India or Euro Zone that's under more Trouble?

World markets have hit their 3-4 month lows on fear of impending Greece default/ Greece moving away from EURO. The result has been Currencies weakening against USD & JPY. Dollar Index at almost yearly highs.

We (India) are no different the Index has correctly around 14% from the year to date high. The reasons are varied in nature. 

Policy Paralysis, High Inflation, Low Growth, Current Account Deficit, Currency Weakening. 

Lets for a while shift focus to the Currencies. Although its not appropriate to compare USDINR to EURUSD (As the former is not a free-float currency). 

USDINR & USDEUR - 1 Year Charts

Assuming that all the problem is just with the Euro Zone & India is free from any problem of our own would be living in denial. Currency is the Indicator of Good Health of the Economy. The chart tells us that EUR has weakened 10.81% against the USD in the past 1 year however our Rupee is down 19.91% against the Greenback in the same period.

This clearly shows the flight for safety by investors (FII's pulling out money & don't seem to be interested to come back until the Policy actions are taken & key bills are passed in the Parliament. The recent Tax fiasco to tax any M&A that has an Indian asset involved has not gone well with the FIIs too. 

Dollar Index: If you want to know what is a Dollar Index. Please read it here.

Dollar Index is nearing its December Highs of 81.51 & a breach of it can strengthen it further & taken it to 84 levels & subsequently to 87. Chart clearly indicating that money is moving towards Greenback even the precious metals are being dumped for the Greenback!

Bottom Line: The government has been disappointing in passing any key reforms that would accelerate the growth. Even the Crude crashing has not helped us to reduce the deregulated Petrol Prices (Because the reduction in Crude price is offset by Rupee depreciating against the dollar). So still we end up paying the same amount for our imports even though crude has corrected.

It's an excellent time to pocket in ETF's of NIFTY & BANKNIFTY slowly in a SIP way for long term. Of course the trade on the long side does give good Risk to Reward Ratio at around 4840-4880 levels as lot of Index stocks are nearing crucial support area.  But as some genius has said Sell May & Go Away  - Its better to wait out May & Enter in June as you never know the news that may come out in May :-).

NIFTY - Geometry at Work

It's been a while since i blogged but the movements in NIFTY today inspired me to write a quick post. Not that I had expected the exact same movements but was quietly confident of the direction based on the charts. Whats amazing is the way the Geometries are at play in the Markets just that we sometimes get swayed or biased with noise (read noise as news). Anyone still wondering what the news is - can read it here.

Lets quickly dive to the charts.

NIFTY on Weekly Time Frame

NIFTY took 13 months to break out of the Descending Triangle (Nov'10 to Dec'11). Once it did it faced resistance at the Rising trendline of the previous bull run (From Mar'09). Today the NIFTY touched the Descending Trendline support & has bounced significantly indicating that 4988 is critical level. Also the 61.8% retracement level for NIFTY (From the rise of 4530 to 5630 comes around 4950 & 50% retracement levels are 5080. A closing above 5080 today is a good sign so now on weekly charts once we move above 5250 (Refer to the next chart) we are well on our way to 5700 levels again.

NIFTY on Daily Time Frame

NIFTY is again in a sort of Descending Triangle of its own after its breakout in early Jan'12. Today after making a low of 4988, NIFTY has given a close above 5100 levels & is tad below the 200 Day Simple Moving Average. (200 Simple Moving Average is 5114.97 & NIFTY closing is 5114.15).

As the geometries suggest (encircled in the charts) the next move would be towards 5250 & a breakout would lead the indices higher to 5500 levels & to 5700 in next few months (Probably a quarter).

Let me know what you think of this post.

Markets in 2012

2012 - Make or Break Year for Indian Economy

Recap 2011: 2011 has ended & it would be remembered in India for mainly these - Corruption, High Inflation, Depreciating Rupee.

To elaborate on the above 3 main points - Corruption cases against key ministers put Government on a back foot which meant that key reforms or the bills were tough to be passed. Government attempted to bring in FDI but was strongly opposed. There were no significant orders for Power or Infrastructure companies. Credit growth slowed. Policy paralysis meant that FII's started losing confidence in India's Growth Story - They started pulling money out of the markets - This lead to Currency Depreciation - Indian Rupee depreciation also made matters worse for FII's, as DEFTY (Benchmark Index NIFTY in Dollar Terms) is down by more than 35% compared to NIFTY that is down by 25%. 

