Markets are Trapped in a 10% Range

Last week, I wrote that I would be more bearish than bullish. I was expecting the markets to break down and retest the levels of 5175. I also mentioned that the upside looks capped at 5500-5550 on Nifty, from where it may start a downfall if it doesnt sustain at the higher levels.

Exactly on Monday it made a high of 5562 and on Wednesday again made a high of 5553. But it did not succeed to close above 5550 and started to go down.

However, what is surprising is, it did not break below 5300-5350. The Nifty closed at the lowest point of the week at 5375 which pushes me to think that the bulls and bears are equally divided. This also means that the bigger bull run post May-June 2011 is in making and this time it will be stronger than all the past rallies. The way bulls are protecting the downside despite FII selling and very low global sentiments, it is now getting more and more clear that downside is going to be limited. But does it mean we are going up and away? I guess not.

The support during March is largely attributable to the long term insurance flows and some really strong hands buying after a 20% correction in the market.

I believe, that the current strength in the market might continue till the insurance flows exhaust completely. That would be around mid of April. And hence, in absence of any good news, we expect the markets to fail at the higher levels. It is quite difficult to assess what that higher levels could be. But looks like we are heading towards 5700-5800 region from where we would again show some signs of exhaustion.

Those who have invested rightly during the recent bottom can liquidate some part of their portfolio for the better entry levels in May - June. And those who want to hedge their portfolio can wait for Nifty to cross 5700 and then short.

Why Japanese Quake is Enough to Shake Our Markets?

Last week, we wrote that the week could be a turning point. We expected that the markets is likely to fall to 5300-5350 level and then bounce. Similarly the Bank Nifty level which we mentioned were 10,500-10,570. We were at 5535 and 10,967 levels when it was written last week.

The markets fell on Monday itself and after dropping to 5400 levels / 10,650 levels bounced sharply. It gave an impression that the dip was short lived and we were back on the rising territory. However, the development over last 3 days have not been very encouraging.

Markets were showing strength till Wednesday, when the Govt. announced that the fuel price mechanism (to change the retail prices of fuel whenever there is a rise in international crude prices) will not be followed. I think, that was the starting point of the new fall. That day, Bank Nifty gave out all gains and Nifty also closed weaker.

From that day onwards, every incremental news has added to the concerns to the market rather than doing any good. First, it was a news of Moody’s downgrading Spain which strengthened Dollar against Euro. Next, it was yen getting weaker against Dollar due to the Earthquake.

What can happen next week:

Quick Macro:

1. ECB continues its stance to increase the interest rates by 25 bps. As I mentioned in my last blog, this can distort the recovery path of the PIGGS countries and hence, the European Debt Crisis can re-emerge.
2. In Indian Markets the IIP numbers came at 3.70% is better than what market expected. And that makes it almost certain that in March, RBI will increase another 0.25%.
3. Japan was hit by the massive earthquake, which has damaged a significant portion of their North Eastern Port areas including blast in Nuclear Plant and host of bad news of massive destruction. This would mean that Japanese Economy will have to do a lot of fiscal expenditure to bring back the economy on track. It means lot more which we will discuss next.
4. Libyan situation is showing no signs of improvement. However, the international crude prices have shown some cooling off simply because of dollar getting stronger against host of currencies.

How does this impact:

·         Increase in Bank Rate would again mean additional burden on Indian corporate and also for banks, it would squeeze the margins, while increasing the risks of NPAs.

·         Dollar getting stronger against many currencies is not a good news for Emerging Markets for three reasons.

·         One, the market returns in dollar terms depreciate due to appreciation in Dollar. If there is a view that in a short term dollar will continue to rise, expect a big sell off in Emerging markets.

·         Two, dollar rising against rupee would mean higher current account deficit, which is already running under stress. This would mean further stress on rupee.

·         And three, all the commodity plays are driven by their international prices. With dollar increasing and international prices dropping, it puts pressure on the Indian Companies, whose profitability is directly linked to the prices of the commodities.

