HOLY COLOUR : BLACK OR GREEN ??? – 19/03/2008.
Sensex has fallen almost 30% from the peak of 21206 to a low of 14677 registered on Tuesday. The market has suddenly lost all of its charm, which was very striking when the Sensex was scaling the heights like never before. But suddenly there is all gloom and doom all around and now the investors are also slowly losing hope. Sensex, when at 21206 was trading at a PE of 28, but now it is at attractive level of 19. The Indian growth story is still intact and we are well on the way to achieve GDP growth of over 8%, whereas the U.S. economy is already staring at a recession, if not already into it. There is no such crisis in the India growth story and well the financial crisis in the U.S. market, will impact the Indian stock prices in the short term, but that will only provide good entry levels in the Indian stock market for the long term.
Ø IS THIS THE END OF THE CORRECTION?
Ø BEN SLASHES INTEREST RATES BY 75 BPS.
Ø ROBUST Advance tax figures.
Ø HOW TO TRADE?
Ø LAST WEEK S RECOMMENDATIONS:
Ø THIS WEEK S RECOMMENDATIONS:
HAPPY HOLI TO ALL
IS THIS THE END OF AGONY? 22/03/2008.
Indian market has been experiencing bear phase since the last 10 weeks. The bear phase is very painful and leaves behind lot of scars on the portfolio of investors. This time their portfolio has been reduced to less than 50% of the invested amount. So every investor and trader has been asking the same question, as to when this painful correction will end.
Q. Has the correction ended?
The answer cannot be a simple yes or no. When the market fell steeply from a dizzy height, we called this a sharp correction. The market got hurt because of the steep fall and is now resting before trying to move up. It will be difficult to differentiate between the last phase of correction and the start of a recovery. The recovery will be a slow and painful process. The market will first come out of ICU, into a normal hospital room and then in the next stage will be discharged from the hospital. So the process is bound to take sometime. Infact it will be healthy for the market, if it rests for sometime before running again.
Q. What should the investors and traders do?
Investors, for the first time in the last four years, are able to find value in the Indian stock market. Investors should keep in mind that the Indian growth story is still intact. So, when the market itself has corrected 30% from the top, it is an opportunity for the investors to buy for the long term and reap the benefits. Returns from this level will be atleast 50% over a 12 to 18 months perpective. So investors should start investing, as such opportunities are rare and should not be wasted.
As far as traders are concerned, they should stay away as the market is very choppy and volatile. The chances of making money appear slim and the chances of the stop loss getting triggered are very high. Traders better stay away.
Q. What will lead to reversal in the trend?
The main trigger will be the Q4 results. The result season will kick off in the first week of April and that will provide a direction to the market. The advance tax figures of the Indian companies are very robust and that is a good indicator that the earnings might not be so bad.
The liquidity flow in the US market due to the recent rate cuts, will find its way in the Indian market. That will be the trigger that might change the sentiment of the trading fraternity. As a result the Indian Mutual funds, who are sitting on a huge pile of cash, will have put the money in the market.
Q. Will short selling be bad for our market?
Short selling, which will be allowed come April 21st 2008, will certainly not be bad for our market. The reasons are discussed below:
1. Our market has always been a long only market. That means that one has to have a bullish view in the market or a stock, so that he can buy at a lower price and sell when it reaches a higher level. But there was no way, one could express that a stock was overpriced. But now, that will change and one will be able to short the stock at unsustainable prices. So it won’t be ONE WAY traffic anymore.
2. Introduction of short selling will lead to a better price discovery mechanism. The market price will be determined by the demand and supply forces, without any undue advantage to either side.
3. It will be difficult for the operators to jack up the prices easily, as others in the know can short the script. Henceforth, stock price manipulation will be difficult.
4. Short selling need not mean that the prices will decline easily. Infact, short sellers will cover their short positions when the market falls and they act as a cushion to the falling prices.
5. Short covering rally are a treat to watch in the stock market. Short covering can often lead to panic buying and that rally is generally one sided. This leads to a bear squeeze. There is no need to sympathize if the bears are squeezed.
Q. What is the conclusion?
Simple, start investing, as the investors never had it so good. There is utter pessimism in the market and that precisely is the reason that the bear phase will end sooner rather than later. Always remember that majority of the people lose money in the stock market and in the same logic, majority are normally never right. So when every one is talking of Sensex in four digits, it is time for you to take the fishing rod out and do some bottom fishing.
