September Derivatives Settlement as anticipated!

It was anticipated that this month Derivatives Settlement will be around 5000 levels on Nifty, based on the average weighted price of Nifty from previous settlement till the date on which previous report was written on 23rd. Today the Nifty settled at 5015, with see saw movement during this entire week owing to overseas news flow and volatility in currency movement. Tomorrow being the last trading day for the month, quarter and half year, it is to be seen whether Nifty will close above 5000 levels as it closed exactly at 5001 on the last day of august.

Germany's lower house has passed the Euro Stabilization Fund with good majority during market hours by afternoon, which has helped the sentiment in European markets, and this has helped in some short covering in the last 2 hours of trading. The subject will be put up for vote of approval tomorrow at the upper house, and this will send some calmness for overseas markets and currency temporarily. The real issue of debt default crisis which is haunting European countries, cannot be solved with these short term measures, unless the respective governments tighten their fiscal situation, creating environment for moving towards growth, as the global recession is almost certain, with all the data supporting this happening, if not already in place?

Coming to our economy and government action it is very disturbing with falling IIP Numbers, raising Interest Rates and Inflation, the investment climate is disturbed. There is disconnect between high commodity prices, while the recession is gripping global economies. Sudden sharp correction is overdue in Indian bourses, which are holding 4720 level so far during this year, I therefore see that higher volatility will continue till Diwali (26.10.2011) as the advance tax numbers do not suggest better performance by corporates for the quarter ending Sept 30th. There might be some built up in positions anticipating better performance from IT sector, leading in to Infy results in view of the weakening of rupee, and the markets might face downward pressure post the announcement of results and the guidance for the next quarter, which is generally the shortest one, owing to the holidays and also the business outlook from US and Europe in view of the present slow down being experienced there.

The financial sector, Banking in particular faces NIM contraction, raise in provisioning due to loan deliquencies, raising pension payment and above all firming of interest on long term dated securities which shall call for higher provisioning, as government has announced higher market borrowing for next half year amounting to Rs.52,800 crores, while retiring Rs.15,000 crores of Short Term Securities ( Treasury Bills).

Breach of 4700 and close below 4650 will push markets to further lower levels, as most of the long term investors and funds are supporting this level for the past one month. The capitulation move will happen sooner than later, if the uptrend now fail to breach 5181 level, as the Nifty turned downwards already 3 times, therefore, investors should be light on long positions, and sell on rallies until Nifty consistently trades above 5360 with all round participation and volumes, which can confirm medium term bottom around 4700 - 4750 zone, for this calender year.

Strategy for next Series: Investors can buy Straddle of 5000 and watch the volatility to book profits.

Happy Trading!

Weak Indian Rupee causes Mayhem on Indian Bourses

FOMC two day meet did not bring any positive indications or road map to solvage either the US economic or fiscal problems, which most of the investors and traders world over were watching keenly. In fact the head room for any step on monetary measure by Fed is already exhausted long ago as the interest rate is quite low for considerable time. Fed Chairman in his last meeting has already announced that there will be freeze on the interest rate movement till mid 2013, was a clear indication of his helplessness. What the US Government can do is to be only will put their house in order, bringing stability to global economy and world markets in times to come.

The reaction on US indices was reasonable as expectations were buil7 a head of FOMC meet. However, the strengthening of US $ has lead to weakening of currencies world over, and the rupee breaching 49 levels, has caused havoc for Indian equities, where FIIs and Hedge Funds investment will have double whammy with prices falling and rupee weakening simultaneously. Nifty Futures opening with a price of 5010 as against 5133 closing previous day, clearly confirms that these category of investors, have thrown their towel and ran away from our markets. The huge gap down on both the indices, continued the bear grip through out the session and once Europe opened with losses ranging from 3 to 5 %, there was breach of psychological level of 5000 on Nifty too. For yesterday, 4910 was defended intra day, which is tested the third time already in recent past, and the closing of 4923 was positive for the day.

With US markets tanking further 4 % down, and the Rupee likely to touch or breach 50 levels today, SGX Nifty is already indicating breaching of 4900 at the opening itself, however, whether 4800 will  be held and closing happens above 4845 today, needs to be watched closely, as it is week end session too. In my view, this level will be held for today, as we move into the settlement week later. Nifty September derivatives settlement which happens on 29th should be around 5000 levels and 30.09.2011, the last day of the month, quarter and half year should see better closing. 

