Markets had a decent week and expiry. Nifty not only defended 9900 but also managed historical closing above the 5 digit mark. Markets were up about a 1% point this week with Nifty above the 10k mark. The sentiment is bullish. Is it euphoric yet? Well difficult to say or judge but to our best understanding not yet. Lack of clear negative triggers and ample liquidity are keeping the markets afloat for now.
Results continued with positive surprises in Yes Bank – the stock rallied 10%! The seasons bulk of the news flow is behind us, however some crucial pockets still to come out. Mid caps will continue to be in action and it will be worth to see how some of them react to individual results. The valuation in the mid cap and small cap space seems to tell you a different story.
Technically speaking, Nifty should be in the process of shifting the base to 9900. Till that is defended, bulls need not worry. At the same time 10100+ was the high it hit on its way up. Automatically that becomes the level to cross. Since these are historical highs, it is difficult to claim resistance. No calculations would work.
Having said that – we continue to believe that nothing has changed fundamentally for the market. Nifty still trades at a historically high P/E multiple. Liquidity and lack of negative triggers are keeping the bears at bay. It may be wise to exercise extreme caution when you are investing. One cannot expect to make huge money in the short to medium term by investing at these levels. Stock picking should be the focus.
As mentioned in the last week Pharma was on caution and results of Dr Reddy proved to be the trigger. The index corrected 600 points and now is dangerously poised to go lower. Watch out of Nifty pharma 9400 levels as bears will be active to break those. Caution is also advised in metals space as Nifty metal hit a weekly resistance and failed to keep up. Rally seems to be losing steam. The Nifty bank is nothing less than euphoric and overbought. However further upside cannot be ruled out as it is in one of the best bull runs in recent times. This space should continue to see some action coming week. Other sector that should see some funds chase stocks is Infra. Watch out for the Nifty Infra index as it sustains above 3300 – there should steam left in this rally.
Markets closed up about more than 2% for the week. Nifty ended at striking distance from 9900. As you read this SGX has already breached that level. Large caps showed a lot of action with Reliance hitting highs again. The sentiment is upbeat albeit a bit of froth was seen in some IPO counters. Volatility ruled names like CDSL, AU Finance, ERIS and HUDCO. These stocks saw huge price action.
Technically speaking the markets finally broke out and are at all time highs. 9900 puts have seen some shorting and call writing has been subdued. 9720 (last high) is now a base level and key to Nifty’s immediate trend. On the upside 10k is doing the rounds – and may be a reality soon. 9450 seems to be the new intermediate bottom.
Fundamentals will start to show soon as results season has kicked off. Inflation came in at an all time low in years prompting an increased expectation of rate cuts. Multiples are inflated and at historical highs. Nifty continues its 24x P/E. With a lot to reach in terms of individual results one has to play the ride cautiously. A small reason – be it geopolitical or random news flow, can create havoc due to historically stretched levels.
Globally DOW and S&P found their own reasons to close at all time highs. The “reduced” fear of a rate hike from not-so-encouraging economic data prompted a positive close to major US indices. What is surprising to see – the CBOE VIX – volatility index has hit an all time low since 1993. For a contrarian trader this is complacency at its best or worse.
Sectors to watch out for next week are Infra and Banks. Stocks in these indices may stage an extended rally if market sentiment supports them. PSU banks were showing some action and select are likely to do so going forward. Pharma companies have given a very strong show over the past few weeks. The rally should consolidate before scaling old highs. One has to be stock specific as result season will continuously re rate a lot of these issues.
Markets inched higher for the week with Nifty ending firmly above 9650. It was an important week as the GST roll-out got absorbed. For the week the markets closed higher by 1.5%. Reliance Industry nears 1500 and is on a spree to continue its 9 year high move. Individual stocks continue their rallies as many hit 52 week highs. The over all movement for the market was sluggish as there are no fresh triggers to decide either side momentum. Stellar listing of CDSL has masked the subdued debuts of many of the recent IPO’s including that of ERIS all of whom saw lack lustre participation.
Technically speaking the markets had fallen for 3 consecutive weeks after touching all time highs. Nifty scaled 9700 and retraced back to 9450 over the last 3 weeks giving a decent 250 point soft landing. It is now under 1% away from testing fresh highs. Bears are clearing struggling to get the markets down below key levels. 9700 is the key level to watch as any fresh momentum will only come above those levels. Maximum call OI is in 9700 strike and a sustained close above the said level should bring short covering. At the same time 9500 seems to a firm base as we move into the mid of July expiry.