How the Micro looks like:

1. As we anticipated last week, a reversal seems to have started. That means, we need to be very cautious at higher levels and protect the long only profits. Nifty seems to have got trapped and if it opens low on Monday with showing no signs of recovering, we may see a sharp fall during the week.
2. Nifty can go up to 5530-5550. But if it doesn’t sustain at higher levels, the fall is almost certain and we may go back to the previous lows.
3. Before breaking the previous lows of 5175, it may try sustaining above 5320-5375, where the near term support is being put.
4. Similarly, Bank Nifty can head up to 10030 on a higher side and if it doesn’t sustain, it can go back to previous lows.
5. Immediate support is at 10,650, which was last week’s low. But there are high chances of this getting broken due to poor sentiments and macro uncertainties.
6. Next support is only in the region of 10,380-10,450 levels.

My current view is more BEARISH than BULLISH. This is because after a 5 week relief rally, the markets have started showing signs of uncertainties and weakness. Although the levels anticipated were not broken during last week, it also gave an impression that there are macro headwinds and global uncertainties which makes it almost clear that there is “No Good News in Making”.

So, if you have not liquidated your longs during last week, be agile this week and also think of taking a hedge by shorting Nifty / Bank Nifty at higher levels.

Be Careful this week - It could be a turning point again...

A lot of things which we mentioned during last week came true:

1. We said that the Budget would be largely a Non-Event. And the fiscal discipline and fiscal deficit targets at 4.80% or lower will be stressed upon. Our finance minister actually has put the next fiscal deficit target of 4.60%...

2. In fact, the rally in the markets from the budget day was largely attributed to Banking Sector which started a sharp rally after the FM mentioned the fiscal deficit target of 4.60%.

3. We said, we are more bullish than bearish with the caution that if the Nifty levels of 5160-5260 breaks, we might see an immediate downside of another 400 points. We were anticipating the Nifty Targets of 5440-5490 and Bank Nifty Targets of 10,900 (When the Nifty was 5313 and Bank Nifty was 10,450).
To our surprise, the Nifty went up all the way to 5611 and Bank Nifty to 11,155 ! This, inspite of Crude Oil Shock and Libyan Crisis.

However, the week closed very close to our targets. Nifty closed at 5535 and Bank Nifty at 10,960.


Now what next...
Quick Macro:

• Libyan Crisis have been worsening. When we wrote this last week, Crude was at 97-99. We were anticipating the crude to cool down to 95 levels. But it swiftly moved up and currently at around 105 levels. US has announced an attack on Libya to oust the dictator.
• ECB (European Central Bank) president Jaun Claude Trichet has expressed his willingness to increase interest rates in April, to fight inflation.
• And the latest one is - DMK has pulled the support and theoratically, UPA government has lost the majority.

Analysis:

• Directionally, now everyone has started factoring higher crude oil prices through out the Calendar year 2011. Some analysts have started building a worst case scenario with Crude at 120-130 for entire year. Crude Singly has the ability to distort India's Growth and Future Prospects. It puts pressure on Rupee through Current Account Deficit and puts pressure on Interest Rates through indirectly pushing up the Fiscal Deficit of Indian Govt (through subsidies). If the Govt. decides to pass on the cost to consumer, it would immediately spike the inflation.
• So, "Crude not showing any sign of weakness" is going to be big trouble maker for Indian Markets. And the Banks will start becoming extremely vulnerable with this.
• ECB's stance of increasing Interest Rates in April by 0.25% doesnt affect us directly. But it more or less confirms that RBI will have to increase the interest rates in this policy meeting. So, the chances of avoiding the rise due to slower growth (IIP numbers) during December, January and February has gone.
• There is one more serious implication of ECB's rate increase. It can distort the recovery path of PIGGS countries which were facing soveriegn crisis during 2010. Those stories can come back in May & June this year again. And that should be a potential trigger for the Western Markets to fall again.
• Domestic News of DMK pulling the support is not shocking. It was largely anticipated since the 2G scam came out and Congress passively participated in Raja's exit. I dont think it would become so worst that we will have to see Election Again.
• HOWEVER, THIS CAN BE THE CENTRE STORY FOR SPECULATION DURING NEXT FEW WEEKS. The school which believes that this would cause a big uncertainties in Indian markets will start pulling out the funds and that can take the markets to much lower levels.

