Archive for the ‘NIFTY Strategy’ Category

Market Outlook

Sunday, November 22, 2009 Leave a comment

As indicated last week, this market is still looking very bullish in the short term. Although it might be difficult to find value in the large caps, one can definitely find some value in the midcap and small cap space. at the same time, one needs to be mindful of the fact that FII liquidity can further drive large cap prices. So large caps might be the best place to ride the short term momentum.

I still don’t find a bubble like situation in the market as many stocks in the small and midcap space are still languishing since June -July. As a matter of fact many stocks have gone down since July. This is unlike 2007 when each and every stock was moving up in a vertically! This makes the journey from 5000 to 6000 very different from the last time.

There is still a scope to find potential multibaggers primarily in the small cap area where stocks are still below the 500 crore market cap with PEs well below 10. So keep your eyes open and do ample research before you pick stocks in this area. It is very easy to land up with junk!

The first hurdle that needs to be crossed is the level of 5200 on NIFTY which can then propel the index towards 5400-5600 range. On the downside 4900 shall be the level to watch.

As far sectors go, I will still ride the old favourites in auto like Maruti and Tata Motors. In IT, the troika of Infy,TCS and Wipro show no signs of stopping while in Pharma Dr. Reddy and Ranbaxy still rule!

RIL might add some spark to the markets with its offer to buy Dutch  petrochem firm LyondellBasell. Read the story.

One doesn’t need to be a short term trader to make money in these markets.


Market Strategy

Monday, November 16, 2009 Leave a comment

With the NIFTY trading close to 5000 levels, everybody is thinking of strategies to play this rally. There are many who missed buying in this correction because they were expecting 4300 on the NIFTY. The current uptrend might be fuelled by such players.

So if you are a momentum player, it is a good time to make some money. But if you are a value player, then it might make sense to cash out in this rally and sit tight till the next big correction happens.

We are getting out of our value portfolios as we are not finding good value and shifting to an overweight on momentum portfolios. You might have to indulge in a bit of sector rotation to play this momentum game. Also keep an eye on  precious metals like Gold and Silver which have been steadily rising.

Back above 5000 – where are we headed?

Thursday, November 12, 2009 2 comments

Would you be surprised if the markets touch 6000 and make an attempt at previous high in next 2-3 months? If you would be, then be ready for that surprise.

Would you be surprised if markets head back to 4300 in next 2-3 months?

The markets are at a point where they are poised to give big moves. If you ask which way- I’d say that 70% probability is on the upside while 30% is on the downside. So it makes sense to play for the bulls while covering your risks.

My prime reasons for beign bullish- I see a healthy scepticism about this rally. Most of the TV guys are still taking about a range or a negative bias. The historical trends (Oct-Jan) are in bulls’ favour. And the biggest of them all – the fall of dollar might bring in loads of money into the Indian markets. As rupee is in a clear uptrend against the dollar, I see rupee touching the levels of 43-44 in next 2-3 months. ( And RBI will allow that to happen!)

As an FII, you get the double advantage of equity gains plus the currency(rupee) appreciation.

This doesn’t mean that markets will go up in a straight line- we will witness some minor sell offs in between. I am keeping a close eye on the risks and there are couple of them which can change the game in next couple of months.

As far as stocks/sectors are concerned, my guess is that most of the good companies will participate in the upsides. At the same time, the bad ones will fall more during corrections. This might provide you with a good opportunity to reshuffle your portfolio and get out of the bad apples.

And as I always say, if you only look at rewards without looking at risks, you might again feel trapped by bulls in this rally. You’d be making a big mistake by filling your portfolio with junk small cap stocks just because they are making these wild moves in the short term. Just in case, you plan to trade them, then plan your exits in these.

Can we break 5200 on NIFTY?

Monday, November 9, 2009 1 comment

Today’s rally was not entirely unexpected although the markets took their time in recapturing 4850 mark and then zooming ahead. The rally is looking promising and is making the way for 5200+ level on the NIFTY. This might be an early or premature call but bulls definitely have a upper hand and might want to prove a point. The biggest advantage now is that one can clearly define his or her downside risk and go long on this market.

I am still hoping that Oct-Dec rally actually plays out. It looked very doubtful when we corrected so sharply from 5200 levels to 4500 levels. Now conditions are looking much healthier after this deep correction.

In terms of sectors- banking has made a roaring comeback! Look how old favourites like ICICI, SBI, HDFC Bank etc. moved up. If NIFTY breaks 5200, this will be the sector to watch. From Allahabad bank to Yes bank to UCO bank, you will find many good stocks in this sector for short to medium term. at the same time, this sector is prone to a major sell off if RBI decides to hike interest rates as part of their monetary policy.

