Week Ending 18th September 2020

Dear patrons, yet another lackluster week went by without much action in the markets, barring a very eventful last one and a half hour on last trading day of the week. In last couple of hours of trade during the last trading session, markets saw a big sell off. Nifty and Bank Nifty both bore the brunt of this sell off losing a lot sharply. Bank Nifty was severely punished losing almost 300 points in less than 5 minutes.

The fall in Nifty was attributed to the Indo-China confrontation on the Eastern border and a second front likely to open on the western border. Also, the FOMC commentary in the US was a bit hawkish sending the US markets down impacting global markets. 

Nifty followed the pattern that we suggested in the last blog. Nifty went to 11550-11600 range during the week twice and rebounded sharply on both the occasions. In the first instance Nifty turned from 11568 to move below 11400, though it turned sharply during further sessions to achieve 11600. After closing marginally above 11600, Nifty again started to correct closing the week a tad above 11500.

Bank Nifty, on the other hand remained in a range of 22700 to 22000, mostly remaining volatile. Being the biggest contributor to the Nifty, any move in Bank Nifty has a big impact on the Nifty. Banks and NBFCs lost sharply Friday with many closing with a big negative tick.

The Pharma index managed to hold on to impressive gains during the week, keeping Nifty afloat amid the avalanche in the Banking space. We expect the pharma companies to do well during the pandemic and even after it is over. It remained a silent spectator during the Banking, IT, Engineering, Auto rallies, now time has come for the pharma sector to show some gains. Investors, however need to chose and pick stocks in this sector. 

Coming back to Nifty, Nifty remains weak as long as it trades below 11600. The current formation is hinting at a fall in Nifty towards 11300-11200 range, with 11000 acting as a strong support. One needs to be cautious in taking a trade in the current environment. We saw huge selling in Index Futures on Friday and  it might just be the start of the fall.

Many big-wigs like SBI, Kotak Bank, Reliance, HDFC twins, L&T et all are looking weak on the charts. There may be space in these stocks on the downside. Banking in particular looks vulnerable on all time frames and may correct further.

Be choosy in buying stocks at the current valuations. Investors need to be extremely cautious and nimble footed for the next month or so. Mantra remains the same, accumulate good quality stocks.

Stay Invested!!!

Happy Investing!!!

Week Ending 11th September 2020

Dear patrons, the week gone by was a lack luster affair for the markets. Moving in a narrow range of 300 points the Nifty managed to close in the green for the week, with minuscule gains. There was no trigger for the market to go up or down. The week was pretty slow on news flow as well as events.

The Nifty managed to touch low of 11185 during the week on the back of massive sell off in the US. Correcting from all time high the Nasdaq and the S&P both indices lost heavily in the sell off. The fall reverberated in the global markets, wherein all the markets lost considerable ground. Indian markets were no exception, though they recovered quite sharply. The Nifty managed to bounce back and closed the week a tad above 11450. We had mentioned in the previous blog that Nifty should find support in 11200-10800 band.

Rally in the markets was mostly ruled by Reliance Industries. Reliance rose sharply on announcement of offering a 20 bn USD stake to Amazon in its Retail arm. Reliance is already a debt free company. If the deal with Amazon goes through, it will have expertise as well as reach. Reliance now has bigger market cap than all IT companies on the Nifty combined. Banks also played a part, although a very small part, in the rally.

There are two scenarios that may unfold during the coming week. We will see them one by one.

Scenario 1. Nifty has achieved its upward target and likely to resume its downward trend. In this scenario as per wave theory Nifty may drift towards 11200-11100 range. The following pic. illustrates the point.

Scenario 2. Nifty is yet to complete its retracement and may move up towards 11550. Once Nifty reaches 11550-11600 range it may start the fall towards 11200-11100 levels. The following pic. illustrates the same

One should be prepared with a contingency for any eventuality. Chances of a fall are more than rise. Plus chances of higher movement on the downside than upside are more. One should pick stocks which are fundamentally strong.

New regulation from SEBI has made it mandatory for mutual funds to hold 25% of their portfolio in small cap stocks and same with large cap stocks. This may bring some unwinding in index stocks by mutual funds resulting in fall in Nifty. Markets are already in fragile state due to new margining system, geopolitical tensions with China, the new regulation may prove to be a dampener.

All in all chose fundamentally good stocks. Invest in SIP mode.

Stay Invested!!!

Happy Investing!!!

Week Ending 4th September 2020

Dear patrons; first of all let me apologize for being on and off regarding this blog. The week gone by saw heavy sell off in global as well as domestic markets. The speed and quantum of fall was quite sharp. We will see what transpired in the markets one by one.

India's GDP numbers were announced at the start of the week. For Q1FY20-21 Indian GDP declined by a whopping 23.9%. Almost all sectors saw double digit decline barring the Agriculture sector. Construction and manufacturing bore the worst brunt of the decline falling by around 50% and 40% respectively. The fall in GDP growth was more or less anticipated on the back of the lock down imposed in the country for the entire quarter. The markets were not impressed with the fall and lost more than 2% on the first trading day of the week. However, the Chief Economic Advisor's statement that the economy is witnessing a V shaped recovery, gave some hope to the markets and the Nifty rose mildly in the following sessions.

The fall in GDP growth is a worldwide phenomenon. All the global economies lost sheen due to the Chinese Virus pandemic that holds the world by the scruff of neck, stopping all economic activity across the globe. The pandemic is far from over and we may witness further economic distress in various sectors like Aviation, Hospitality, Tourism etc., which in turn will culminate in big distress in the banking system. The road to recovery is not as bad as in 2008 though. Like during the subprime crisis, this time there is no dearth of finances at various governments' disposal. Governments around the world are pumping in huge liquidity in the system, thereby keeping the markets buoyant. In all likelihood we should see a vaccine for the Chinese Virus around November, which gives solace to the entire mankind.

Apart from Chinese Virus, Indian markets are also unnerved by the geopolitical tensions with China on it's Eastern border. There have been little skirmishes resulting in deaths of soldiers, the situation however remains volatile and may result in a limited war like situation. China's expansionist behavior needs to be restrained and India can take lead in that endeavor.

Let us turn our attention back to the markets. Nifty lost almost 3.5% in the week gone by, marked by big falls and small recoveries. The week started off with a multi month high opening but it lost its way midway through the day losing heavily on high volume. Mid week saw mild gains for Nifty amid average volume. The week ended on a somber note following global cues and losing close to 2%.

We can see in the above image, Nifty was forming a rising wedge, which has been broken from the downside at the start of the week. The gates are open for further fall for now with impending targets in the range of 11200-10800. For the time being Nifty looks fragile. One needs to be nimble footed in trade adhering to strict stop losses.

Focus should remain on fundamentally good stocks with an accumulation mode.

Stay Invested!!!

Happy Investing!!!