How does Micro Set Up looks like:

• Nifty for whatever reason, if opens and trades below the Friday's closing, has a potential to lose good 200 points and straight away, go to 5300-5350 range, where the weekly support is placed.
• If this support breaks it would open the possibility to retest 5175 and go down even lower.
• ALTERNATIVELY, It may happen that when we are close to the support levels of 5300-5350, we may see important macro or domestic news which will finally decide whether the support breaks or acts as a strong support.
• However, one needs to be very cautious as this is going to be 5th week from the bottom and it can be a turning point again. With no "Good News in Sight" and only incremental bad news coming, the set up becomes weak. The odds are in favor of Bears right now, with the only possibility of rescue that if something really good comes out by Tuesday-Wednesday like Crude going back below 95 or some alternative to the Libyan deadlock or some international good news.
• In such scenario where the markets react positively to the good news and start moving up from the levels of 5350 support, the next week we can close at 5700 on Nifty.
• Similar levels in Bank Nifty are: Support at 10,570 to 10,310 levels. If breaks forcefully, we can go down all the way to 9500 levels in coming days.
• Alternatively, if we get really a good news, and there is a turning point from 10500 kind of levels, we may see Bank Nifty close near 11,200-11,400.

Whatever be the case - Up or Down, this week we will have large movements either on upside or downside with good volumes. And once we are through with this week, we will see the final medium term direction of the market.

Budget + Congress = Non Event

Last week we wrote...

"My feeling is that we will get one more chance during this week, when the markets may head lower but not as much as it did in recent past. Here goes my estimates for next week:

1. Nifty is expected to go down up to a level of 5240 and then it should bounce and close the next week at around 5420-5450 kind of levels. This assumes that we are not making an incremental low. The medium term investors are advised to buy into this temporary weakness. The premises for the weakness is that on Friday we sold off aggressively and during first 2-3 days of next week, we are expected to continue see the follow up selling. However, the selling would be more in the form of profit booking rather than the significant shorts building up in the futures or the long unwinding.

2. Similarly, Bank Nifty is expected to go down to 10,335 levels and then recover to around 10,800 levels. Those who did not buy the bank stocks can look at buying them at such levels.

3. Pre-budget announcements, speculation over interest rates and 3G scam related news will continue to be in the focus. Large corporate houses involvement in 3G scam will be the fuel for markets to go down.

4. Egypt story of dethroned dictator is slowly spreading to other middle east oil producing countries (Libya, Iraq and Bahrain),  and this can again put pressure on crude oil prices. If this happens, it would be really bad for our economy which is already struggling from inflation, high current account deficit and unmanagable fiscal deficit. I feel this being the larger risk, which most TV Channels and analysts are currently ignoring."

When we wrote this last week, the Nifty was at 5453 and within the week it went up all the way to 5589. Similarly, Bank Nifty was at 10,927 when we wrote that Bank Nifty is expected to go down to 10,335. Bank Nifty later made a high of 11,099, before going down all the way to 10,170...And then recovering to 10,500 levels.


But Now what ?

On Monday, we will go into the Budget Session. This is 3rd Union Budget from Congress. That means we are half way through and if at all any big change has to be made for fiscal consolidation or Corporate India, it is NOW. 4th and 5th Budget will likely be much more populist & "aam aadmi" centric. India will not have a chance to take any bold steps which might hurt the sentiments of "aam aadmi" during 4th and 5th budget. So, if at all there is anything of that sort to be done, it is now.

But...
Congress as a Govt & Budget as an event - both are over talked but least exciting in action. The markets and common man generally anticipate a "BIG change" from the seemingly landmark event which happens only once in a year. But, we must understand that anything the Govt. does as a "BIG change" becomes the minimum benchmark for coming years. And thats why to bring out a "Big Change" is not easy, for any govt. For Congress, which is known for its Non-action it is all the more obvious that they will make sure that the Budget will be a Non-Event.

Inflation is at the centrestage of recent politics. But everyone knows that this is more to do with the global flows getting attracted to growing economies like India rather than any significant supply side concerns. Also, food inflation is expected to cool off in coming days as the Rabi Crops will be harvested in March & April. So, relative to last few months, the Inflation should not be the party spoiler. So expect no landmark stance on curbing inflation immediately. March end RBI Policy raising 0.25% is what the maximum action expected. And I think that is more or less factored by the markets.

