Daily Big Picture:Nifty Ends Below 9,000; Pharma Index Up 45% From its Lows

Today’s Action

Nifty, -1.3%; Sensex, -1.5%; Nifty Midcap, -1.4%; Nifty Smallcap, -0.6%; Model Portfolio, +0.9%

Market Pulse Confirmed Uptrend

Nifty opened on a flat note and quickly lost around 100 points and made an intraday low of 8,912. However, it pared some of its losses and closed slightly below 9,000. Nifty escaped distribution as today’s volume was lower than the previous session. 

Barring Nifty Pharma (+2.8%) and Metal (+1.9%), all sectoral indices closed in the red. Nifty Pharma rallied ~45% from its lows. On the flip side, Nifty Realty (-4.9%), Media (-3.3%) and Financial Services (-3.1%) were the major decliners. The advance-decline ratio was in favor of advancers. Of 2,126 stocks traded, 952 advanced, 854 declined, and the remaining traded flat.

We continue to be very selective about taking any fresh positions. It is important that investors don’t play all their cards at once. We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further. 

Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions. Stocks with higher relative strength and superior fundamentals can do well. Some leading stocks have sharply corrected. Wait for them to put in at least a short period of consolidation and show a constructive breakout from that range. Buying without this period of constructive behavior into a straight upmove off the bottom, puts you at a risk of drawdown.

Key News

According to SIAM data, passenger vehicles sales for FY20 declined 18% whereas it declined 51% y/y for March. Commercial vehicles sales declined 29% for FY20 and 88% for March.

Dr Reddys Labs. (Nse) launched the blood cancer drug Invista in India. These tablets are used for the treatment of Chronic Myeloid Leukemia.

Bandhan Bank’s total deposits grew 32% y/y to Rs 57,073 in FY20. Retail deposits grew 34% in the same period and form 78.4% of the total deposits.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

Market Update: After 7 Weeks of Decline, Nifty Finally Sees Weekly Gain

Weekly Action

Nifty, +12.7%; Sensex, +12.9%; Nifty Midcap, +10.9%; Nifty Smallcap, +9.6%; Model Portfolio, +2.1%.

Market Pulse Confirmed Uptrend

Weekly Market Review

Nifty made a halt to seven straight weeks of decline and closed the week with a gain of more than 12%. The index started the week on a strong positive note and recorded additional follow through day as it gained about 8.8%, on higher volume than the previous session. The index closed in negative on Wednesday. Today, Nifty staged a reversal and closed the day near the day’s high holding significant gains.

All the sectoral indices closed in positive territory for the week. Nifty Auto (+23.1%) led the gains followed by Nifty Pharma (+19.4%) which continued the gaining momentum. Further, Financial stocks staged a reversal with Nifty Pvt Bank, Nifty Bank, and Nifty Financial gaining more than 14% each.

We continue to be very selective about taking any fresh positions. It is important that investors don’t play all their cards at once. We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further. Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions. Stocks with higher relative strength and superior fundamentals can do well. Some leading stocks have sharply corrected. Wait for them to put in at least a short period of consolidation and show a constructive breakout from that range. Buying without this period of constructive behavior into a straight upmove off the bottom puts you at the risk of a drawdown.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

Industry Update : May 2019

In May, Nifty was volatile and made a high-low of 12,041–11,281, and advanced 1.5%. On May 8, the market status was downgraded to an Uptrend Under Pressure. Markets progressed well after the exit poll numbers were out and final results, which gave the mandate for a stable government. On May 27, Nifty reclaimed its previous rally high of 11,857 and market status was upgraded to a Confirmed Uptrend. FIIs/FPIs were net sellers in May (Rs 2,200 crore) for the first time in 2019 on a monthly basis, while the net purchase from DIIs was more than Rs 5,000 crore.

Of the 48 developed and emerging markets we track, at the end of April, 34 were in a Confirmed Uptrend and none of them were in a Downtrend. But by May end, only nine were in a Confirmed Uptrend and 17 in a Downtrend, indicating weakness in global markets. Continue reading “Industry Update : May 2019”

Scenario Analysis on How Markets Could Behave After Election Results and How to Approach the Market Through the O’Neil Lens

Market Preview

At 8:00 a.m. IST, the SGX Nifty Futures was 2.3% higher at 11,694, compared with its previous close. It is at a premium to the Nifty’s previous closing of 11,407.