With all the events behind, markets will concentrate on local issues while keeping watch on global developments, however, higher volatility in the range of 4800 to 5200 is a positive sign for base building for any further rally post Diwali. Domestic situation is also clumsy with Government caught up in number of scams, and lack of authority and will to move a head firmly, from PM is a main cause of concern for our economy and markets.

It is confirmed that our markets will continue to offer only trading opportuniites in 2012 too.

Trading Strategy for the Day and Month: Buy 4800 Calls and hold till expiry, if the market opens below 4900 today at the opening.

Happy Trading! 

Have Indian Markets bottomed out??

The price action in our indices during August 2011 and steep fall in all most all index stocks, touching new 13 months lows, due to relentless selling by FIIs and Hedge Funds, made equity investments highly risky, and the question being asked by everyone is whether a bottom is found around recent lows....4720 on Nifty??

The answer is both yes and no. Technically, most of the analysts following Dow Theory, expected Nifty to take support in the region of 4700 to 4800, where mulyi year long term support emerges, for  the long term bull market began in 2002, after a ten year bear market from 1991 to 2001. The level of 4650 to 4750 offers good support zone, which is also a fibonacci retracement level of entire up move of larger bull market from 2002 too. Now the mute question is whether this support holds in the next down move, whenever it happens, owing the almost confirmed US recession, and the turmoil of debt markets in Europe, where developed markets are bleeding continuously?

My reading is short term trend is down, medium trend is sideways where as long term trend is up until 4720 holds. 4650 to 4750 range will be re-tested before this diwali, andour  markets might  rally to 5300, or even much higher levels, before the next major down move happens. Only a rider shall be, any external shocks like, collapse of Eurozone, due to break up of Euro as nation after nation are landing in to debt crisis in Europe, and the contagion effect on US can have their rub off effect on all markets globally, including our markets too, as it would change the equation of inflows, currency valuation, etc.,

What an investor in indian equities is supposed to do  in these uncertain times?? Invest in beaten down stocks / sectors..Invest in Mutual Funds...Invest in Gold..Go for Bank Fixed Dposits.. The answer is not simple and straight for every one. It all depends on the risk profile of each individual and the long term goals.

Let me take up one by one..Equities...Invest in Index heavy weights..preferably PSU stocks,with good fundamentals, as the businesses will continue irrespective of the state of economy, and any trouble to their finances, receives the Government support. Identify the next bull market leaders and start building a portfolio for substantial returns.. will discuss about individual stocks separately.

Mutual Funds performance depends on stocks they hold, and fund manager's skill but can give returns only in Bull Markets. Some sectoral funds have performed in bear markets and bear phases of Bull markets too.

Invest in Gold even at current price because, there is going to be a crisis of international medium of exchange if US dollar looses its shine. Gold has risen very steeply from last diwali to this diwali from 20K to 30K as predicted by some analyst, during last year diwali time, which I was not believing. The current price is quite high, and one gets a doubt, whether it would fall from here along with other commodities and markets? According to an analysis, Gold has not performed in the last 20 years, and now entered multy year bull market, would continue to post new highs, with intermittant corrections, as Governments also started accumulating Gold Reserves in huge way, in the recent times. Recent peak of $1918 once taken out it will be into an unchartered territory..shall quickly cross $2000 and in due course might touch $3000 too, as all great investors like Tim Rogers, Marc Fabers, are all bullish on this Yellow Metal. Therefore, I stongly recommed investing in Gold ETFs in SIP mode for averaging the price from now on, for the coming few years, to reap in good returns.

Bank Deposits of PSU Banks are offering 9.5% taxable return which does not beat the inflation also hovering around the same level, but if one is risk averse, this is best instrument, as capital is secured, and interest rate cycle shall peak with another maximum two more hikes of interest rates by RBI.

Finally on Nifty, indices will be volatile during September as events unfold on 15th (advance tax payments) 16th RBI's policy statement, 22nd and 23rd FOMC meet and statement on QE etc., 

It is a traders market only..not yet investors market in short to medium term.

Strategy for the Month: Buy 5000 Straddle of September Series, and exit on profits, 

Happy Trading!