Also, the roll back of incentives given during recession is very much on cards. Curbing Government Expenditure and getting Fiscal Discipline back must be the main message of this budget. This would mean, that this budget will stress on 4.80% or lower Fiscal Deficit number by doing everything possible to increase revenues on oneside and curbing government expenditure in such a way which does not hurt the growth.

Coming back to the Micro Market Movements, here are my estimates for next week and probably for the entire month of March.

1. I feel the downside is limited at least for now. However most important supports for Nifty is 5260 to 5160. For any reason, if this breaks, the Nifty will immediately lose 400 points more and can go down all the way to 4760. That would be around 16,000 sensex (our annual target for sensex).

Similarly, for bank nifty a very important support is at 10,240-10,100 range. If it breaks this range, it can immediately go down to 8786.

But I do not subscribe to this view. I am more bullish than bearish at least for this month.

There are two reasons for this:
First, In March, the Domestic Insurance Companies are big buyers. LIC alone is expected to be an investor of around 15,000-20,000 Crores in Q4 and large part of that comes in March alone. Almost half of this amount can further be added by Private Insurance players. That means we are expected to see around 10,000-12,000 Crores of buying by Insurance Sector alone during March.

Just to give idea about how big is this amount: FII's net selling averages at around 500-700 Crores per day for last few weeks. That means in March alone, the markets can absorb another 20 day's FII selling comfortably.

With FIIs selling off already 10,000 Crores and there is no reason for markets to go down except the temporary crude crisis, I dont agree that they are planning to sell another 10,000 Crores in March !

So, thats the comfort in back of my mind for March month alone.

Second,
After 13 weeks of fall we have gone up 2 weeks. Now, it is not convincing why the pull back would get over in just about 2 weeks. We are not going down for any fundamental reason. Except Crude there is nothing disturbing. And the moment Crude goes below 94-95, it will start falling again, which will bring strong rally in markets across the world. And there are reasons for that. OPEC has enough idle capacity to compensate for Libyan production. So I feel, it is more of speculative crisis rather than real crisis in Crude.

This 13 week's fall can get extended to 21 weeks (6 more weeks) only if there is an incremental serious bad news - say if the geo-political tension converts into a serious WAR between Gulf and US.

My best estimate is that we will have a pull back for at least 5-8 weeks (2 weeks over). In this, we can go up to even 6,000 of Index, before falling for last leg.

2. Which are the potential targets on the upside, where we will meet the selling?
In case of Nifty, we will see a strong resistence between 5440 & 5490. Similarly, it will be tough to cross 10,919 on the bank nifty. My estimate is that we will first go up on the bank nifty to around 10,900 levels and then may come down to 10,600-10,500 levels.

In all probability we may see bank nifty coming back to 10,500 levels only after RBI policy on 24th March.

But what is important is, although I am more bullish and less bearish, the Nifty levels of 5440-5490 are to be watched very closely. If the markets comfortably cross these levels, we can confidently say that we are going towards 5700-5800 levels during March itself.

Thats all for this week. Wish all the Market Watchers Best for their trades and investments.

Do give me your feedback about my blogs on bhuvan.singhi@gmail.com

U turn of the Markets, as we Anticipated !

Last week we wrote:

"What I see happening over next 1 or 2 weeks?

1. Short Covering should continue and we should be heading to cross 5400, 5450 and 5500. Last we sold off was from 5550-5600 levels. I feel at least that much of target is achievable in February itself.
2. The stocks which have sold off aggressively will see a short covering rally of 5-25% in next week and can continue till the mid of second week.
3. Pre-budget rumors, discussion and announcements will be another fuel to take the rally up to 5600 levels.
4. Banking, Auto and Infra stocks would be in limelight. Pharma and defensives may spend boring days. IT may sell off due to Rupee strengthening further.

So, if you were a long Investor all these days, and worried about your portfolio returns, the market has given you a second chance to exit... Your worries for the time being are halted and you need to be cautious on protecting your gains now, when the market moves up...."

Against all odds of passimism, inflation fears and lower IIP numbers, we gained around 2.50% during the week. People talking about 4800 levels of Nifty have gone terribly wrong. As anticipated, our targets of 5400-5450-5500 were achieved comfortably on Thursday and then on Friday also for a brief period we traded above 5550 before we sold off.