On an MTD basis, FIIs/FPIs sold stocks worth ~Rs 10,000 crore, while DIIs bought stocks worth ~Rs 9,000 crore.

Market status: Uptrend Under Pressure

Global stock markets:  Nikkei +0.2%, Kospi +0.4%, Hang Seng -0.8%, NASDAQ -1.0%, Dow 30 -0.4%, S&P 500 -0.6%.

How markets could behave after election results:

The average of exit polls predicts 300+ seats for the NDA.  The lowest and highest seats for the NDA in exit polls were 284 and 340 respectively. However, calling the election is tough. The final outcome on May 23 can be unpredictable. We look at the various scenarios that, in our view, might play out this week.

1) If the largest party wins 300+ seats on its own, it will reflect the strong confidence in the current government and there will be stability for the next five years. The Nifty could move 5-10% in a couple of weeks following the results.

2) If the largest wins around 250 seats, the market will likely be stable in the +/-3% range in the near-term.

3) Markets can be volatile if the largest party wins around 200 seats, as there will be uncertainty in a coalition government. Markets can take this negatively and correct 5-10% in the week.

How to approach the market through the O’Neil lens

According to William O’Neil’s strategy, rather than relying on esoteric systems for timing, let the market itself be your guide. That means closely following daily and weekly price and volume cues and watching for leading stocks breaking out of sound bases. Looking for causes to explain phenomena is a typical human behavior. But over the long haul, objective analysis beats pet theories every time.

The buy switch will be on once market reclaims its 50-DMA and the recent high of 11,856. The status will be upgraded to a Confirmed Uptrend and we will initiate a fresh position in stocks that stand tall on the O’Neil methodology checklist. This will ideally be the case in the first two scenarios mentioned above.

In the third scenario, market could remain under pressure. The buy switch will be off if the Nifty breaches its 200-DMA and the status could be downgraded to a Downtrend if the distribution day count increases to six or seven. In that case, we would wait for markets to hold their lows for at least three days before attempting a rally. Investors should add to positions only after a follow-through day (1.5% upward move) is observed.

When the market status is a Downtrend, we would prefer to sit on cash and wait for markets to stabilize.

Looking Forward:

After the election results on May 23, the focus is likely to move back to growth and demand drivers.

Falling GDP estimates: The RBI expects a growth of ~7.2% for 2019-20, but some street estimates are under 7% as well.

Weak consumer demand: The Q4 FY19 financial results of companies from the consumption sector hints towards consistent weakening in consumer demand. The impact is visible on sectors like Auto and FMCG, among others.

Improved credit growth: Credit growth has improved in FY19 (13.2% against 9.8% in FY18). Retail has been the biggest source of growth, with housing loan, personal loan, and credit card segments growing the most.

But PSU Banks are still struggling: Growth has mostly been delivered by private banks, while PSU banks are still struggling to catch up. Except the two big banks (SBI and Bank of Baroda), most other PSBs are still under the burden of NPAs and provisions. Liquidity still remains a concern with PSU banks.

Auto sector reported 17% y/y fall in April sales: A tenth consecutive month of falling car sales, for the first time in eight years, was the main cause.

Muted volume in the FMCG segment: Q4 volume for FMCG majors like Hindustan Unilever and Godrej Consumers, among others, indicates weak demand. Rural demand has been weak due to low farm incomes and below-average rainfall.

Sectors outperforming the market:  Over the last one month, Banking and Financial Services stocks have been the most resilient, along with IT and FMCG. Some of the leading stocks in these sectors recently crossed their all-time highs before correcting minutely due to general market weakness.

Stocks underperforming the market: Nifty Auto has consistently underperformed since September 2018, with the stocks trading below its key moving averages. Nifty Pharma index, however, showed sharp underperformance in the past one month and breached its 50- and 200-DMA. Realty stocks showed some momentum in March-April but underperformed the market over the last one month.

Mixed Q4 results:

As of May 15, 27 Nifty50 companies have reported their Q4 results, of which only four companies beat street estimates, 17 reported in line, and six missed expectations.

However, EPS growth estimates decreased to 16% for the ongoing fiscal year and 14% for FY20. Banks have mostly reported better-than-expected to in-line results. On the other hand, Auto stocks like Eicher motors and Maruti missed expectations.

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