Has the Santa Rally started?

The markets digested 2 events of the Central Banks of the US and the RBI coming out with policy pronouncements. Let us see what they mean for the markets.

1. The US Fed has started slow tapering of the bond purchases from January. The markets did ot show any major negative reactions because it was reduced only by 10 billion USD and the Fed softened the blow by saying that the low interest rates regime is here to stay.

2. The tightening of the monetary policy means that the party for Gold is over unless there is some major event like a geopolitical event. Gold peaked at 1920 USD some time in September 2011 and has been on a downward spiral ever since. Now it is trading at 1200 USD. The price of Gold in rupee terms increased because the rupee has weakened by about 20 pc since September 2011. The exposure  to Gold can be reduced and no further Gold should be added to the portfolio.

3. The RBI has held rates becuase the inflation has been primarily been due to the food inflation. This is expected to come down in December and Januray and hence the rate hike has been deferred till the ext policy meeting in mid-January.

4. The markets rose on the RBI decision to hold the rates, took a momentary dip on the US Fed decision but then smartly rose on Friday.

5. The 6350-6360 remains a key resistance level for the markets to overcome. Once, this is broken and the 6415 previous highs are surpassed, once can expect the markets to rise. The targets remain of 6500-7000. The markets are entering the holiday season and one can expect lacklustre activity going forward.

6. The coming week is a truncated week on Wednesday being a Christmas holiday and expiry being on Thursday which can lead to volatility.

It is time to enjoy the Holiday season and maybe look for trading bets.

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Sell on News comes true

There is an old adage in the markets, Buy on Rumours and Sell on News. The markets displayed this by hitting an immediate high on the news of BJP victory and then promptly retreating back to close the week 1.5 pc down. Let us see what can happen next?

1. The FIIs have continued to buy every single trading day in December. The DIIs selling is lessening. As long as this FII buying continues, the markets will not tank.

2. This week, all eyes will be on the Central Banks as we have the FOMC meeting and the RBI meeting. I expect some kind of Repo Rates hike in the RBI meeting. The FOMC is unlikely to make any statement which is dramatic as this would be the last meeting Ben Bernanke would be chairing. Typically, he would leave the tough announcements for the next chair Janet Yellen to make in January.

3. The markets gained 9.8 pc in October and have lost 2 pc in November and 0.1 pc so far in 2 weeks of December. This points out to some kind of correction rather than a top being formed.

4. Historically, the markets either correct in the Jan-March quarter or heavily correct in May. The rally will continue unless some really bad ews comes on US Fed tapering.

5. The support levels for the markets come at 6245, 6193, 6141, 6076 and 6061. Oly below 6061, oce can say the correction will extend much further down.

6. The tax free bonds have been drawing a good response and it would be a good idea to lock in some of the money in those while the rates are still high.

The markets usually never crash in December and it is time to enjoy the winter chill and watch the markets meander their way up.

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Election Results indicate a clear anti-Congress wave

The ballots are counted and the victors have been declared. Who are the real winners and the losers? Are the election results a mirror to what is going to happen in the next 6 months, general elections? Let us try and explore. How will the markets react? Lot of questions to answer.

1. First things first. Whatever be the minor change in positions after now, the message is clear, the voters want the Congress out. The party has been almost wiped out in Delhi, in Rajasthan and Madhya Pradesh they have won very few seats. If the BJP can secure almost 2-3rd majority after 10 years in power in MP, it means Congress may eventually get wiped out from the Hindi heartland. Remember, no party can afford to remain out of power for almost 15 years in a State, the cadres start deserting the party.

2. In Delhi, the Congress will finish a poor third. This sends out a very strong message. The voters are fed up with the Congress. They will prefer anyone else but the Congress. Even the unkown Aam Aadmi Party will do. The results put the AAP in the best position of the 3 parties in Delhi. They can continue with their shrill rhetoric till the General Elections. As the Oppositio party, they can ask questions. If they had won, they would have to give answers soon.