On the other end the Central Bank (RBI - Reserve Bank of India) was busy tackling inflation. It made it very clear that bringing down Inflation is their first priority (Even at the cost of Growth getting affected). What followed this hawkish stance was a series of 7 hikes in interest rates in 2011 (2010 had seen series of 6 hikes). This meant that Growth had to take toll. the recent October month IIP data (Index of Industrial Production) saw a degrowth to the tune of 1.9% (Chief destructor in the Index was Capital Goods sector that saw a degrowth of 25% - Partly because of very high base figure & major part due to lack of any industrial activity).

Where do we stand as of now:

• Inflation is coming under control & by March'12 it would be around 7%. Food Inflation is around 6 years low (Partly because of higher base of last year).
• Central Bank has indicated that the focus now is on bringing Growth back in the economy after Inflation is coming under control. It expressed a Dovish stance wrt to Interest rates & the cut in rates may come some time in Q4 FY12E or Q1FY13E.
• Higher interest rates has taken a toll on Rate Sensitive sectors & this has meant lower Gross profit for these companies resulting in lesser tax payments - Leading to lesser Revenue collection by Government.
• Policy Paralysis also has meant Currency Depreciation - In turn has taken toll on lot of Companies'
• For government its been a really tough year as the revenues are down & GDP is under pressure (Q2's GDP was sub 7% first seen since June'09). Due to non-conducive environment to divest their stake its turning to the route to raise more debts - This means more pressure on the Long Term Yield. Government as per recently announced schedule is expected to raise roughly 1.5 Lakh crores in Treasury Bills in the current quarter. Government's move to raise such huge money in the last quarter is an indication of how cash crunch the government is & how bad the Fiscal & Current Account Defict Numbers can be for the current financial year. Estimates suggest that Fiscal Deficit can be as high as 5.5-6% of GDP & Current Account Deficit to the tune of 3.5% to 4% of GDP.
• In a way 2012 can well be a make or break year for Indian Economy at least in terms of attracting foreign capital. Currently India has least weightage among BRIC nations in Portfolios managed by Foreign fund managers. Corruption & Policy Paralysis are the main reasons for them to keep low weightage. India has taken first step towards attracting foreign capital by allowing Qualified Foreign Investors (QFI) to invest in Indian stocks directly. Their investments would be limited to 10% to Paid up capital of the company. Also no single QFI can hold more than 5% of Paid up capital in any Company.
• Its been 10 years since the term BRIC (Brazil, Russia, India, China) was coined by Goldman Sachs Chief Jim O'Neill. Indonesia is doing good in terms of Policy reforms and that might attract capital going forward. So the writing is on the walls in terms of FIIs flow. I in BRIC may remain but India may well be replaced by Indonesia if policy paralysis continues!

NIFTY Monthly Chart

Long term excellent buying Opportunity in NIFTY would be around 4300-4200 all the way to 4000-3800 levels (If we manage to get there). Best thing to do would be start investing part of capital from 4400 level on wards during every declines. This is easier said than done as Mind would say to wait it out to buy at the extreme bottom. By now one should know its extremely difficult to catch a top or a bottom. So buying around the bottom (+5%) should be a feasible approach. So one should make up his/her mind with the levels & buy quality stocks around those levels in a disciplined manner.

Bottom Line: I am sticking my neck out to say that the range for the year in NIFTY in 

Good Case Range Would be 4200-5700. Bad Case Range would be 3800-5400.

Themes for 2012

• Bullion: Sell Gold, Buy Silver.
• Currency: The new floor for USDINR may well be 50 & range can be 50-55 for the entire year.
• Bonds & Equities: Buy Dynamic Bond Mutual Funds & Good Quality Equity Diversified/Multi Cap Funds. Balanced Funds would give good returns with Interest rates set to fall & in later half equities expected to fair well.
• Second Half of 2012 (July-Dec) to be better than the first half of 2012 (Jan-Jun).

Wishing you all a Healthy, Wealthy & a Prosperous 2012

NIFTY Outlook for the Week 26Dec-30Dec 2011

1. Week gone by at a Glance

NIFTY started the week flat by opening at 4623, managed to go down to 4531 but managed a quick recovery & ended the week with marginal gains of 1.6% by closing at 4714.

As per this post (NIFTY Down Moves), each of the previous down moves were of the range of 13-17%. The current sell-off from 5099 can be said to have ended at 4531 levels. Mind you on weekly charts we are yet to see a bottom formation (Has been witnessed on daily charts). So if this week we manage to stay above the lows then only weekly too we would have a intermediate bottom in place for the upmove that can take us to 4850-4900 levels.

