Vijay Kumar Gaba

Wednesday, June 15, 2016

Brexit & Me - 2

Thought for the day

"Change will come slowly, across generations, because old beliefs die hard even when demonstrably false."

—E. O. Wilson (American, 1929)

Word for the day

Comity (n)

Mutual courtesy; civility.

Malice towards none

If the Orlando event had happened in India, some parties would have alleged that BJP is in cahoots with the perpetrator for polarizing voters on communal lines.

First random thought this morning

Traditionally opposition leaders have been criticizing the incumbent government for failure on socio-economic fronts. The current scenario is no different. Opposition leaders across parties have criticized the Modi government for failing on various fronts, especially employment and inflation. This is mostly rhetoric.

However, the Congress VP, Shri Rahul Gandhi went a step further and claimed that, if voters elect a Congress government in 2017 assembly elections, he would solve the Punjab drug abuse problem within a month.

To me its sheer blackmailing the citizens, and amounts to sedition.

Brexit & Me - 2

The impact analysis of binary outcome of 23rd June UK referendum is mostly focused around five factors - (1) Impact on GBP & EUR; (2) Impact on UK economy especially in terms of foreign flows, terms of trade, demand, etc; (3) Status of London as an international financial centre; (4) Sustainability of EU post UK exit; and (5) Impact on immigration of workers as the fresh wave of nationalism hits the Europe and elsewhere.

The analysis I have seen so far, concludes that in the event of a "Leave" vote — UK economy will be seriously impacted (GDP contraction of 2-7% over next decade); both GBP and EUR will depreciate dramatically against major currencies (gold & USD assets will soar); London may lose its pride as international finance center; fund flows from EU nations, Russia and China to UK will diminish materially; migration of workers across EU and UK will be restricted hampering the economic activity; both UK and EU will weaken in strategic importance. A "Leave" vote therefore prima facie appears a lose-lose situation for both EU and UK.

However, in the event of a "Remain" vote, where UK will be able to re-negotiate certain terms of engagement with EU, a reverse effect (though not as dramatic) is anticipated. Both UK and EU will emerge as gainer in this case.

Without questioning the merits of assumptions made in the consensus impact analysis, I fail to understand why Britons will vote to "Leave".

But democracy is known to surprise people. The democratic election processes world over have produced verdicts which were considered irrational and beyond comprehension at that point in time. However, in hindsight, very few of these decisions have proved to be disastrous, so as to say.

As per the latest opinion polls the Britons are fairly evenly split. "The UK Independence Party, which won the last European elections, and received nearly four million votes - 13% of those cast - in May's general election, campaigns for Britain's exit from the EU. About half of Conservative MPs, including five cabinet ministers, several Labour MPs and the DUP are also in favour of leaving."

Those in favor of "Leave" believe "Britain is being held back by the EU, which they say imposes too many rules on business and charges billions of pounds a year in membership fees for little in return. They also want Britain to take back full control of its borders and reduce the number of people coming here to live and/or work. One of the main principles of EU membership is "free movement", which means you don't need to get a visa to go and live in another EU country. They also object to the idea of "ever closer union" and what they see as moves towards the creation of a "United States of Europe"." (From BBC FAQ on Brexit. See here for more details)

Those who favor a "Remain" vote feel that Britain should assume a more active role in EU by leading it, rather than withdrawing from it under the undue influence of false Elizabethan notions glories.

According to the supporters of "Remain" vote—

"The supposed choice — Europe or the world — is still posed. Today’s Brexiters hanker after Elizabethan glories, reimagining Britain as the footloose privateer leaving Europe behind to make its fortune in far-flung lands. Ask them about trade with Europe and they talk about the deals to be made instead with India or China, about revitalising the so-called Anglosphere of the US, Canada, Australia and New Zealand, and about refurbishing ties with the nations of the Commonwealth. Economics, they believe, is nothing against such dreams.

The harsher reality, political and economic, has been heard during the referendum campaign from US President Barack Obama and other friendly nations. This is not an either/or choice between Europe and the world. Rather, engagement in Europe amplifies Britain’s voice on the global stage; retreat from its own continent would leave the nation in unsplendid isolation." (Click here to Read more on FT)

Well, Britons will decide what they find appropriate and in their best interest.

I am here more concerned with the anticipated volatility in the markets ahead of the 23rd June poll. I need to decide whether I need to hedge my portfolio against a "Leave" vote; or keep my cheque book ready for a good buying opportunity.