3. Rajasthan has been a whitewash for the Congress. Losing a elections after 5 years in power is fine but this is a whitewash but with the opposition winning almost 75 % of the seats is a bit too much. The Congress may get decimated in Rajasthan.

4. The only silver lining for the Congress is the Chattisgarh elections. Here also, they had the advantage of 10 years of anti-incumbency factor, the sympathy factor for the massacre of their leaders and yet they are neck and neck with the BJP. A few seats here and there. No decisive mandate in their favor.

5. What does this indicate for the 2014 elections? A NDA led formation or a Third Front khichdi leading to instability. There may be 1 more general election about 2 years from this one. This reminds of the 1996 scenario where for 2 years we had the Third Front propped up by the Congress and then BJP coming with a mandate in 1998.

6. The ball will now be in Narendra Modi's court. If he can keep up the momentum and continue with the pace of rallies, the BJP may just be in power. Remember Modi needs just around 200 seats, with 200 seats the allies will come. Power is a magnet for the allies, idealogies be damned.

7. Where will the 200 seats come from? UP and Bihar are rich harvest states. Karnataka has Yeddyruppa coming back. Gujarat Maharashtra, Rajasthan, MP, Punjab, Delhi are few more friendly States. In the South, they would need Jayalalitha's support, and in Telengana the TRS support.

8. Now, where does that leave the markets? In the short term we would have the Santa Claus Rally if no tapering happens. remember, BJP victory is just a excuse, the rally is based on liquidity flows from abroad. The FIIs have already purchased 3500 crores worth of shares in the first week of December to go with the November net purchase 6500 crores.

9. The December rally also takes place as Fund Managers usually dress up their portfolios to get end of year bonuses. In the month of Jan-March, the markets usually top out and if they do not in May usually a big crash.

10. In the short term, watch how market behaves around 6357, if that is taken out then in a euphoria rush 6500-7000 on the cards.

11. The NTPC bonds were sold out in a day. The Hudco bonds and IIFCL bonds are still open. Invest for safe tax free returns.

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All Eyes on December 8th Results

The markets rallied smartly by 3 pc during the expiry week to close just below the 6200 mark. The Elections are on in full swing with Rajasthan going to the polls now and Delhi on December 4th. The next immediate trigger for the market will the results on the 8th of December which is next Sunday.

1. The heartening part of this rally is that even the mid caps have begun to rally. Voltas gaied something like 23 pc last week. All signs indicate Nov-Feb rally with a market top for the year being hit sometime around the Jan-Feb period.

2. With the G-Sec yields around 9 pc, the tax free bond issues of NHPC and Hudco opening next week are very lucrative. With the interest tax-free and yileds of 8.91 pc and 9.01 pc, once can lock away some portion of the income for the next 20 years. Historically, these are very high returns post tax.

3. Technically, the markets need to close above 6350 to hit new highs. The way the markets rebounded last week was very heartening and point to a move in the upwards direction.

4. The GDP numbers came in at 4.8 pc, taking the half year GDP growth to 4.6 pc from the first quarter growth figures of 4.4 %. I expect the full year numbers to be between 5-5.5 %. The second half of the year has good agriculture growth as well as Election expenditure. Elections tend to add to the GDP growth numbers.

5. The fiscal deficit numbers for the period April-October has already hit 84 pc of the full year target of 4.8 pc. This is worrisome and could mean more measures like divestments and the Telecom spectrum auction i January.

6. The upside to the markets may remain capped due to the outflow of these issues, as well as the tax free bond issuance. The upside is again heavily dependent on foreign inflows which again is tapering dependent.

7. The short term moves of the markets in the next 2-3 months, is all dependent on liquidity. The fundamentals will start settling down after the outcome of the General Elections in May 2014.

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Lack of Triggers for the Market

In the absence of any major decisive triggers for the markets, they continued to drift aimlessly losing another 1 pc for the week. Let us see if any triggers exist before the election results of the State Assemblies on the 8th of December.

1. The Talking Heads on Television continued to play games with tapering stoppage or no. This is a good game for traders. Short term movements of 100-200 points on either side are the norm.

