminished the overall performance, chronically.

Unlike the social context, where the SOP have complemented each other very well and kept India together, democratic and overall progressive, the SOP method of growth has not worked in business sphere.

No wonder we have seen frequent "de-merger" of earnings dilutive businesses and "sale of non-core assets" deals. Bankers, consultants and lawyers have certainly made much more money in this whole SOP process. Unfortunately, the same cannot be said about the lenders and shareholders.

As the economy seeks to turn the corner, we will see a great deal of newsflow on business re-organization and "value discovery" through SOP method. I chose to remain oblivious to all such great discoveries. I certainly do not mind taking the risk of missing on a few multi-baggers.

Nifty determines to move up as greed makes a comeback

Thought for the day

"You always fall for the rascal or the guy who's got a little bit of the devil in him. You can't help it."

— Debbie Harry, (American, 1945-)

Word for the day

Towser (n)

A big dog.

Malice towards none

Are you looking to invest in gold @$1340/oz having refused to buy it at US$1000/oz a few months ago?

First random thought this morning

There is an urgent need to democratize the politics in our country. Though our constitution mandates a democratic government, most politicians behave like feudal lords.

Elected representatives wants to be credited, praised and acknowledged for getting drains cleaned, getting pavements cleared, covering manholes, planting trees (all at people's expense). Congress VP never misses a chance to remind people that he "gave" them food (Food Security), education (RTE), employment (MNREGA), etc. otherwise all Indian were doomed to die hungry, illiterate and unemployed!

Nifty determines to move up as greed makes a comeback

Brushing aside the two "Exits" and the derivative "Expiry", Nifty managed to close at the upper end of its range (7930-8330) of past five weeks. This happened despite lower institutional activity and overall volumes.

The most striking feature of market in past 10 trading session is the return of "Greed" trade with a vengeance. Much deeper and enthusiastic retail participation is evident from the sharp outperformance of mid and small cap stocks.

Instinctively I know that this is usually pre-cursor to a meaningful correction.

Nonetheless, after having weathered significant intraday volatility, that helped correcting many overbought indicators, Nifty looks good for rise to 8560 level in next few weeks. Good support on the downside exists at 8065 level.

The target on Bank Nifty would be 18600 with a strong base around 17375.

Though the most of the activity shall be seen in the broader market, a cautious trade with regular profit taking and strict stop loss would be in order.

 

 

A clarification

A clarification

 

Since morning, I have received numerous mails "accusing" me of over-simplifying things in relation to the political changes taking place in European Union.

May I take this liberty to address all accusations collectively & conclusively, and clarify as follows.

 

(a) I do firmly believe that UK referendum has the potential to become a watershed event in the history of modern world. But I strongly refuse to believe that it will push the global community back into the dark ages. As I wrote earlier, in my view it is not a problem but part of the solution.

 

(b) I have strong reasons to have an economic view that diverges from that of the global investment legends like George Soros and Mark Mobius. After all I have benefitted from not following them in past 10 years. Despite extremely persuasive arguments - I did not believe in China story, hyperinflation due to QE, weaker bonds, end of USD, commodity super-cycle, Grexit, blah blah. I did not plunged into Indian equities immediately after PM Modi moved to 7RCR, as advised by many of them.

 

Neither am I buying Gold now.

 

(c) Mumbai is perhaps one of the most filthy and unsafe city in the world. Despite Shiv Sena's anti immigrant movement, obscene realty prices, higher taxes, dismal security apparatus despite many terror attacks, floods, poor infrastructure and abundant filth - it has not diminished a bit in its status as India's financial capital in past many decades. I do not understand why would London do? Singapore & Dubai have been there for decades!

 

It is not over-simplification. It is in fact little complicated.

 

Ask a sociologist and anthropologist. They will tell you how a "CITY" takes shape and how people grow their roots in these cities. Politics and terror can't uproot them. It takes Mother Nature's strong intervention to end the importance of Rome, Agra/Sikri, etc.