Fundamentally speaking the markets are stretched. Nifty is at 24x PE with a lot of individual stocks at valuations last seen pre 2008 crisis. India VIX, the sentiment indicator is at all time lows and signals complacency. Although over confidence is not sensed as of yet on a large-scale basis one has to keep in mind that risk reward is skewed at this level. Undertone must be caution.
Global markets ended the week on a high note as job data supported a strengthening US economy. The DOW ended at 21414 and S&P struck 2425. The data does suggest that FED will raise interest rates towards its target of 2% and the fear of sucking the economy for liquidity is suddenly getting over. Tech stocks continue to do well as Amazon and Alphabet (Google) continue their race to $1000.
Sectors to look out for the next week at Metals & Real Estate. Unitech was buzzing as 6.5cr shares were cornered over the week by a family. The stock was up 20%. The Nifty Realty index is on the verge of a break out. In the metal space Jindal Steel & JSW Steel show a break out. Vedanta is already above its long-standing high of 250. The Nifty Metal index has too shown a break out of its long-standing consolidation.
Markets inched higher in the post budget week. Indices closed up about a percentage point and closed the week firmly above key levels – Nifty 8700 and Sensex 28000. The markets looked overstretched/overbought at current levels and may see a pull back in the days and weeks ahead. Result season should continue its due course and one will see a lot of individual company reaction to numbers. This result will also be crucial for many companies as these are first look earnings after demonetization. Also RBI policy will be a key event to watch out for besides tracking the global events and FII flows. Goa and Punjab polls have been finished and domestically speaking one will keep an eye out on the political picture as it develops.
The underlying sentiment in the market seems bullish and there are no available triggers globally that would trigger a pullback. Having said that fundamentally a 21-22x PE for the market has historically been considered as “high” and one needs to be cautiously bullish while taking positions. FIIs have been net buyers for the week and the month till date pumping about 555 crores in cash segment. Should this flow continue one will continue witnessing higher levels in the market.
Global market sentiment is also bullish. US markets look to be euphoric at current levels. Valuations are at historical high levels post Trump win. Volatility seems to have dissappeared from the markets altogether. A pull back in US markets is also awaited as the DOW has rallied a lot in the post election period.
Finally the much talked about FED hike has come. As no surprises, FED rate has been raised and it was as per expectations. But has the after effects of the same sunk in? Index goes up 300 points then down 300 points? Volatility will rule in the days going forward, keep an eye on VIX. Sentiment seems a bit uncertain on the street and plus the December anomaly should be at the back of our minds. (it is a consensus event wherein FIIs sell out and take money home for reporting stronger sheets as US year ending is 31/12/2015).
Technically speaking 25000 SENSEX held up firmly and is a reasonable support as far as charts are concerned. This coincides with 7500-7600 range for NIFTY. Traders looking for opening shorts must see the risk-reward ration which is skewed against them. Does that mean it is time to go long? Well technically no, however adventurous longs can be opened as risk-reward is in longs favour. But be prepared to be chopped as we affirm volatility will rule going ahead.
Fundamentally speaking markets are priced at 20x trailing earnings with a dividend yield of 1.4x. This picture is of a reasonably priced markets. It is neither cheap nor expensive. One can do bottom up fishing looking for reasonably cheap stocks however within the index there are counters available at a good entry point given the current bull run we are having. Troubled counters like DRL have ben languishing at 52-W lows and provide a good entry point for very patient and long term investors.
Currency is interestingly poised for the coming week as there are multiple holidays. Technically oversold for the very near term and fundamentally still adjusting to the FED hike, currency has been all over the place with INR getting stronger session on session. Traders are advised to trade longs and shorts with extreme caution and having said that a decent option strategy such as call and put spreads should give comfort as expiry is round the corner.
Market Mood as on October 6, 2015
BSE Sensex +147 ( 26933)
NSE NIFTY +33 (8162)
CNX MIDCAP +34 (13335)
CNX SMALLCAP +49 (5392)
FII +649 Cr
DII +349 Cr
BRENT CRUDE +0.04 (49.29)
GOLD $/0Z 1137.90 & Rs/10 gm +107 ( 26490)
SILVER Rs/KG +114 (36850)
USDINR + 0.15 (65.65)