What do the Markets hold for us?

The New Year has begun well. The foreign institutions have poured in 3500 crores and the domestic institutions have poured in 4500 crores. On days when FIIs are major sellers, the domestic funds step in a big way. Do you know why?
The Government is offloading almost 20000 crores of shares in the next few weeks before the budget. This includes the NTPC divestment which will net almost 9000 crores. Its in the government's interest to keep the market propped up. If no major upheaval occurs then the government will ensure that there are no sharp falls.
The Indices have stopped moving now, and its the mid caps and the small caps which are jumping now.
Its time to keep track off all the junk in the portfolio and get rid of them. The supports for the markets come at 5192 and 5100. 5080-5100 is a very strong support for the markets and it is unlikely that these will broken. After that the supports come in at 4960 range.
Now, is a good time to add Gold as the prices have stabilized.Crude oil is shooting upto 80 dollars a barrel. Usually one ounce of gold is equal to between 10-20 barrels of oil. When oil rises, gold will also rise.
The below link is very informative.
http://www.incrediblecharts.com/economy/gold_oil_ratio.php

The mid caps are running away and some good mid caps could be Shri Renuka Sugar above Rs 242, Bharat Bijlee at current prices.

The markets could come down early next week to test their supports ad that may be a good time to add a few stocks for short tem trading.

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What Mr Bajaj Needs?

Last week, we say what Mr Bajaj wanted to live a happy and contented life. Now, this week lets look at what he really needs. Often what you want and what you need to be successful are completely different. If we are able to crack Mr Bajaj's wants and needs we can be successful stock pickers.
India is a country which is woefully inadequate in terms of infrastructure. We takes ages to build good roads, flyovers and sea-links. India needs a lot of new roads and highways. The Golden Quadrilateral was just a start. As Kamal Nath, our Roads Ministers puts it, 20 kms to be added every day. L&T, Gammon, GMR Infra all build roads.
India needs new airports and the existing ones need to be upgraded. The GVK group handles the Mumbai airport and are well on their way in taking a major stake in the Bangalore airport. GMR Infra has Delhi and the Hyderabad airport. The airports have a unique business model as explained in 1 of my older posts.
Next we come to the ports.The Mundhra port has a very unique business model of Container terminals. Maruti uses this port for most of its exports.
India is a power deficient country. The companies which are the power equipment manufacturing companies like BHEL, Siemens and L&T are my favorite companies. The Power generators like Reliance Power, Adani Power all have 1 problem. When by 2012-2013, the supply demand mismatch is sorted out, the power they sell will not have that big margins.
Power and Infrastructure are the sectors to watch out for.
HCC is into construction, nuclear power and they are building a city of their own called Lavasa. Lavasa is what excites me the most about HCC.
If India wants to keep clocking higher GDP growth rates, its infrastructure has to be in place. Already the high base effect will kick in. The low lying fruits of GDP growth will be soon taken away.
What I look i a company is that it has to be in a right sector and the right management. Always in any sector the best and the worst company does well. (The worst does well while the going is good ad then tanks).
Any portfolio covering India has to have Larsen, HCC, (GMR infra or GVK power).
Ideal portfolio will cover Mr Bajaj's wants and his needs. Over the next few months, lets try to get into Mr Bajaj's mind and see what he wants.

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The Key to Stock Picking in 2010:What Mr Bajaj Wants?

Its always a real challenge to pick out the right stocks. 2010 more than anytime else would be a stock pickers markets. With the Sensex giving about 80% Returns in 2009, not all stocks will rise in 2010. So, how do we identify the winners for 2010. The Key lies in identifying what Mr Bajaj Wants?

Who is Mr Bajaj?
He is a young Indian Male in his early 30s employed in one of the Great Indian Back offices making about 12-15 lakhs a year. He is married with a kid.

So, now where would Mr Bajaj spend his hard earned salary?
It would firstly be on Roti, Kapda and Makaan.

Being a family man, he would like to own his own house. So, he would take a housing loan and get set with a EMI for the next 20 years. For this, the best plays would be reputed Housing Finance companies like HDFC.

Having a roof over his head, he would like wheels to move about in town. He would buy a car again on EMI. The Market leader in India is Maruti with about 51% Market share with car models in every segment of the market. From 2 lakhs to 10 lakhs. It has the widest Service Network to boot in India.

Now, what Kapda and Roti.Mr Bajaj would like to do his shopping in malls and hang out over the weekends in places which offer Movies and Bowling. Pantaloon is one the largest mall chains in India with Big Bazaar, Grand Centrals ad Bowling Alleys to boot. They get prime properties at low rentals for being the anchor tenant.
PVR Cinemas offers prime viewing experiences all across India. Given the multiplex ticket prices and the long queue for Movies, this segment cannot be ignored.
UTV Software offers an amazing package of content for Movies to TV Serials to kid programmes. Disney has a 15% stake in the company.

I would look at Indian Hotels and EIH Hotels simply because of the amazing properties they own.

ITC and Tata tea are premium FMCG brands which offer the upwardly mobile Indian just the right products he desires. Tata Tea also has the Mount Everest (Himalaya) premium packaged drinking water.

Coming to Health care. Mr Bajaj would like to access the Best Health care facilities in the country for himself and his family. 2 big pan India chains are Apollo and Fortis. Apollo used to be my favorite, but the aggressive intent and cash rich Shivinder/Malvinder Singh duo tip the scales in Fortis favor. Fortis would have 7000 beds by end of next year.

If the India story has to grow, the above Consumer driven themes cannot be ignored. One of the touted strengths of India is Domestic Consumption. The above companies are best suited to take advantage of the Domestic Consumption Story.
The Great Indian Middle Class is what will drive the surge forward. If we look at companies taking care of their needs, half the battle is won.
The other half of the Battle will be won in identifying companies which help India build the Infrastructure it needs to make the leap from a developing nation to a developed nation.

