Chart of the day: How petrol price has been rising over the past decade

Riken Mehta
Moneycontrol.com

Consumers were in for a shock on Thursday, as the government raised petrol prices by unprecedented Rs 7.50 a litre.

The increase was on the cards with the rupee continuing its free fall against the US dollar. It was just the quantum of the hike that has taken most by surprise. The rupee fell to a record life low of 56 per dollar on Wednesday.

Every one rupee rise in US dollar wipes out Rs 8,000 crore annually from revenue of oil marketing companies.

The government had decontrolled petrol price in June 2010 but rates were last increased on November 4 last year. This despite oil price rising by 14% and 7% fall in value of rupee against the US dollar.

How petrol prices moved up since 2002

15th June 2004: Rs 40.96 per litre (Crossed 40 mark first time)

05th June 2006: Rs 53.5 per litre  (Crossed 50 mark first time)

29th Jan 2009: Rs 44.5 per litre (Fall in international crude prices led to softening of petrol prices from Rs 55.04 to Rs 44.55 per litre)

16th Dec 2010: Rs 60.46 per litre (Crossed 60 mark first time)

16th Sep 2011: Rs 71.92  per litre (Crossed 70 mark first time)

24th May 2012: Rs 78.57 per litre

Data Source: www.mypetrolprice.com

Chart of the day: Rupee falling, but FIIs not dumping stocks this time

Riken Mehta
Moneycontrol.com

Unlike on previous occasions in the last four years, the sharp depreciation in the rupee since January this year has not been accompanied by huge foreign fund outflows.

Foreign investors usually sell Indian shares whenever the rupee weakens as the value of their portfolio declines. This then sets off a vicious cycle as FII selling weakens stock prices and could trigger more pre-emptive selling by other foreign funds, which adds to the pressure on the rupee and then sets off the same cycle again.

So why are FIIs not selling shares heavily this time?

One explanation is that most short term players have already got out and the funds which invested in January and February are long term players. The other explanation, conspiracy theory if you may call it, is that a big chunk of black money stashed abroad would have come back to India for good.

Time Frame: Jan 2008 to May 2012

What breach of 200 DMA really means for the Nifty

Riken Mehta


The Wall Street wisdom of ‘Sell in May and Go Away’ so far holds true for the Dalal Street. Nifty breached its 200 DMA on Friday, giving yet another signal of bearishness in the market.

But why is breach of 200 DMA so critical for the market? Let’s find out

The 200 Day Moving Average is a long-term moving average which helps in tracking the overall health of an underlying asset. A stock trading above its 200 Day Moving Average is considered to be in a long-term uptrend and vice-versa. 

In a bull market, the 200 DMA time and again acts as a major support level. Whereas in a bear market, the 200 DMA often works as a major resistance level. However, a decisive break above 200 DMA can lead to sharp rally in prices.

Whenever an index or a stock trades near its 200 DMA, it draws support in a bull market and faces resistance in a bear market. Currently, the 200 DMA of the Nifty is around 5,112 with the benchmark closing below it for 3 consecutive sessions. (See the chart below)

It is important to keep an eye on whether an index closes above/below its 200 DMA on a regular basis before making any trading decision.

After all, it is a long-term trend indicator, so wait for some days for the confirmation of trend reversal. Only price correction need not confirm a reversal. One has to also view the slope of price correction along with time taken by Nifty for the correction.

So a mere breach of 200 DMA up/down does not signal trend reversal and one should not enter a trade (long/short) all guns blazing.

Lets understand better with an example. Nifty Time frame: May 2005 to May 2012

Points A, B and C: Nifty finds support around 200 DMA giving an opportunity each time to enter in a long trade.

Point D (May 2008): As you can see Nifty breached below its 200 DMA in January 2008. A relief or short covering rally found resistance at point D (200 DMA). This was a chance for long term investors to exit and traders to go short on the market.

Point E (May 2009): Again, Nifty inched above its 200 DMA before the outcome of election results. If you would have gone long at Point E then you could have ride long positions until point G.

Points H, I: Nifty finds resistance at point H in a downtrend and support at point I in an uptrend.

Point J: Nifty at current position. So it’s important to see whether Nifty finds support around 200 DMA or keeps falling and remains below it for a brief period of time.

More on Moving Averages

As the second word implies, it is an average of a certain body of data. For example, if a 200 day moving average (DMA) of closing prices is desired, the prices for the last 200 days are added up and the total is divided by 200. The term moving is used because only the last 200 days closing prices are used for calculations.

The moving average is a smoothing device. By averaging the price data a smoother line is produced making it much easier to view the underlying trend. Remember, moving average is a lagging indicator. What it means is that 20 Day Moving Average would hug the price action more closely than 200 Day Moving Average.

Depending on your time frame, a shorter, medium or longer term average can be used. A 20 day moving average would be more useful for short term trend while 200 DMA will prove effective for the longer term.

Types of Moving Average

Simple Moving Average

Simple Moving Average is widely used by most of the technical analysts. However, over the years this moving average has been criticized for assigning equal weight ages to all days. In a 20 day average, the last day receives the same weight age as the first day. This was taken care by Exponential Moving Average

Exponential Moving Average

Exponential Moving Average assigns a greater weight to the more recent data which is why it is called a weighted moving average. We will not brief the calculation. Technical software’s and charts makes it easy for you. All you have to do is select the number of days you want in the moving average: 20, 90, 200 etc.

Chart of the day: ICICI Bank Vs HDFC Bank price performance over the years

Moneycontrol Bureau

Between May 2003 when the stock market began rising, and January 2008 when it peaked, ICICI Bank shares outperformed those of arch rival HDFC Bank by a wide margin. However, since January 2008 till now, the trend has reversed and the HDFC Bank stock has been consistently ahead of ICICI Bank on the returns curve. In terms of loan book size, ICICI Bank is still number one at Rs 2.54 lakh crore compared to HDFC Bank’s Rs 1.95 lakh crore. But HDFC Bank scores over ICICI Bank in terms of asset quality, which largely explains the outperformance of the stock.

HDFC Bank’s restructured loans—the process wherein terms of repayment are altered to accommodate a borrower facing financial difficulty—comprise around 0.5% of the loan book compared to ICICI Bank’s nearly 2%. Also, HDFC Bank’s net NPAs are about 0.2% of the loan book, compared to ICICI Bank’s 0.6%.

ICICI Bank’s fourth quarter financial performance was better than analyst estimates, and there was noticeable improvement in its gross and net NPA ratios. Can the stock narrow the gap in performance with its rival anytime soon?

Chart 1: % Change in price performance over the years. Time frame: 1st Jan 2003 to 14th Jan 2008

Chart 2: Time Frame: 14th Jan 2008 to 30th April 2012