I will answer my readers' queries (see here) and outline my strategy in coming days.

Tuesday, June 14, 2016

Brexit & Me

Thought for the day

"Every kid has a bug period... I never grew out of mine."

—E. O. Wilson (American, 1929)

Word for the day

Heuristic (adj)

Encouraging a person to learn, discover, understand, or solve problems on his or her own, as by experimenting, evaluating possible answers or solutions, or by trial and error: a heuristic teaching method.

Malice towards none

Making ROI of all elected offices "NIL" through constitutional provisions could be a short cut to eliminate corruption in the society!

First random thought this morning

The children who were born after liberalization of the economy in 1990s, have not seen unending queues for everything, including food, cement, two wheelers, houses, passport, etc. These are the people whose thinking is not constricted by the mindset of forced abstinence. These are the children who could freely dream big and aspire for the best.

PM Modi is lucky to be at the helm when this free spirited generation is coming out of colleges and joining the work force and entrepreneurial pool. With them marching ahead, India might have grown faster anyways - regardless of who is occupying 7RCR!

Brexit & Me

On 23rd June 2016 the citizens of UK will vote in a referendum to decide whether UK shall remain a part of the 28 member European Union (EU).

The incumbent Prime Minister David Cameron had promised to hold this referendum if he won the 2015 general election, in response to growing calls from his own Conservative MPs and the UK Independence Party (UKIP), who argued that Britain had not had a say since 1975, when it voted to stay in the EU in a referendum.

The latest opinion polls conducted to assess the mood of the people have found the "Leave" group leading the "Remain" group; thus suggesting the prospects of UK leaving EU. The markets participants, who are watching this referendum keenly, have been jittery lately. The global risk assets have accordingly corrected sharply in past few days.

Many of my regular readers have asked for my opinion on the issue. In summary, the inquiry is focused on the likely impact of the referendum on (1) Indian stock markets; (2) INR-GBP & INR-EUR; (3) Indian exports of good & services to EU and UK; (4) Gold prices; and (5) Immigration & VISA policies of UK and EU.

Well I am no expert in international economics and foreign relations. I may therefore not be able to answer these queries in much intelligent manner. In anyways, millions of reams of paper and thousands of terabytes of cyberspace has been consumed by experts in analyzing the situation and answering these questions. Back home I see a number of studio experts expressing concerns & views over the issue every day.

Nonetheless, much like an unsuccessful poet, I will not miss this opportunity to recite my poem!

I understand that this referendum is mostly political with collateral economic implications. Two things are clear to me - (a) In case of "Leave" verdict, it will take minimum of two years for UK to exit EU. The general view is that it may actually take much longer to give effect to the verdict; and (b) In case of a "Remain" verdict, UK will still get to re-negotiate the terms of stay to its advantage. So in effect, 24th June will not be much different from 23rd June.

I have been saying this repeatedly, the core of European (including UK) problems lies in the fact that for decade some people have been spending more than their earnings. There are therefore only two probable solutions to the problem – (a) They start earning more than what they spend and redeem their debt from the surplus earning; or (b) they start spending less than their present income and start redeeming their debt from the residual earning. Any third solution (including Brexit and doles as proposed by Swiss government) will only be temporary and unsustainable.

Europe urgently needs significant productivity gains, pick up in investment activity and creation of additional jobs, austerity in public spending, deleveraging, changes in policies for immigration to improve demography, and household & public deleveraging.

.....to continue tomorrow

Monday, June 13, 2016

Nifty: Some jitters ahead of keenly watched events

Thought for the day

"When you have seen one ant, one bird, one tree, you have not seen them all."

E. O. Wilson (American, 1929)

Word for the day

Slyboots (n)

An engagingly sly or mischievous person.

Malice towards none

After an intensive research of two years, I could find one good thing about Arvind Kejriwal - While all other parties use proxies for making nonsense, defamatory, unpleasant, and controversial statements, AK does it all himself.

First random thought this morning

I find controversy over the movie Udta Punjab, totally avoidable.

To the CBFC - expletives are inextricable part of the common conversation in Punjab; drugs are as common as Lassi; even Amir Khan did pee on the wall of historic Red Fort in PK.

To the film maker - the film serves no interest (artistic or public), as it shows a problem everyone concerned is fully aware of, and offers no worthy solution.

Nifty: Some jitters ahead of keenly watched events

This week, FOMC meet, and consequent movement in global currencies, commodities and equities might influence the trading pattern in Indian equities also. Besides, the Brexit poll scheduled for next shall also impact the sentiments.

