Sensex near all-time high: Does the rally have any more steam?

BSE Sensex, the Indian benchmark index, inched close to record high levels (30,000) the past week after the incumbent BJP government emerged victorious in the largest state election of 2017. That Prime Minister Narendra Modi will secure a second term in 2019 now seems like a foregone conclusion, especially on the backdrop of this emphatic win.

Investors and traders cheered the as-is and anticipated political stability by pushing the benchmark indices close to the record high levels last seen in March 2015.

New High Low Index

New High Low Index (NHLI), as the name suggests, takes into account the number of stocks touching new yearly highs and lows on a trading day on BSE. The formula used for calculation the same is:

New High Low Index =  Number of stocks touching new highs / (Number of stocks touching new highs + new lows)

After back-testing data since 2006, every time the Sensex makes a peak after a strong bull rally, the NHLI level surges to over 80% level for few days. Furthermore, the number of stocks hitting new yearly highs are more than 250 stocks on an average.

In the current rally, the NHLI is sub-70%. As seen in the diagram below, the NHLI is trending downwards in the ongoing rally while the BSE Sensex is trending upwards close to record levels. Additionally, the number of stocks hitting fresh 52-week highs has barely surpassed 150 in this entire rally. The technicals, hence, suggest that the much spoken-about market euphoria is still missing from the market. But this is a positive for traders and investors, as the market hasn’t peaked just yet and still has some cylinders to fire.

Advance-decline ratio 

The breadth of a market, or its advance-decline ratio (ADR), is one of the best indicators used to measure the strength of a bull or bear rally. The ratio measures the total number of stocks advancing to the total number of stocks declining in the market.

In a bull market, when the Sensex is close to its peak, the ADR is above 2.5. However, in the current rally, the ADR is struggling to stay above 1.

Both these data points signal that retail participation is significantly missing from the market. When retail investors invest heavily in the market, putting all their money in stocks expecting it to touch new highs daily, it is a signal that the market is likely to peak out. Currently, the general mood among retail investors is that of caution and they continue to wait on the sidelines awaiting a significant correction to enter the market.

-Riken Mehta

Chart: BSE Sensex versus India GDP since FY07

Riken Mehta

Nifty tests 200-DMA; Reliance Industries, ONGC, DLF slip

 

Riken Mehta
Moneycontrol.com

Indices continue to be listless in the absence of buying support in a week shortened by two trading holidays.The Nifty has broken its 200 Day Moving Average (DMA) of 5620 this morning. A close below 200 DMA, an indicator closely followed by technical analysis, on a consistent basis indicates further weakness ahead.

Political uncertainty is keeping investors edgy. After DMK’s pullout from the UPA last week, Samajwadi Party chief Mulayam Singh on Monday revived talk of the Third Front. N Ram, former editor-in-chief at The Hindu believes Samajawadi Party’s move don’t indicate early elections. “The Indian politics is facing a period of painful uncertainty”, he added.

The Sensex is down 28 points at 18652 and the Nifty is down 5 points at 5628. Live Quotes

The mood in global markets has turned somewhat subdued despite the Cyprus bail-out. The euro is hit by fears that future bank rescues in the euro zone would come with the same stern conditions seen in Cyprus' deal.

The oil & gas sector which was holding the market yesterday is now beginning to crack today. Heavyweights like Reliance Industries and ONGC are down 1 percent each. Reliance Industries has slipped below Rs 800 mark. Full list

Larsen & Toubro has acquired 50 percent stake in Future Generali India Insurance Company owned by Kishore Biyani's Future Group for around Rs 500 crore. Full article

Public sector lenders Indian Overseas Bank (IOB), Oriental Bank of Commerce (OBC) and Syndicate Bank were down 2-3 percent on Tuesday after the ratings agency Moody's downgraded the ratings of these banks on weak asset quality. Full article

Suzlon Energy has successfully completed its USD 647 million bond issue. The proceeds from the issue will be used to pare its existing foreign currency debt. The stock is up 1 percent. Full article

The rupee has slipped to 54.3525/3600, tracking negative local shares and heavy losses in the euro in Asian trade.

Live Indian Markets: BSE Sensex up 110 points; Europe opens in green

Riken Mehta
Moneycontrol.com

The S&P BSE Sensex has erased half of its early morning gains and is now up 100 points after a gap up of nearly 200 points on strong cues from the global markets.

The European markets have open in green. CAC was the biggest outperformer with over 1.5 percent gains followed by DAX up 1% and FTSE up 0.5%.