2. FIIs have net bought 5600 crores for November so far and DIIs have sold 8200 crores. The markets have corrected by about 4.8 pc so far.

3. All eyes for any major swing will be on the 4 major State election results. As I see it, these results will have no major impact on the General Elections and are likely to favor the BJP in Rajasthan, Madhya Pradesh and Chatisgarh. Delhi should head for a hung assembly. The markets may take it as a thumbs up for the BJP and rise if the results favor the BJP. Worst case would be an equal split between the Congress and the BJP.

4. Technically speaking the markets have reached the 5 week low ema at 5996 and some bounce can emanate from these levels. If no bounce then the markets can touch lower levels, correcting the rise from 5701 to 6342. Levels in this case would be 5946, 5870 and 5829.Any fall below 5829 will be a harbinger of larger falls to come.

5. The area around 5850-5900 has a confluence of supports. They rage from the 200 DMA to the equality of last fall, to 38.2 pc retracement level of entire rally from 5118.

6. Pharma and IT stocks have led this rally and there would be no harm in booking profits in these sectors and taking the money home. Finally only the profits booked is the real profit. Rest all is illusory.

7. The bond yields are hardening at around 9 pc. At these levels, for a 2 year investment G-Sec funds are still a good buy.

Now, is the time to lie low and do detailed study to invest in quality stocks when the time is right.

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Correction Continues

The market continued its correction, dipping further by 1.4 pc. Let us try and examine the pros and cons of  the market movement.

1. The markets are correcting gently, about 4 pc from the Diwali top. This could just be a bull market correction, looking at the slow nature of the fall.

2. The FIIs have been net buyers for all the trading sessions in November 2013. Only, when they start unloading will the markets have a major fall.

3. The major question is why are FIIs buying? It is not becuase of Narendra Modi but the continued avaailability of easy money thaks to Quantitiave easing. The battle is to attract money to India.

4. Jaet Yellen will take over from Ben Bernanke in Januarary and her statements indicate the divish stace of hers. If that happend then get ready for ovember to Februrary rally.

5. The markets have support around 5850 - 5900 levels.

6. The next major trigger for the markets is the State Election Results on December 8th. A BJP sweep (even if there is no material impact on 2014 elections) will lead to the markets zooming.

7. The Gilt yields continue to trade around the 9 pc mark. Only those with a long term view can stick to Gilts.

The markets are entering a quiet phase and it can be the lull before the proverbial storm. Buy on dips and stick to Quality stocks.

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Correction in a bull phase

The markets dipped by around 2.8 pc for the week. The markets hit a new high for Diwali and since then have been correcting. Is it just a correction or is it something else?

1. The thumb rule is that the markets tend to react from the previous top. 6350 has been a sort of double top. It is natural that the markets react from here and then come back and blast through.

2. This has been an unusual correction, the large caps have corrected and the mid caps have rallied. This also means it should just be a correction before resuming the journey upwards.

3. The last meaningful correction was around 441 points. So if we extrapolate then we can correct till 5902.

4. Coming to fundamentals, what has this rally been riding on? Many talking heads claim it on the Narendra Modi effect. It is too early to talk about that. Elections are ot due till May 2014. A good 8 months away and anything could happen.

5. The markets have been rallying on easy money from abroad. The putting off of tapering, has resulted in flows of 3 billion dollars in October and November also about 1500 crores till date.

6. If tapering happens then the flows will stop and the markets will correct.

7. November to February is a period when the markets traditionally rally and hit a top in Feb-March. Let us see how this seasonality plays out this time.

8. The next major data point would be the State election results in December though that is not a relaible barometer for the National elections.

9. The G-Sec yields have almost touched 9 pc. Those ivesting for the long term can park their money here as a hedge when stocks correct to put the money back. The short term party is over though for Gilt funds. Oly those prepared to hang on for 2-3 years should invest.

10. This is a good time to clean up one's portfolio. If junk stocks rise, sell them without thinking twice. Ultimately only quality value stocks matter.

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