Last week, Nifty failed at its strong immediate resistance level of 8330 and corrected a bit. The fall in Nifty however lacked any conviction and was driven more by caution.

With this correction though the short term indicators have turned little bearish, suggesting that the correction may extend little further, there is no reflection of any weakness on the medium and long term charts. To the contrary, this correction is taking some froth out leading to strengthening of medium term outlook.

My trading strategy under the circumstances would be as follows:

(a) Any fall (sharp or shallow) in the market is a buying opportunity from medium term perspective.

(b) Nifty continues to face resistance at 8330 level and has a strong near term support in 7860-7930 range. Any fall below 7750 level will be an opportunity to create aggressive leveraged long positions.

(c) On Bank Nifty 18000 is a strong near term resistance. The near term support exists in 17150-17300 range but meaningful support is only around 16800 level. This suggests that the correction will essentially be led by banking stocks. I will consider aggressive leveraged long position in banking stocks around 16300 level.

(d) I continue to maintain August 2019 Nifty target of 13900 and view on cyclical Nifty bottom at 7490 level. Any fall below this is exceptional buying opportunity.

Friday, June 10, 2016

In serach of leadership - 2

Thought for the day

"What can I know? What ought I to do? What can I hope?"

—Immanuel Kant (German, 1724-1804)

Word for the day

Dulcinea (n)

A ladylove; sweetheart.

Malice towards none

The censor Board might have unwittingly supported the petition seeking ban on Santa Banta jokes!

First random thought this morning

The debate over PM Modi's speech to joint sitting of US parliament, suffers from over enthusiasm (BJP) on one side and avoidable cynicism (Congress) on the other side. There are some in "It's good....but...." (JDU) category also.

But one thing is certain - no one could accuse BJP of arranging a "paid audience" to applaud the prime minister, like they did in case of Madison square or Sydney event.

In serach of leadership - 2

In search for leadership, I visited all the sectors and concluded that at an umbrella level it is the Indian consumer who will lead the economy and therefore the market higher. But the leadership may not come from the straight jacket consumption theme.

Soaring aspirations, deeper inclusion, affordability, rise in real income, and better access to markets and products may drive the consumption.

I also see an exponential rise in the intensity of competition amongst producers and retailers to gain market share. This shall keep (a) the general price environment and (b) product profile favorable to the consumer. Besides, it should improve the accessibility of the consumer materially.

In my therefore, the complex themes like -

(a) Building infrastructure for consumers' access and services - like shopping malls, movie theaters; supply chains & logistic services, mobile apps, etc.

(b) Enabling consumers through technology and leverage - Micro lenders, retail oriented NBFCs & banks, payment infrastructure, etc.

may do much better than the simple producers and retailers.

I believe that the share of large brands in Indian consumer basket may increase substantially over next five years; of course at the expense of unorganized and marginal cottage and MSME players. I am therefore not perturbed by the entry of market disrupters like Patanjali in branded consumer product space. On the contrary I feel that such players will help faster expansion of markets and would be beneficial for all the established large players.

However, I feel till the time market fully consolidates and evolves into a fully organized market, the participants may struggle to generate returns that could be compared to their historical earnings.

I would therefore stick to my stated strategy of focusing on upper middle class and aspirational consumption.

On product side, I would therefore like to focus on aspirational products like lifestyle drugs, beer, premium liquor, household upgrade (lighting, tiles, plywood), luxury housing, premium automobile, packaged food (non-basic), etc.

On services side, I shall focus on direct consumable services e.g., telecom, transportation & logistics, health, education, organized retailing, entertainment, banking etc.

Implementation of GST would be an additional advantage for the theme, but it is not a necessary condition to my mind.

Thursday, June 9, 2016

In serach of leadership - 1

Thought for the day

"Immaturity is the incapacity to use one's intelligence without the guidance of another."

—Immanuel Kant (German, 1724-1804)

Word for the day

Hypnagogic (adj)

Of or relating to drowsiness.

Malice towards none

Pakistan is getting increasingly isolated in the global community.

While BJP may be right in claiming some credit for this, it is largely doing of Pakistan administration and Army.

In desperation our neighbor may try some misadventure. Are we fully prepared this time?

First random thought this morning

The people clamoring for a second term for Governor Rajan, have conveniently forgotten that he was appointed by P. Chidambaram, the then finance minister. It was a collaborative effort (GAAR deferment, gold import restrictions, FCNR deposits, USD swap for OMCs, etc.) that stemmed INR rout and led to dramatic improvement in current account.