Traders are now focusing back on the domestic cues and expect the Finance Minister to announce more measures to jump start the sagging economy.

Broking house Sharekhan is bearish on the market. The research firm in it noon update advise traders, “The short-term bias would remain negative for a target of 5550 with reversal around 5810. The medium term outlook would also remain negative, as the index has completed a W-X-Y pull-back and also formed an ending diagonal pattern in the last leg.”

Stocks from interest rate sensitive sectors like banking and realty are rallying on short covering. Buying is also seen in metal stocks.

The broader markets have outperformed largecaps today. Stocks like Essar Oil, GMR Infra, Opto Circuits, Core Education, HDIL, IRB Infra made money for traders.

Safe-haven or popularly termed as defensive stocks in market parlance are trading lower on profit booking. However, if the market loses steam then these stocks will be once again back on buyer’s radar.

The rollover in Bank Nifty is around 18% in afternoon trade. India VIX is down 2.7% at 15.12. Nifty 5700 Put has added 10.5 lakh shares in open interest.

Fresh long position is seen in DLF and GMR Infra. Short covering is witness in Reliance Communications, Shree Renuka and HDIL.

In the currency space, the euro has strengthened above 1.30, while the dollar index has slipped towards 82. Brent crude is steady above 108 dollar levels.

Analysis: How Sensex & Dow Jones react to US presidential polls

Riken Mehta
Moneycontrol.com

Judging from the initial reaction of benchmark indices, President Barack Obama’s re-election appears to have struck the right chord among investors in India. But historical trends show that the Indian stock market has been largely indifferent to the outcome of Presidential polls in the US, except in 1996.

Interestingly, four out of five times in the past, the Sensex and the Dow Jones have moved in opposite directions after the Presidential elections threw up a winner. The Sensex surged 3.37% when Bill Clinton emerged victorious in 1992, but Dow Jones lost 0.90%. The US index gained 1.6% in 1996, when Clinton was re-elected as the the President. However, Sensex lost marginally after Clinton's re-election. Similarly in 2008, when Obama became the 44th US President, investors in India appeared more pleased, going by the upmove in the Sensex.

Refer to the table below to check out how Indian and the US markets reacted after US presidential polls.

Year	US Presidential	Political	Electoral	US Presidential	Political	Electoral	Dow Jones	Sensex
	Candidate Winner	Party	Votes Won	Candidate Loser	Party	Votes Won
04-Nov-08	Barack Obama (44th Pres)	Democratic	365	John McCain	Republican	173	-5.04%	2.84%
02-Nov-04	George W. Bush (43rd)	Republican	286	John Kerry	Democratic	251	1.01%	0.87%
07-Nov-00	George W. Bush (43rd)	Republican	271	Al Gore	Democratic	266	-0.41%	0.59%
05-Nov-96	Bill Clinton (42nd)	Democratic	379	Bob Dole	Republican	159	1.58%	-0.96%
03-Nov-92	Bill Clinton (42nd)	Democratic	370	George H.W. Bush	Republican	168	-0.90%	3.37%

Nifty ends lower; RIL hits 5-month high on Goldman report

A dull close for the Nifty after market resumed trade following the national holiday. The excitement was only seen in the broader markets, where renowned midcap IT and NBFC companies made smart gains for traders.

Goldman Sachs says Reliance Industries can potentially become a USD 100 billion stock by fiscal 2017 from its current market capitalisation of around USD 46.6 billion. The stock closed at 5-month high and above psychological mark of 800.

Rate cut? Not yet

The Reserve Bank today said it will assess if the declining trend in inflation is sustainable and accordingly take decision on reducing interest rate.

RBI Deputy Governor K C Chakrabarty said 5% inflation is India's comfort zone. The Reserve Bank is scheduled to review its monetary policy on September 17. Bank Nifty sheds 1% in trade today.

The Sensex closed at 17657.21, down 70.99 points or 0.40% at 17657.21 and the Nifty ended at 5362.95 down 17.40 points or 0.32%. The breadth of the market was negative. About 1261 shares advanced, 1505 shares declined, and 678 shares remain unchanged.

Top news of the day

ITC lost over 3% on fears about regulatory action at home after Australia called on the world to match its tough new anti-tobacco marketing laws that will ban logos on cigarette packs.

Maruti Suzuki will lift the lock out at its Manesar plant on August 21,  R C Bhargava, the chairman of India's largest passenger car maker said on Thursday. Maruti had shut the Manesar plant last month, following a workers unrest that left a general manager dead and 96 supervisors and managers injured.

