A Look Back at Samvat 2073 and Our Top Diwali Picks

a look back at markets performance

All is well that ends well

Samvat 2073 was quite an unusual period for the Indian equity market. While uncertainty is a given in the world of stock markets, India’s frontline indices had to deal with a lot of unpredictability due to a variety of domestic and geopolitical issues.

Despite the clouds of uncertainty looming over the Indian stock market, it turned out to be an inspiring journey in the end. The Indian market overcame the odds of Trump’s unexpected presidential win, Modi government’s demonetisation drive, GST disruption, India-China border stand-off, lower economic growth, and growing concerns of a war between the U.S. and North Korea, to emerge triumphant.

Largely driven by an upbeat investor sentiment and burgeoning domestic inflows, Sensex and Nifty posted impressive gains of 16.6% and 18.2%, respectively, in Samvat 2073. The broader indices not only joined the party but also outperformed key composites with Nifty Midcap and Nifty Smallcap advancing 19.1% and 25.3%, respectively.

On the sectoral front, the metal, realty, and private bank stocks stole the show, while the pharma and PSU banking stocks performed poorly. All in all, it turned out to be a pretty profitable year for a majority of the sectors.

Nifty Sectoral Performance

Talking about market direction, the Indian market remained in a good shape for most part of the year. Out of the 242 sessions in Samvat 2073, 59% accounted for a Confirmed Uptrend, while only 7% or 18 sessions were characterized by a Downtrend based on MarketSmith India’s market direction model.

What’s in store for the Indian market?

Barring the demonetisation jolt in November 2016, the Indian stock market marched ahead without giving much heed to other issues. The 50-day moving average (red line in chart) provided crucial support throughout Nifty’s rally during Samvat 2073. While the index breached its 50-DMA on two occasions recently, it managed to retake the support line on both instances.

India CNX Nifty 50

With the key indices hovering near all-time highs, the Indian market is currently in a Confirmed Uptrend. Nevertheless, the distribution day count of four each on Nifty and Sensex should not be taken lightly. Investors would be better off to keep their buying decisions reserved to high quality names only.

From here, the ongoing Q2 earnings season could play an important role in affecting the market direction. After a decent rally in Samvat 2073, the market could rest for a while before resuming its uptrend if earnings do not meet market expectations. However, a better-than-expected Q2 earnings season could push the market higher in the near future.

Despite a distribution day count of four on Nifty, the alarm bells have not started ringing yet and therefore, we advise investors to remain on the lookout for quality growth stocks. From a portfolio management perspective, consider selling stocks that are showing signs of weakness in the form of a 50- or 200-day moving average breach on high volume. Such stocks could go into a sideways mode and hence it would make sense to free up some capital and deploy it to better opportunities.

Samvat 2074: Stocks that we like

At MarketSmith India, we recommend stocks on the basis of William O’Neil’s CAN SLIM investment method. CAN SLIM advocates buying high growth stocks on strong technical breakouts during market uptrends.

While there are many good quality names out there, we at MarketSmith India have short-listed five stocks from our model portfolio as our top picks. These stocks may not be near their ideal buy points and hence investors should consider buying these stocks as and when they break out of a proper base pattern.

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