The point is why did these people not clamor for second term to PC. They rather celebrated his exit!

In serach of leadership - 1

As I mentioned in my post on Monday (see here) that on technical parameters the latest bull market in Indian equities is confirmed. In strict technical sense, we may see Nifty gaining 100% from the 6987 closing on 29 February 2016.

Usually all new bull markets begin with new leadership with leaders of previous bull markets taking a back seat.

For example, late 1980’s bull market was led by commodities like cement, steel and energy. Then commodities had a bad decade in 1990s. Late 1990’s bull market was driven by new economy businesses like IT, media and communication. For next many years most of these businesses did not do well. The big bull market (2003-2007) was driven by credit and investment theme. Large projects (power, roads, ports, real estate development etc.) their financiers, developers, builders, equipment suppliers and service providers led the charge. The subsequent years have seen decimation of these businesses. The last bull market (2012-2014) was clearly led by domestic consumption and services exports (IT & pharma)

The interesting part is that in most cases financials have travelled the complete boom and bust cycle.

This time the leaders of 2012-2014 bull run have underperformed, but so far no clear leaders has emerged. Financials, midcaps, infra, metals have all moved at similar trajectory. Real Estate is a notable outperformer, but from a very low base. Similarly, other small sub-sectors like sugar, paper, farm chemicals have also done well. But these are too small to lead a US$1.5trn market up by 100%.

The challenge presently therefore is to hazard a guess which sector or businesses will lead the current bull charge. As always, I would like to begin the process with setting the assumptions and deducing what may likely not do well.

1. US economy continues to grow at a feeble pace; China does not hard land and Europe just muddles along.

2. The government continues to maintain strict fiscal discipline and continue to encourage foreign capital and businesses to invest in India.

3. Government raises substantial resources through aggressive assets’ sale to recapitalize struggling public sector banks.

4. GST and Real Estate Regulator become a realty by FY18.

5. Over next two years, US Fed raises rates gradually with the Fed fund rates peaking at 1.5-1.75%; EU and Japan rates stay negative.

6. USD does not strengthen materially from here and China need not effect a major devaluation of its currency.

I have expressed my opinion in many earlier posts also, that the bull market in Indian equities will commence mostly due to domestic reasons. The global factors, primarily liquidity may provide some extra impetus......to continue

Wednesday, June 8, 2016

Shimla: An epitome of unsustainability

Thought for the day

"From such crooked wood as that which man is made of, nothing straight can be fashioned."

—Immanuel Kant (German, 1724-1804)

Word for the day

Gormless (adj)

Lacking in vitality or intelligence; stupid, dull, or clumsy.

Malice towards none

The socio-economic disparities, racism, sectoral hatred and corruption has been rising in India ever since independence.

Emotions and prejudice apart, we can at least have a national panel to assess whether there is a need to set up a assembly for reviewing the Constitution!

First random thought this morning

The precipitous decline of the Congress party started with poor performance in 2012 UP assembly elections. Since then the party has seen material erosion in its strength and status. It has consistently fared poorly in various elections held in past four years. Many strong regional leaders have deserted the party. 2017 UP elections are critical for the party.

A good performance in UP-2017 may reverse the trend, whereas a poor performance there might lead to accelerated desertions and intense internecine infighting. This time, PK has a do or die battle at hand!

Shimla: An epitome of unsustainability

I decided to extend my Punjab trip and travelled through Solan and Shimla districts of the adjoining Himachal Pradesh - a decision I seriously regretted just half an hour into the State.

This is supposedly peak tourist season for the State. A large number of vehicles enter the State from Chandigarh via NH-22; the highway that is being widened. The people at the job were poorly trained and had little regard for safety of the travelers using the road. There was no planning and huge traffic jams were caused. A 45km distance from Parwanoo to Solan took nearly three hours, and the drive was bumpy, dusty and risky. At least on three occasions monstrous construction machines threatened to overrun my tiny vehicle.

The ordeal did not stop there. entering Shimla city was a nightmare. It took over an hour to cover the last mile. It was shocking to see that there are traffic signals on the steep inclining streets of Shimla city, where the wait period sometime extends to 10-12minutes. A large part of the city resembles an urban slum.