Banking and Infra stocks gave on an average 10-15% gains where the markets hardly moved 2.50%. IVRCL Infra, which lost around 40% over last 2 months, bounced sharply from a low of 60 to high of 81 and then closed at 75 on Friday. There are many such stories of short covering rally.

But important point is that from the levels we saw during the panic on last friday, when the IIP numbers came, we have shown no signs of weakness. But will this be a "V" shape recovery and nobody will get chance to buy?

My feeling is that we will get one more chance during this week, when the markets may head lower but not as much as it did in recent past. Here goes my estimates for next week:

1. Nifty is expected to go down up to a level of 5240 and then it should bounce and close the next week at around 5420-5450 kind of levels. This assumes that we are not making an incremental low. The medium term investors are advised to buy into this temporary weakness. The premises for the weakness is that on Friday we sold off aggressively and during first 2-3 days of next week, we are expected to continue see the follow up selling. However, the selling would be more in the form of profit booking rather than the significant shorts building up in the futures or the long unwinding.

2. Similarly, Bank Nifty is expected to go down to 10,335 levels and then recover to around 10,800 levels. Those who did not buy the bank stocks can look at buying them at such levels.

3. Pre-budget announcements, speculation over interest rates and 3G scam related news will continue to be in the focus. Large corporate houses involvement in 3G scam will be the fuel for markets to go down.

4. Egypt story of dethroned dictator is slowly spreading to other middle east oil producing countries (Libya, Iraq and Bahrain),  and this can again put pressure on crude oil prices. If this happens, it would be really bad for our economy which is already struggling from inflation, high current account deficit and unmanagable fiscal deficit. I feel this being the larger risk, which most TV Channels and analysts are currently ignoring.

Follow Up on my stock ideas:
I wrote in last blog:

1. IRB Infra: Buy above 179, Targets 185, 195 and 205. Stop Loss: 177 (Risk traders can keep the stop loss below previous day's low.)
IRB achieved all our targets. First target of 185 on Thursday and 195 and 205 on Friday. Again, it has closed at 182. If you have not booked your profits on targets mentioned above, please close the trade on monday morning as the stock might go down again.


2. SBI: Buy above 2665, Targets 3011, Stop Loss: First Stop at 2480. Then put trailing stops below previous day's low.

SBI's friday's close was 2761. However, if on Monday it trades below 2740, one should exit the position.


3. IVRCL Infra: Buy above 67, targets 73, 97. Stop Loss: 62 and then put trailing stop loss below previous day's low. (In any case, at round 40-45, IVRCL Infra is a steal buy...)
First target of 73 was achieved quickly. On Friday, the stop loss triggerred at 76.30.


4.  Aban Offshore: Buy above 572, targets 630. Stop Loss: 553. (Screaming buy if this stock comes to 337-350 range, which it will....!)

Aban made a multiple highs around 600-610 levels but could not go past it. Finally, stop loss triggerred at 587.
 .


5. CESC: Buy at around 291 or above 303. Targets 325. Stop Loss: Trade below 277 for half an hour
CESC:  Made a high of 309. And closed at 303 on Friday. Stop Loss revised at 300 (Friday's low)

Hope you have made the best use of this analysis! Get ready for another fall during next week...

Bad News Doesn't Mean Markets has to fall !

Last week we wrote... (Please refer my earlier blog)

Every one says that now the Nifty will show the levels of 5100-5150. I some how dont believe. I also think that when everyone is so much confident about markets going down, they have probably already shorted or sold off. SO WHERE IS THE POWER TO SHORT THE MARKET FURTHER FROM CURRENT LEVELS?

I might be wrong. But I feel that whatever bottom we make during first 3 days of this week (uptil Wednesday evening) should be a near term bottom. I also feel that these bottoms would be more like a printed numbers. Not many people will get a chance to buy at those levels. There are two reasons for that:

1. The weak hands will sell the stocks at the panic.
2. Not many people will come to sell the stock at such levels. So, after the initial sell off, the market should return to the normalcy and many stocks should resume their uptrends / short covering.


First 3 day's Bottom was 5225. On Friday however, it went down to 5177, but it was like a printed number (Hardly traded there for 1 or 2 trades - Not many people got a chance to buy at that level).

