I always
say that the stock markets are always the same. This time they are a bit
different in a limited sense only. But surely whenever they fall, they leave
investors with the same emotions each time.
This time
the stock markets are different because of some of the factors listed below:
a)
There
is a huge liquidity in the market caused by domestic inflows of mutual funds (which
is there every time) but this time the figures are being rolled out - something
like a specific feature/ technology of a product being used as a USP for
selling it.
b)
The
general investors are so optimistic about the bullishness of the markets that
they have stopped believing that the markets will ever fall. The S shaped cycle
models have been successfully deleted out of the mind and memory of the
investors and from the books of economics and marketing. Instead the disruptive
valuation models are masking the true state of affairs of the markets and
economies world over. The PE ratios and growth rates have lost their relevance
or are at an acceptable stretched levels as per the newer norms of the global
economies.
c)
The
markets have been moving and inching up gradually. Each dip in the past has led
to a bounce back higher than the previous highs and the markets have moved on
thus.
d)
Every
investor is upbeat about the mutual funds keeping the markets afloat and each
mutual fund investor has become savvy about investment jargons like SIP and
STP. Honestly there may be a few more that I am not familiar with.
e)
Factors
like geo-political and economic tensions in Asia (North Korea and South China
Sea), Middle East (ISIS and attacks in Syria) and Europe (potential financial
default by Greece, annexation of Crimea), just to name a few have been ignored by
the stock markets or speaking in a reverse sense, the stock markets and fund
managers have never let these events affect the markets. Any negative news on
the stock markets has been effectively managed by the media/ respective
governments.
This time
the paanwalas will not be given the privilege to determine the time of fall of
the stocks. It is a general saying in the stock market circles that when the
paanwalas start giving stock tips to their customers, it is time to exit the
markets.
But this
time around, the growth story of India is being attributed to two recently
undertaken initiatives of demonetisation and GST by the government. These
initiatives will definitely turn in positive results for the economy in times
to come, but labelling these initiatives as USPs for the growth story is
something which is a matter of concern. These measures will bring in improved transparency,
good governance and gradual alignment of the unorganised sector/ parallel
economy with the mainstream economy.
If vague
factors like Digital India/ Start-ups, demonetisation, GST and may be a few
more can be termed as the key differentiators of the growth story of India,
probably there could be as many other vague factors/ triggers for the bearishness
of the Indian indices.
However,
there are a few factors which cannot be afforded to be ignored:
1.
Month
after month, the foreign money is being pulled out of the Indian stock markets
in big quantum. One gets to hear arguments that the Indian mutual funds (please
refer to point no. d) above) are pouring in thousands of crores of money into
the stock markets.
We are by any standards still very small in
comparison to the amount of money invested in India by the Foreign Institutional
Investors (FIIs).
2.
A
highly probable rupee strengthening (media and news reports speak of contrary)
can shave off extra margins from the export earnings of the industry. The
software giants may see a straight impact on the EBIDTA margins. For example, a
5% hardening of rupee against USD, will straight away knock off EBIDTA margins of
exports/ USD earnings by 5%. This may or may not happen.
3.
A
0.25% increase in interest rates by Fed this year and expected four straight
increases in 2018 might lead to a stagnation in the housing sector of the US
due to increase in the EMIs (lower disposable income) and in the industrial/
commercial sector due to increased cost of capital, higher payback periods of
projects, lower borrowing capacity due to fall in interest coverage ratios, lower
capital expenditure by corporates, etc.
A third increase of 0.25% during 2017 is on the
cards in the current quarter and the Fed has already indicated unwinding of the
balance sheet (shedding off its assets) in a planned and predictable manner
starting October 2017.
The Tax
reforms passed by the Trump administration, as seen by the performance of the
indices, have failed to enthuse the markets.
The next meeting
of Fed is scheduled for December 12-13, next week. It will be interesting to
see what direction do US and other global indices take post conclusion of the
meetings and announcement of the policy decisions by Fed (announcement of the expected
interest rate hike).
Two different
variants of NIFTY multi-period candlestick
charts have been given below for the readers to take clue from.
For the
two multi-period candlestick charts (two monthly) shown above, there is one which
coincides with calendar months and the other one which doesn’t. Both the charts
indicate bearishness. The last candle on the chart where the multi-period
candle coincides with the calendar months gives enough indications of
bearishness of Nifty. If NIFTY goes down, it confirms bearishness. If it
bounces back and goes back to the opening point or above that, it forms a hanging-man
pattern, which is again a bearish indicator.
Best
wishes to the readers for the festive season and New Year.
The
author can be contacted at: riskadvisory@outlook.com.
DISCLAIMER:
These extracts from my trading files are for
the purpose of education only. Any advice contained therein is provided for the
general information of readers and does not have regard to any particular
person's investment objectives, financial situation or needs and must not be
construed as an advice to buy, hold and sell or otherwise deal in commodities,
currencies, indices, securities or other forms of investments. Accordingly, no
reader should act on the basis of any information contained therein without
consulting a suitably qualified financial advisor in the first place.