After a struggle of almost two hours, I could manage to get out of Shimla city on the way to Naldhera, a popular golf resort, 15miles north of Shimla. I stopped at Mashobra for a cup of tea, where I met this Couple from Chennai. They were coming from the popular tourist point of Fagu in Kufri. and were in a state of deep shock. The lady was categorical in her laments - "If there is Hell anywhere, it is here". Their experience prompted me to drop my plan to visit Naldhera and take a left turn for the famous Fagu tourist point, just a few miles from the summer resort of the President of India.

Let me assure you, Hell is a gross understatement for this place. 1500 mules, their attendants and tourist riders jostle with each other perilously on a dusty, narrow, badly stinking and extremely dangerous path to travel 1.5km to reach the tourist point. It is almost impossible to walk on this path. There are no disaster management arrangement there. Just four indifferent policemen are posted to manage an average 5000/day tourist flow during season. The in-charge district commissioner sits in Shimla and occasionally visits the place. The worse part you are required to pay Rs500/person for this ride to the Hell.

I feel compelled to write this bitter experience since I found Shimla an epitome of unsustainable economic development. The city in my view is a harbinger of the disaster in the making. While media, ecology activists, judiciary and experts are diligently focused on the pollution levels in Delhi, the real time bomb is ticking elsewhere.

I suggest NGT and/or the Supreme Court take suo moto cognizance of the situation and order (a) immediate shifting of the capital of the State out of Shimla to some non-tourist place in plains like Hamirpur; (b) immediately ban the construction of any new concrete structure in the city; (c) limit the number of vehicles and tourists that can enter the city at any given point in time.

Tuesday, June 7, 2016

Land of five rivers, drying up

Thought for the day

"Always recognize that human individuals are ends, and do not use them as means to your end."

—Immanuel Kant (German, 1724-1804)

Word for the day

Complaisant (adj)

Inclined or disposed to please; obliging; agreeable or gracious;

Malice towards none

Whatever good has happened in the country in past 2years seems to have been done by the government, including a Kashmiri youth passing IAS exam and girls topping various exams!!!

Did poor citizens also contribute something or its all superman Modi's magic?

First random thought this morning

A large number of foreign investors have issued veiled threats of market destabilization if Gov. Rajan is not given a second term. Many local business and financial luminaries have also echoed their sentiments.

This is unprecedented and unacceptable.

This presumes that (a) Rajan is inarguably the best and the government cannot find a better substitute; (b) what Rajan did was the best one could have done under the circumstances; and (c) Rajan would want to continue to be at the helm of RBI till eternity!

Land of five rivers, drying up

Last week I travelled through the states of Punjab and Himachal Pradesh. The objective was to assess the political and economic situation in these states, especially in view of the Punjab assembly elections due early next year.

Though Punjab elections are not as critical as Uttar Pradesh election (which will be held simultaneously with Punjab & Uttrakhand), they are evoking keen interest amongst observers.

The observers shall be looking for three key points in these elections, viz., (a) whether BJP-SAD alliance in the State stays or it ends like the BJP-SS alliance did in Maharashtra; (b) whether Congress party could resurrect itself in the State overcoming the bitter infighting; and (c) whether AAP could sustain or improve upon the gains made in the last Lok Sabha elections.

The primary election issues this time seems to be (i) alleged blatant corruption in the Badal government; and (ii) rising cases of drug abuse.

My key observations during four days of travelling through Punjab and talking to many people from across socio-economic spectrum of the State, are as follows:

Economic conditions

(a) Both the farming and MSME industrial segments of the State are deeply stressed. The industrial space in the state is dominated by MSME units in textile, industrial components, and agro processing sectors. Construction sector has been one of the key growth & employment driver in past one decade.

Falling exports, labor shortages, water shortages, poor capex cycle, poor liquidity, drying credit lines, slowdown in construction sector and alleged pervasive corruption in the government have added to the stress in farm sector. Labor shortages are driving huge investment in farm automation.

(b) There is a perceptible move towards cash crops from the traditional cereals. The trade in agri produce is modernizing at satisfactory pace.

(c) There is perceptible slowdown in repatriation of money from foreign shores, that has been a primary source of investment in the State. The number of cases of reverse partition (local family members sending money abroad to support the expatriate members; and investment in business ventures abroad) are rising at a rather faster pace. Though there is no impact on the enthusiasm of youth who want to immigrate.

(d) The ITeS sector is growing fast and witnessing good investment. The current generation of youth is now willing to join service. Traditionally Punjabi youth has always preferred self employment or business as compared to working for someone else.

(e) The income inequalities and concentration of wealth are perhaps rising much faster than the national average.