There was a panic due to IIP numbers. Markets sold off for a brief period of time but recovered more that what it lost, which was as we expected in point no.2.

So, what is happening in the Markets?You must have watched the stupendous recovery in the markets inspite of a horrifying IIP numbers. Most of the layman investors are now confused because "Bad News" doesnt mean "Falling Markets" anymore...! In fact, that triggers the sell off from the weaker hands and opportunistic buying in the stronger hands. Thats what happened yesterday. The Moment the IIP data were released, the markets actually rose from 5200 levels to 5230 levels (Around 100 points rise in Sensex) and then after an hour, it broke 5200 and went to 5177 for a brief period (Around 200 points down from the high point it reached after bad IIP data). Again, in an hour it sarted moving up and closed at the highest point (Around 450 sensex points up from the lowest point). ZIG ZAG ZOOOOM !!!

Markets have again proven that it discounts the future in advance. Post November when the markets started falling, who could have courage to say that we see a really bad IIP Numbers for November and December? But market did! November IIP was 2.70% and December IIP was 1.60%. (By the way, December 2009 IIP was 18%)

Bad IIP numbers for 2 months - Does it mean halting 0.25% rise in the Interest Rates by RBI in March Policy?Well, too early to say that. But if you go by what market is sensing, it certainly has changed stance on the banking stocks for the time being. The Bank Nifty, which is representative of the Banking Stocks, was up almost 4% in yesterdays trade, driven by huge shortcovering in the Banking Stocks. Whether RBI does the rate hike or not, the market participants are not ready to sell Banks any more. So the only way to go is go up... at least for the short term.

Does this mean the time to Invest?Not Yet, if you are a "long term investor".
But yes, for traders a quick 10% is available in many stocks just on short covering. Those of you interested to execute these trades on your own, can try your luck !

What I see happening over next 1 or 2 weeks?1. Short Covering should continue and we should be heading to cross 5400, 5450 and 5500. Last we sold off was from 5550-5600 levels. I feel at least that much of target is achievable in February itself.
2. The stocks which have sold off aggressively will see a short covering rally of 5-25% in next week and can continue till the mid of second week.
3. Pre-budget rumors, discussion and announcements will be another fuel to take the rally up to 5600 levels.
4. Banking, Auto and Infra stocks would be in limelight. Pharma and defensives may spend boring days. IT may sell off due to Rupee strengthening further.

So, if you were a long Investor all these days, and worried about your portfolio returns, the market has given you a second chance to exit... Your worries for the time being are halted and you need to be cautious on protecting your gains now, when the market moves up.

Risk Trades Ideas (High Risk High Returns)
These trade ideas are based on short covering which has started on Friday, 11th February 2011. The underlying premise of these trades is that although we go long on the stocks which has bad news and poor fundamentals, we do this as the stock has got hammerred more than what it should have.
Following are some ideas:

1. IRB Infra: Buy above 179, Targets 185, 195 and 205. Stop Loss: 177 (Risk traders can keep the stop loss below previous day's low.)

2. SBI: Buy above 2665, Targets 3011, Stop Loss: First Stop at 2480. Then put trailing stops below previous day's low.

3. IVRCL Infra: Buy above 67, targets 73, 97. Stop Loss: 62 and then put trailing stop loss below previous day's low. (In any case, at round 40-45, IVRCL Infra is a steal buy...)

4.  Aban Offshore: Buy above 572, targets 630. Stop Loss: 553. (Screaming buy if this stock comes to 337-350 range, which it will....!)

5. CESC: Buy at around 291 or above 303. Targets 325. Stop Loss: Trade below 277 for half an hour.

Enjoy these trades ! But always keep stop losses to protect your capital. 

How well can you conquer your fears ?

As we wrote on 30th January, we saw a strong bounce from the levels of 5459-5416 to 5565-5570. But like other Fridays again, it did not sustain.
Now all the TV channels are telling us that the next week will be disastrous as we breached an important 5400 level and closed below that. And disturbed investors / nervous traders are all calling up their brokers to seek advise.

Every one says that now the Nifty will show the levels of 5100-5150. I some how dont believe. I also think that when everyone is so much confident about markets going down, they have probably already shorted or sold off. SO WHERE IS THE POWER TO SHORT THE MARKET FURTHER FROM CURRENT LEVELS?