Auto stocks like Maruti and Ashok Leyland continue to hold promise and are steadily climbing up.

In midcaps, selected stocks like Dabur or Deccan chronicle are still climbing up nicely.

In IT, Satyam made a big move today and this might be the beginning of a journey towards 140-150 levels in next month or so.

In pharma, Lupin, Ranbaxy and Dr. Reddys has given decent returns in  past 2-3 months and continue to deliver.

In oil and gas, Gail and Cairn India are shwoing sustained momentum on the upside.

Lets closely watch the market action this week and see if we manage to close above 5000 on a weekly basis. That will be the beginning of final assault by the bulls.

I am spending most of my time in researching some mid cap ideas for the long haul.

Will this sharp recovery last?

Thursday, November 5, 2009 4 comments

Today’s recovery was largely unexpected by the bears. Infact, the NIFTY pulled back more than 130+ points from day’s low! As such volatility is found near market reversals, one has to very cautious. If such intraday volatility persists, one needs to be sceptical of building aggressive positions on the long side. This volatility might tempt you to trade but such trading can easily go wrong!

The only positive I see is that most of the market participants are still short on the market, so that might act as some cushion for the markets in the short term. 4800-4850 is the zone of resistance for the bulls.

Once this short covering is over and the volatility subsides, one needs to find stocks where real buying is happening. One such sector is auto where a stock like Ashok Leyland has continued to maintain a neat uptrend. Another sector is pharma where a stock like Dr. Reddy labs continue to climb higher.

It might look tempting to buy stocks like RCOM or Suzlon but there is nothing in their performance which indicates that the worst is over for such stocks.

Buy the dips or short the rallies?

Wednesday, November 4, 2009 Leave a comment

Bulls come up the stairs while bears go out of the window! That’s what we have witnessed in the last few sessions. Gains for a few weeks have been erased in a few days. This is a classic bull market correction.

Technically, we have hit the supports of 4550 on the NIFTY and it is is very likely that we show some bounce from here. At the same time, if I am trading short term, I won’t see it is an opportunity to go long. I might see it as an opportunity to exit my dead stocks (real estate, telecom etc.).

We need a real sharp pull back above 4850-4900 in order for uptrend to resume again. Otherwise, this market can continue to slip or remain sideways. Watch for 4350 on the downside and 4850 on the upside.

Suzlon,RCOM and Unitech are good opportunities to sell on rallies. Same holds true for all ADAG stocks like Reliance Capital, Reliance Infra,Reliance power etc.

Markets- Pullback or deeper correction ?

Sunday, November 1, 2009 1 comment

Should I buy now or wait for markets to fall further? Should I exit now or hope for a pullback?

This is the constant chatter in our heads after every correction. When markets are going up, we never bother to look at our risk. We tend to get aggressive with our investments whereas in times of corrections we feel crippled by fear! It is difficult to eliminate emotions from investing but if we are aware of our emotions, it results in better decision making. This also means that investing without a method/philosophy will add to your confusions and will result in unexpected losses in your trading and investing.

Coming back to the question – Is the market ready for a pullback ?

If I look at short term, the trend is certainly down and till we get beyond 4900+ levels, any upmove will not impress the bulls. If that happens we might see resumption of the short term uptrend. Otherwise the markets will either stay sideways or will correct all the way down to 4550 and even 4350.

Talking of sectors- Telecom continues its downward journey at a faster pace. I won’t be surprised to see even lower levels in next 3-6 months before these stocks show some signs of bottoming out. There might be some sharp rallies but these might be short lived and investors will use these rallies to exit.

Metals have also undergone sharp reversals though the long term trend is still intact. This might result in some buying at lower levels by investors.

Pharma and FMCG are two sectors that are still showing a lot of resilience and might continue to outperform in the short to medium term.

Banking sector has also undergone sharp reversals and we might see many stocks not resuming their uptrend even after the correction is over.Therefore, it is necessary to be cautious about your picks.

Mid caps and small caps shall correct much more sharply in this phase. Some of the stocks have gone on real turnarounds while others have gone on pure speculation. It is important to identify this difference and book your profits in the speculative holdings. Such stocks can easily go back to Feb-March levels. Examples of such stocks are Suzlon,Unitech and RCOM. At the same time, one can find many stocks that have actually moved up based on real performance and are likely to be good bets in the long term.

We have lost 7-8 weeks of gains in a single week! Having proper risk management is therefore critical for a trader’s survival in such markets.

The future direction of markets in next few weeks shall solely depend on how much money is put into Indian markets by the foreigners. That will also decide if these markets remain a momentum play or turn into a value play!