(f) The Punjab villages are perhaps most urbanized in the country. The scope for more investment in this space is therefore limited.

(g) The demand for services like health care & education is rising fast. Both sectors have seen significant investment. But education is a major area of concern. Like all other places, the difference between the public and private school education standards is huge. This is having perpetuating effect on the socio-economic disparities. Surprisingly, not many poor people were complaining about this.

(h) Sex-ratio is still very poor, and all malaise attendant with this problem are present in full measure.

(i) Drug abuse has become a worse menace than the terrorism in 1980s.

(j) The western fast food like Pizza and Burgers have been fully localized to suit the local taste, whereas the traditional food is diminishing just like the skills in local arts & crafts.

Political situation

(i) The people are certainly unhappy with the incumbent government. The government is popularly believed to have fared poorly on socio-economic front. The allegation of blatant corruption are part of the folklore.

(ii) Unfortunately, Congress does not appear to be in a position to fully exploit the dissatisfaction of the people with the incumbent government. There is bitter infighting within the party. Though the Capt. is trying hard to strengthen his position, he may not reach to the winning position in six months.

(iii) The vote bank of BJP - RSS, Arya Samaji, Army background people, relatives of NRIs etc. is intact. Whereas the communal Sikh vote bank of SAD appears divided. AAP has gained some ground amongst traditional vote bank of communist party in the State - mostly Dalit Sikhs and marginal farmers.

(iv) BJP will have upper hand if it breaks its pre-poll alliance with SAD, like the way they did in Maharashtra, and makes this contest Modi vs. Capt. AAP will certainly help BJP in a four cornered contest, as it would eat into both Congress and communal Sikh votes.

Though these are early days, I would still hazard a guess on the likely outcome of the polls.

(a) If it's a four cornered contest (BJP, SAD, Congress and AAP) - BJP may reach close to the majority mark on its own.

(b) If it's a three cornered contest (BJP-SAD, Congress and AAP) - BJP-SAD may still be the largest combine, but short of the majority mark. Congress might succeed in forming the government with the support of few AAP legislators.

(c) AAP as a party is not strong in the State, but it has some good people on its side. 10-15 seats for the Party are possible but not certain.

(d) Even if BJP breaks the State level alliance with SAD, there may be no change in the central government and SAD may continue to be its part.

Monday, June 6, 2016

Nifty: Bull market confirmed, many questions unanswered

Thought for the day

"I had therefore to remove knowledge, in order to make room for belief."

—Immanuel Kant (German, 1724-1804)

Word for the day

Jimjams (n)

Extreme nervousness; jitters

Malice towards none

100miles from Delhi a real seditionist encroaches 280acres of Indian territory and uses it to launch a battle against the State.

Someone did it in 1984 also. Haven't we learned any lesson from the killings of thousands of innocent lives then?

Could central government be absolved on the plea that it's a State subject?

First random thought this morning

A street dog warned me yesterday evening that FOMC meeting next week and UK vote on EU membership the following week, pose significant risk to the global equity markets. The trading data suggests that very few have sold so far. Most traders are perhaps waiting to sell later this week, just ahead of the event. I am curious to know whom do they plan to sell and why would that someone be willing to buy when everyone is selling!!!

Strong rallies in gold and treasuries, and weaker USD are not corroborating a Fed hike or Brexit, either.

Nifty: Bull market confirmed, many questions unanswered

The new bull market in Indian equities is confirmed. The long term trajectory is also confirmed (100% gains in 3-4years).

But the rally is confounding and leaves many questions.

Usually bull markets begin from a "cheap" valuation point and is led by a new leader. Past two bull markets (May 2003-December 2007 and Jan 2011-Mar 2015) started from a low valuation point and were clearly led by Credit and Domestic Consumption respectively.

This is not the case this time. The markets are trading close to their long term average valuations. There is no clear sectoral leadership merging. Most sectors have almost equal number of gainers and losers. The universal gainers like Sugar, Chemicals are too small to lead the rally.

There is no great divergence between performance of benchmark indices and broader markets.

The traders and investors may not be trading or investing with high conviction unless the questions of valuation comfort and leadership are answered.

In the meantime, in strict technical sense, Nifty faces immediate resistance at 8330 level and a very strong resistance in 8550-8570 range. On the downside 7860-7930 has developed as a strong weekly support zone.

Expect Nifty to move in larger 7930-8330 range this week. The weekly range for Bank Nifty could be even higher at 16900-18000.