Shares in India's software exporters Infosys and Tata Consultancy Services fall after MSCI's decision to lower their weighting in the MSCI India index.

MSCI also increased the weightage of HDFC's in its MSCI India Index by 120 basis points to 7.4%. The changes of MSCI index review would be effective after close of market hours on August 31.

Coal India (CIL) has agreed to certain changes in the fuel supply pact to be entered with state-nominated agencies. The development comes ahead of company board meeting early next month to approve model fuel supply agreement (FSA) which the coal major would sign with power companies.

Jet fuel or ATF price was today hiked by over 3.2%, the third straight increase since July, adding to the cost burden of cash-strapped airlines.

The price of aviation turbine fuel (ATF), or jet fuel, in Delhi was hiked by Rs 2,130.17 per kilolitre (kl), or 3.27%, to Rs 67,135.76 per kl, according to Indian Oil Corp, the nation's largest oil firm. The rate hike comes on back of a steep 4.5% increase in rates effected from August 1 and has wiped off all of the reduction in prices done in May and June.

TCS to buy Computational Research Laboratories (CRL), a start-up group company, for Rs 188 crore. The move would boost its cloud computing services.

European markets weak

European stocks and the euro were lower on Thursday after global growth engine China warned its trade outlook was worsening and stronger US data tempered expectations of additional stimulus from the Federal Reserve.

Gold demand at 2-year low

Gold demand fell to its lowest level in more than two years in the second quarter, the World Gold Council said on Thursday, as a drop in buying in major consumers India and China outweighed a record quarter for central bank purchases.

Overall gold consumption fell 7% or nearly 76 tonnes to 990 tonnes in the three months to June, its lowest quarterly level since the first three months of 2010, the WGC said in its quarterly Gold Demand Trends report.

Nifty ends at 5-month high; WPI data sparks rate cut hopes

The benchmark index Nifty closed near 5-month high surpassing barrier of 5350 mark and setting positive undertone for the market in the near term. The market shrugged off gloomy trade deficit data and gave thumbs up to lower than expected monthly inflation data.

India's wholesale price index (WPI) rose a lower-than-expected 6.87% in July from a year earlier, mainly driven by higher food prices. Analysts on average had expected an annual rise of 7.37%.

Banking stocks were the biggest beneficiary from inflation data as it also sparked hopes of rate cut from the Reserve Bank of India. Bank Nifty locked 1% gain.

The Sensex shuts shop at 17728.20 up 94.75 points or 0.54% and the Nifty closed at 5380.35 up 32.45 points or 0.61%. The breadth of the market was neutral. About 1378 shares advanced, 1374 shares declined, and 691 shares remain unchanged.  

Beaten down stocks post tepid quarterly results were leading the rally in Nifty today. Tata Motors, Ranbaxy, Tata Steel closed with hefty gains of over 2%. SBI and Bharti Airtel were exceptions in that list.

Major results announced today

Reliance Infrastructure's standalone net profit fell 24% year-on-year to Rs 327 crore in the quarter ended June 2012 despite sharp jump in other income. The total income from operations increased 6.6% to Rs 3447.3 crore from Rs 3691 crore during the same period.

Reliance Power , India's second-largest private electricity producer by market value, posted a 23 percent rise in first-quarter net profit, in line with expectations, as generation capacity doubled compared to the previous period.

The world's largest aluminium rolling company Hindalco Industries' net profit fell 34% year-on-year to Rs 425 crore in the June quarter. Analysts on an average had forecasted PAT of Rs 518 crore.

Amara Raja Batteries: Recharged

Amara Raja Batteries was the star performer of the day. India’s second largest battery manufacturer reported close to 100% jump in bottomline. The operating performance of the company was equally strong. The stock closed at life time high.

Swift recovery for Maruti

Maruti Suzuki India is understood to have decided on resuming partial production at its violence -hit Manesar plant by next Tuesday. "Almost all the assessments have been completed and partial resumption of the Manesar plant is likely next week.

Change of Guard at Tata Motors

Tata Motors on Tuesday appointed Karl Slym as its managing director. The post had been vacant since PM Telang retired in June. The stock surged 3%. Slym has been with US auto maker General Motors for 17 years and is currently executive vice president and board member of China's SGMW Motors.

German, French data boost Europe, euro

European shares and the euro rose on Tuesday as slightly better than expected performances by the German and French economies in the second quarter eased anxiety about wider euro zone data that are likely to show the bloc sliding back towards recession.