Sell-Off 1: 6181 to 5177 (16.23%)

Sell-Off 2: 5700 to 4720 (17.19%)

Sell-Off 3: 5350 to 4639 (13.28%)

Sell-Off 4: 5099 to 4531 (11.13%)

2. Charts

2.1 Weekly Charts

Much awaited pullback was seen in NIFTY. With FII's not that much active the Index managed a smart pullback of 5% from the lows. Going forward as long as NIFTY remains above 4640 on closing basis the trades on Long side would be profitable till atleast we are near 4806-4850. Below 4640 the bears would become active and chances of new lows can be seen.

Indicators: Positive Divergence is seen in MACD. Slow Stochastic is oversold & RSI is still below 50 indicating the lack of buying in the ongoing trend.

2.2 Daily Charts

NIFTY from Tuesday is moving in a steep upward trendline & sooner rather than later will fall from the trendline & can reach its important support of 4640. If this level is held on to then an upmove to 4850 can be seen.

Indicators: RSI & William's % R are indicating weakness & monday most likely we may hit 4640 levels.

2.3 Volume Weighted Charts

3. Derivatives

3.1 OI Chart

Highest Concentration of Puts is at 4500 Strike with a OI of 73 Lakhs (Previous Week was at 63 Lakhs). 4600 Strike is next with a OI of 67 Lakhs.

Highest Concentration of Calls is at 5100 Strike with a OI of 78 Lakhs (Previous Week was at the same level). 4900 Strike is next with 71 Lakhs in OI.

Total Calls OI in the Near Month is 5.93 Crores. Total Puts OI in the Near Month is 5.13 Crores.

Put Call Ratio is still below 1 indicating aggressive call writers haVe still not squared up their shorts.

4. Bottom Line

• Last Trading Week of the Calendar Year 2011. Expect market to trade with positive bias with good support coming in from MF's buying to dress up the NAV for Quarter End.
• The December Month's Closing is very important for the Yearly, Quarterly, Monthly charts. On Monthly Charts, This month the opening tick was at 4970 levels. On Quarterly the Opening was at 4874 levels. The more we get close to 4874 levels the formation would look like a "Inverted Cross".
• Sectors to Watch out for: Telecom Sector is looking weak. IT is mixed with TCS showing strength & INFY showing weakness. Banking & Auto space may see continued pull backs.
• Trading Strategy - One can keep their Long positions open as long as Index manages to stay above 4640. Stiff resistance would be faced at 4760-4810-4860-4880 levels. Strong supports exist at 4700-4640-4550.
• Max Pain Theory for Options suggest that Expiry may happen around 4800 levels.

NIFTY & BANK NIFTY Trading Levels

NIFTY since 07-Dec-2011 has had a close to 11% fall. Currently the global cues are positive after an impressive Housing data from US. So its neither genius of mine nor an insight to say that morrow we may have a Gap up opening to the tune of 60-80 points or probably even higher. Lets take a look at the Charts to see if there is more room for the rally to continue.

Hourly Chart of NIFTY

Observations:

• The above is the fibonacci retracement level of NIFTY on Hourly Charts. In a downtrend usually a security can retracement 50-61.8% of retracement. Going by that theory we can expect NIFTY to hit 4816-4883 levels. 
• During this move possible roadblocks would be faced at 4610 - 4665 - 4760 - 4806 - 4875 levels.
• One assumption above is that 4532 (Today's Low) should not be breached.

Hourly Charts of BANK NIFTY

Observations:

• The above is the fibonacci retracement level of BANK NIFTY on Hourly Charts. In a downtrend usually a security can retracement 50-61.8% of retracement. But the kind of hammering the Bank NIFTY has taken it can max retrace upto 38.2%-50%. 
• Going by that theory we can expect BANK NIFTY to hit 8300-8500 levels if 7700 levels is held. 7700-7800 is a key support on Monthly Charts as well.

Bottom Line: High Beta names like Private Sector Banks, Metals & Mining Counters & Infra Counters can see sharp rally. 

NIFTY Levels - If 4532 is not breached on lower side can rally up to 4816-4880.

BANK NIFTY Levels - if 7700 is not breached on lower side can rally up to 8300-8500 levels. 

Stop Loss: A Stop Loss of Today's Low is must on any Longs that are initiated.

Market Wisdom: Rallies in Bear Markets would be lesser in time frame & vicious.