I might be wrong. But I feel that whatever bottom we make during first 3 days of this week (until Wednesday evening) should be a near term bottom. I also feel that these bottoms would be more like a printed numbers. Not many people will get a chance to buy at those lower levels. There are two reasons for that:

1. The weak hands will sell the stocks at the panic.
2. Not many people will come to sell the stock at such levels. So, after the initial sell off, the market should return to the normalcy and many stocks should resume their uptrends / short covering.

However, these printed levels will create a strong fear in the minds of Investors. And at every higher levels they would want to exit. Well, the same guys would suddenly in Mid March would want to buy when they need to be selling ! But thats how people lose money in the Markets :)

So, my call is, from these levels when we meet next week, we will be sitting on some gains, rather than losses..!

13% Fall in 13 weeks... Is this time to be bold now?

" Be fearful when others are greedy and Be greedy when others are fearful "
But Mr.Buffett never told us how to identify the concensus greed or concensus fear !

Still, it is most common-sensical and effective maxim of investing. Something similar is happening in the current markets. Liquidity is drying fast. People are sharing a consensus view that markets are going to fall from this level like they fell in 2008. Most brokers feel that markets will come down to 17,000 index level. And inflation + FII exits are playing on most of their minds.

Most FIIs and MFs have already sold off major chunk of their portfolios. On the other end, the regular buyers - Insurance seem to be slow in buying due to the lower business they have garnered this year. But they dont have any option. Whatever incremental money they receive, they have to put a significant portion of that in Equities. So, Feb & March should be good months which can show us higher equity levels.

If you look at a very short term, a much awaited short covering rally is in making now. This would be fierce, aggressive and forceful. We have seen a capitulation levels on Friday (28th January) where even the strongest of the minds have given up on the markets and would have booked losses. Entire set up is such where now there are more and more people willing to sell at whichever levels markets could rise.

That means, the bargain buys are available to those who have cash on their books.

I anticipate that the current capitulation levels have created the foundation for a quick 7-8% rally in the market. From the November top of 6338, the markets are down by 13% and 13 weeks got over. Mostly the near term bottom has been made. Even if the bottom of 5459 gets violated during next week, it will only be the opportunity to buy rather than sell, because the bottom will be followed with a strong pull back up.

I remain bullish for next 3-5 weeks and expect that we make a gain of around 7-8%, before starting a new lag of fall.
So yes, it is time to be greedy. But the greed should be well managed as, the current levels are not anywhere closer to bear market. Current market is such that it will give a short term opportunity on long side and long term opportunity on short side! 

Does this remind you 2008 ?

If you have invested sizable sum post Diwali of 2010, you must be wondering if this is going to be repeat of 2008 ?

Worried? You Should be. But not as much as you were worried in 2008...

Well, there are many factors which resembles 2008. Crude is heading to cross $100; Commodities are full of vigor; Both this pushing up the Inflation; Real Estate is showing a lull for last 3 months... Interest Rates are going up... Recent IIP of 2.70% has put a scare...and all that.

True, but we have still not reached the economy of Excessives. In 2008, the biggest challenge to the world was a "deleveraging process". The overleveraged balance sheets of US Banks were in a slow process of deleveraging which pulled out money from many emerging markets. Additionally, there was a much more impactful fear of Sovereign Debt Crisis. These are the troubles of the sizes which can gulp economies together. And in 2011, we are not even closer to that.

Yes, for India, this may turn out to be a challenging year (or say first half) but for a longer term, it is much more promising then what we have seen during last 2 years.

If we focus of the near future, yes, it does look dismal. What are the odds against the market?

1. Food Inflation becoming a political agenda - can that shake and pull down the current govt? It may not alone, but with the wake of scams coming out from 2G scam and many others in making, has a potential to destabilze the govt. and hence the markets...

2. Insurance Flows during last quarter:
Every year Insurance buys substantial amount of equities during last quarter as the money coming in last quarter (due to tax benefits and the year end) is the highest. However, this money always came in through ULIP route, which has gone down post changes in the IRDA rules in September 2010. The ULIP sale has gone half during Q3 and if that continues in Q4, at least 16,000 Crores of potential equity investments would be halted, simply because the money has not been garnered.