BY THE WAY HAPPY HOLI TO ALL. ESPECIALLY MY STUDENTS. - JATIN SANGHAVI.
IS THIS THE END OF THE CORRECTION?
The mind says YES, we are somewhere nearing the end of this correction. But the heart says NO, as it is scared and fears that every one is talking about Sensex in four digits. Please remember the famous words, BUY when there is no one wanting to Buy. Please remember that the market looks the worst at its bottom and the rosiest at the peak. Also one has to keep in mind that no one can catch a bottom, so one would do well to start investing in tranches, just like the SIP way. Also please remember, that even though our economy is not fully insulated from the global markets, our markets will do well going ahead as it is more of an internal consumption story. Technically speaking, we have corrected almost 30% from the top, last time in the May correction too, the market corrected 29% from the top, and then rose more than 50% from the peak. May be the mind should be trusted.
BEN SLASHES INTEREST RATES BY 75 BPS.
The FED slashed interest rates by three-fourths of a percentage point, moving aggressively to contain a credit crisis threatening to push the country into a severe recession. The latest action brought the federal funds rate down to 2.25 percent, the lowest point since late 2004. It is the sixth cut in the past six months and comes at a time when the Fed is trying to keep the economy from slipping into recession. The reduction in the funds rate was designed to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity.
The Fed acknowledged in its statement that inflation pressures have grown more than expected. However it still believed that the greater risk to the economy was that of slowing growth, not a spike in prices.
ROBUST Advance tax figures.The Advance tax figures, a bellwether of corporate profitability, announced yesterday indicate that the growth momentum is likely to continue amidst the global concerns looming in the backdrop. Expected slowdown in economic growth has not yet impacted corporate bottom line. It may be noted that the companies are required to pay the tax in four quarterly installments, the last being on March 15 every year.
Two companies HDFC & RIL saw the highest growth in terms of advance tax payout. Financial Services Company HDFC more than trebled its payout, while diversified conglomerate Reliance Industries saw the tax outgo nearly treble for the quarter. The advance tax which have risen so sharply, indicate that the January to March period earnings, could be robust. L&T, Indian Hotel and Ambuja cement reported fanatastic numbers, that will be welcome by the capital markets. Advance tax payments of BOB, Dena Bank & MRPL rose more than 5 times.
Sensex opened the week at 15326, made a high of 15465, low of 14677 and closed the week at 14994. The net loss on a weekly basis was 766 points. The market is in a bear phase, where every rise will be a bear market correction and it will be sold into. Thus one should use every rise to exit stuck up long position and also to short weak stocks. This strategy should be adopted as long as it trades below the 200 DMA i.e. below 17140. The trendline resistance is at 15369 and 15859. The Sensex has fallen with a gap between 15873 and 16064. Thus any rise towards this gap will be sold into. For the week ahead resistance is at 15369-15680-15873. The support is at 14677-14215-13779.
Nifty opened the week at 4745 made a high of 4745, low of 4468 and closed the week at 4573, thus registering a weekly loss of 172 points. The trendline resistance falls at 4593-4813-5023. Nifty OI PCR is at 0.86. Also lot of call writing has happened at the strikes of 4700 and 4800, which will act as a strong resistance. Lot of put writing is visible at the strike of 4500,4400.For the week ahead, resistance is at 4758-4813-4874-5023. Support is at 4533-4448-4281.
HOW TO TRADE?
Create a short straddle for the NIFTY ATM strike of 4600 for the next month series.
LAST WEEK S RECOMMENDATIONS:
Almost majority of the stocks recommended reached their targets even in such volatile conditions. OnLY EDUCOMP,ADLABS and SKUMARSwill reach the target this week.
ü RANBAXY TGT 473 REACHED 465.ü HLL TGT 237 REACHED 241.
ü CIPLA TGT 210 REACHED 210.
THIS WEEK S RECOMMENDATIONS:
GAIL 416 SL 409 TGT 425-437.
PNB 461 SL 443 TGT 483-490.
INDIAN HOTEL 109 SL 105 TGT 114-123.
BHARTI 777 SL 764 TGT 804-822.
CAIRN INDIA 223 SL 214 TGT 232-238.
TECH MAH. 657 SL 631 TGT 675-689.