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Markets Next Week: Technicals

The rally took the market to 5178. How are we placed technically. Lets take a look at few of the Technicals which could give us a clue about the markets.


1. The lower end of the Bollinger Band was touched and at around 4950 and then the markets rebounded. The Bollinger bands had narrowed and now they have started widening. The upper end has moved to 5208 from 5181 and the width was around 230 points when the bands were narrow. This could mean a rally till 5310.

2. The markets took support from around the 50 EMA, and I have observed whenever the markets take support around this level, they do not touch the 50 EMA again for at least 2-3 weeks. The supports are at 5062 and 5001.

3. The trend line joining the tops from June gives a Target of around 5400.

4. On the weekly charts, the supports are at 5159 and 5076.

5, If we take a 5 wave up move from 4539, wave 1 ended at 5181, wave 2 at 4807, wave 3 at 5182, wave 4 at 4944. Wave 3 is never the shortest of 1,3 and 5. So, it should be less than wave 3 and end before 5319.
Alternatively, if this count is wrong, we could go higher.

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UP, UP and AWAY

It was a mind-blowing rally on D-Street. The Nifty rallied to close at 2009 closing high of 5178. Santa Claus had come to town. Lets see where we can go from here.

It was a Bear Trap nicely set by having huge OI built at 5000 and 5100 calls. This is the third month running that OI has been used to mislead the punters.

The Markets rallied as anticipated from 4944, key support areas. They retraced all the losses made in 5-6 sessions in a couple of sessions. The Faster retracement theory states that this is a fresh up move.

The FIIs made huge purchases on both Wednesday and Thursday thus debunking that they are on vacations.

The FM came out with rosy GDP projections which proved to be trigger. Remember the Government has massive disinvestment to be made while the going is good. Expect more such noises.

The Dollar Index rallied from 74 to 78. It may retrace a few of the gains made. This rally in Indian equities has some more steam left.

The famous December - April effect will now come into play. I will post more on that later.

The US markets look all set to rally to their next pivot point of S&P 1166. That is a good 4 pc more up-move.

5300-5350 seems to be the next target areas based on both fundamental and technical factors.

I continue to SIP in Gold.

Remember while enjoying the present, on must plan for the future. What 2010 holds is a different post altogether. Lets use these holidays to plan for 2010.

Enjoy your Investing.

One could play this up-move by buying Reliance at CMP with strict stop losses.

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Dollar Index Rises, Nifty down

Last week, we had spoken about the Dollar Index rising and its implications on our markets. The markets shed wait in the last 2 trading sessions and the Nifty is now at 4987. So, where do we go from here?

1. The Nifty broke the support line from the November lows. The support at the trend line joining the lows from July comes to around 4860. This is a very crucial support line, breach of which means the rally from March lows may be over.

2. The 50 EMA at 4990 and 20 EMA at 5056 have been breached. The 50 EMA is a very strong support and the markets may bounce up from current support levels. The Markets had bounced from 50 EMA in August.

3. The 61.8% of the rise from 4807 to 5182 comes to around 4950 a key support level.

4. The 5 week low ema which the market had taken support during the Dubai crisis comes to around 4940.

5. The maximum open interest in Puts is at 4900 and in calls is at 5100 and 5200. The next week is a truncated week and volumes would be light.

6. The inflation is running away and the government would have to raise Interest Rates. It would not help much as this is Supply Side inflation not Demand side inflation.

7. The Dollar Index rising would lead to Dollar Carry trade unwinding and also commodities becoming cheaper. Good time to SIP in Gold.

8. The Bollinger band top is at 5181 and bottom is at 4960. The Bands have narrowed so a breakout on either sides would give additional 200 points. This means 4750 or 5380. The index does not stay out of the band too long. So, the markets may bounce in a day or two. If they do not, then indices would decline further.

9. I would go long on break of 5038 on closing basis. Stop loss for shorts would be 5025.

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Watch the Dollar Index

The Indian markets ended almost flat for the weekly forming a weekly doji. A Doji depicts indecision and usually signifies a top or a bottom.
The Nifty made a triple top at 5182. So does this mean the rally has ended?
There just might be juice left for 1 final blow out rally upto 5350 or 18000 sensex. For that to happen, the indices may need to dip a bit.

1. The max open interest is at 5200 call for December series and 4900-5000 puts.This means lots of people have interests (Option writers are usually big institutions) to cap this up move at current levels for this month.

2. The Bollinger bands are at 4980 at the lower side and 5184 on the upper side. The Bollinger bands are mostly respected by the indices. The Bollinger bands are narrowing down implying a big down or up move is coming (+- 500 nifty points)

2a. The RSI is making a negative divergence. First time nifty hit 5181, it was at 63, then 59 and now 55. Price usually follows the indicators.

3. The 50 ema is at 4978, the 5 week low ema is at 4920. Usually these levels are respected by the indices.

4. Its the Christmas season and foreign brokerages will soon do some profit booking and go on vacation. I expect the usual December Jan rally to kick in for 1 final swing. But this should happen in the next series.

5. The US markets are rage bound and S&P is oscillating between 2 pivots 1091 and 1106. It needs to convincingly break either these 2 for a breakout or breakdown.

6. The Dollar Index is at 2 months high and this means commodities like gold, oil will become cheaper. The sovereign debts of countries like Greece and Spain are i question. December 14th is a key date for Nakheel bond repayment.

7. The dollar index may retrace its current up move before a final swing up. I would watch the 77-77.5 levels closely.

To summarize, I feel a dip to 4900-4950 is most likely with a final blow out rally of 1500-2000 points on the sensex.

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