3. International Worries:
North Korea Tensions and Sovereign Debt Crisis of PIGGS countries continue to put pressure on the upsides of Internatonal Markets. Additionally, the US Markets are not showing any signs of exhaustion. They are slowly going up in a narrow range. This indicates a much lower volatility, which has never sustained. So, we should see some unanticipated developments coming out from US which will again spoil the game.

4. Inflation Vs  Growth Concerns - what is important on RBI's agenda? Next RBI action on 24th January will make it clear. But looks like that Inflationary concerns are on RBI's top of the mind concern and hence rate hike is imminent. This will not give markets additional shock, as this has already been factored into. On the contrary, this will help market to stabilize.

Here is the explanation how: Currently, the markets are falling not because of anything wrong in the fundamentals. Markets are falling because of the Foreign ETF redemptions and due to heavy selling of FIIs during last 2 months. This can get accentuated if the rupee continues to fall, as this will trigger other FIIs also to sell to protect their Dollar Gains. But if the RBI raises the rates, it will allow rupee to appreciate, or least to protect the downside of Indian Rupee. This means that incremental FII money will not move out and that will help the market to restrict the fall.

So to my mind, RBI raising the rates is good and not bad for the market, especially where the markets have already factored in the evil effects of rate hike.

In nutshell, for next 3-6 months, odds are stalking against the market. From the top of 21,000 on 5th November, market has corrected 10% and closed at 18,860 yesterday. And timewise, we are back to September 2010 when the Sensex was at the same level. Generally, the markets fallen by more than 20% is considered to be in downward spiral. To negate that, for the vibrant growth market like ours, a 5-6% rise during next 1 month is a strong possibility. But instead of adding long position, one should be cutting down the long position during this rise.

So, yes, Market in coming days would test the patience of long term investors and will also create fear psychosis which will convince everyone that we are back to 2008 days. And that would be the time to be bold in putting your money to play... Will that be in April - May or June?
Lets See...

Now See the Short Covering Rally for a few days...

The best thing about the market is that when most people start thinking that the world is going to end, the market shows them how terribly they have gone wrong !

Market as expected started 2011 with a horrifying slide of almost 10%. Yesterday it touched 19,000 for a second and bounced sharply from that level.

Now what? Most people have given up on the market. Those who were bullish on "India Story" came complaining that there full 2010 year's gain have become half in just first 10 days of 2011...!!! They have increasingly become worried about the market and looking to come out at every rise...

Additionally, the IIP numbers released today has fuelled their belief of falling market... IIP for November came at a dismal 2.70% after the October at 10.80%. So, all the more reason to be bearish..! So, most "logical" action on this kind of news is to SELL - SELL - SELL.

But hey, after already a 10% fall from top, does that make sense? Who knows !

What I can say is that for a short term, it is a time to buy and specifically to buy many strong stocks, which otherwise you would not have got at this rate...Which are those?

To my mind, here goes the list:
CIPLA - A good pick between 340-350.
GAIL - If you get this at 495-505 levels, start accumulating
TCS - Good pick at 1080-1120 levels
Aurobindo Pharma, Hexaware, Hindustan Zinc are the stocks one should accumulate at a deeper cuts.

What happens Next? To my mind, at such bad news, when the weaker hands would book loss, the stronger hands would buy the stocks with a short term bounce to capture. Hopefully, we all would see 19,700-20,000 levels before the mid of next week.

What a beginning !

In Gujarati, it is said, "Putra Na Lakshan Parna ma thi, Ne Vahu na Barna ma thi..." (Son's character is known ever since he is in cradle and Daughter in Law's character is known from her first re-actions at the time of entering new home...)

If anything to assess for this year, look at the beginning... Just the first week of 2011 and Sensex has given away almost 1000 points...! Does this tell you whats cooking? Well, to me it tells a lot of stories. And stories are full of horror. And we all love horror stories, until we ourselves are part of one ! So if you are one of the investors in Indian Equity Market, start holding your breath.

When we are close to the previous top, very few would take courage to predict that we would be going all the way down...But, I do the honors, stating that this year the least we see is 16,000 sensex.

But, does that mean world is going to end? I guess not. There are many sectors and stocks which show much promising future and will emerge as a superstar when the entire market is going down...
Keep reading this space to know which these stock are !