Demand for gold in India, one of the top buyers in the world, remained subdued on Tuesday after prices moved higher on a weak rupee and chasing a similar trend overseas.

Dalal St Week Ahead: Infy earnings & guidance, Nov IIP nos to stay in spotlight

The opening week of 2012 was won by the bulls with the Nifty closing above the 4700-mark, notching over 2% gains for itself. However, the focus now shifts to the third quarter earnings and guidance from the Indian companies and the November IIP numbers.

The season will be kicked off by IT bellwether Infosys.  All this and much more events are lined up for the next week. Let's analyse them and gear you up for trading.

There is no doubt that Indian markets have failed to decouple itself from global cues. So let’s take a look at list of global and domestic events first.

January 09: Chinese GDP, Chinese CPI

January 10: IndusInd Bank, Amtek India Results

January 11: Europe GDP data

January 12: Germany, ECB Interest rate decision, US Retail sales, US Initial Jobless Claims, ECB President Draghi Speaks, Gruh, HDFC, Infosys, Geojit BNP, TTK Prestige, DCB results. IIP November (Expected 1.90%, Prior -5.10%)

January 13: Canada, US Trade Balance Data, Michigan Consumer Sentiment Index, CMC, Sintex Results.

Chart Check

Back home, Nifty was trading in the range of 4700-4800. Edelweiss Securities is of the view, "In the medium term directional oscillator ADX is still trading very negative and the Nifty continues to form lower top and lower bottom. Thus the medium term trend is still negative. Nifty has support in the range of 4700-4645, and in the coming days if Nifty starts trading below the above mentioned support range then we can witness further downside till 4580/4530. Near term Nifty has resistance at 4800."

Sectors to watch

When money talks, everyone listen. The key trigger for next week is going to be where the rupee heads and of course the corporate earnings forecast. In view of this, the sectors that are likely to see movement are IT and pharma. A couple of private banking stocks will announce the quarterly results which will set the tone for the entire banking sector. Capital goods, however, remains the laggard in the entire pack. The joker in the pack is sugar stocks.

Stock Pick

Edelweiss picks Dr Reddy’s Laboratories with a target price of Rs 1840. Time horizon is for 3 months. “Dr Reddy's revenue guidance of USD 2.7 bn by FY13 offers 23% upsides (USD 300- 400 mn of potential sales) from consensus and our estimates at USD 2.2-2.3 bn. The guidance is based on fair visibility on base case, which implies 27% CAGR in revenue and 45%, 40%, and 15% incremental contribution to growth from US, EM & PSAI and EU, respectively. We believe, with improved operating performance and enhanced visibility of niche launches in US, there are strong possibilities for estimates upgrades across the Street.”

F&O Wrap

Futures data suggests long build up in Index futures were created by the FIIs last week. India VIX was down 6.09%, a positive sign. Nifty Open Interest Put Call Ratio is up at 1.18 compared to 1.06. Long build up was seen in banking, IT and pharma stocks. Short covering was seen in Capital Goods stocks.

Rupee Corner

Edelweiss Currency report says, "Indian rupee is expected to open slightly weak against the US dollar next week tracking multi months drop in higher beta currencies. However, in immediate short-term, 52.50 act as a major support - long-term trend line as well as 34-day moving average support, breach of it would form a lower top lower bottom amid opening a major move on the downside. On upside, 53.25-53.32 resistance area looks vulnerable on hourly chart targeting further up move to 53.58.

Commodity Outlook

“The rally from the lows has put gold in a much better near-term situation with a close above the 200-day moving average at $1634 signaling further upside potential. Only a weekly close below $1545 would shatter this projection and lead to a deeper correction. Crude Oil is taking resistance at $104, from last few days and is not able to sustain above it. But whenever it does, we will see price rally to $114.

Base metals will, despite a deteriorating outlook for new supply, continue to struggle through the early parts of 2012 on growing concern of a recession in developed markets, combined with emerging markets slowing down. The long-term prospect however remains positive as lower prices should meet restocking demand, especially from countries like China.” says Edelweiss Commodity report.

Strategies

-Buy MCX Gold (Feb) above 27950 SL 27450 TGT 28550.

-Buy MCX Crude Oil (Jan) above 5430 SL 5325 TGT 5560.

-Sell MCX Copper (Feb) around 405-406 SL 412 TGT 395.

(With inputs from Edelweiss Research Reports)

-Riken Mehta