 

(d) In my view, the magnitude of transformation must be measured from a single criteria - how many "lives" it does impact seriously?

History suggests - any event that impacts relatively smaller number of "lives" usually does not have transformative impact on the global order. I believe financial and political crises should also be evaluated by this criteria only. It is too early to assess how many "Lives" UK divorce from EU will impact seriously. If it does as expected impact millions of refugees and immigrants, it will qualify to be a transformative event having lasting impact on the global order - not necessarily negative.

 

I would also like to mention that I am NOT LIKING Mr. Market's complete disdain for the UK "Leave" vote. An apology may be in order. Sooner the better

Blind Men and the Elephant-4

Thought for the day

"I was a pretty good fighter. But it was the writers who made me great."

— Jack Dempsey (American, 1895-1983)

Word for the day

Nonpareil (n)

A person or thing having no equal.

Malice towards none

It will be really unfortunate if SC now decide to lift ban on registration of larger diesel cars in Delhi.

This will reflect how morality is often shadowing legality these days.

First random thought this morning

The announcement regarding implementation of 7th pay commission recommendations has met with varied reactions, expectedly.

Employees are dissatisfied and want more. Economist feel the massive cash payout could be inflationary and result in undesirable fiscal pressure, especially on State Government which are likely to miss fiscal targets due to signing the UDAY deal. It is feared that it may also worsen the already poor health of many PSUs.

The industry is happy, expecting the beneficiary employees to indulge in shopping spree. Equity market shares their optimism. Bond traders are uncertain.

Blind Men and the Elephant-4

In the aftermath of UK referendum vote to leave EU, numerous pessimistic forecasts have been made. The voices of optimism have been few and feeble.

Based on assumptions that post separation from EU, UK government will shut out all multinational businesses, fence all its borders, impose heavy taxes on immigrant workers and foreign businesses; and EU will erect strong barriers for trade and labor movement to & from UK, both GBP & EUR will decline materially - various forecasters have portended 0.5-0.75% decline in UK GDP, exodus of businesses from London, material in rise in cost of doing business and hence lower margins for businesses selling goods and services in Europe (including UK).

Instinctively, I find these assumptions contrary to the conventional wisdom. I believe, post break-up, British government will be more open, receptive, and congenial towards foreign businesses and skilled immigrant labor, for two simple reasons—

(a)   The fear of recession, should economic activity slow down any further; and

(b)   A point to prove that UK is better off outside EU.

Remember we are talking about a country deeply divided on political ground, with almost one fourth of the population riding guilt of having voted "Leave" for fun. Good economics is the only thing that could keep people together there.

Talking specifically about impact on Indian businesses, a lot has been said about Tata Motors and IT companies. The arguments of analysts based on simulations on Excel Sheets look impressive. But being a small investor, I can certainly afford to ignore deep analysis and apply my innocent logic.

I fathom that the separation of UK from EU will entail humongous IT work - modifying systems throughout EU, and other parts of the world also. Dislocation of some businesses both from UK and EU would also entail IT fix. Banks, airlines, insurers, VISA offices, et. al. would need to modify their IT systems and infrastructure. Besides, UK may enter a number of new treaties and arrangement, new alliances may develop, which would need IT services to implement. This could generate billions of dollars of new business for Indian IT companies. The cost of opening a new EU headquarter in Vilnius, Warsaw, Budapest, etc. may not be prohibitive in comparison, especially if you could borrow at rate close to zero and pay costs in a cheaper EUR. No need to open shop in Paris or Frankfurt.

Similarly, I am yet to find a JLR buyer who would be exactly bothered about the duty element of cost. On the contrary, there could be some buyers who may precipitate their buying, to a date before effective date of divorce, for the sake of convenience. The price of JLR may be lower due to cheaper GBP, but so would be costs and value of debt. JLR may be more competitive than its German competitors if GBP falls more relative to EUR.