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SGX Nifty 20th June 2016
PLEASE NOTE THAT THIS IS MY OVERALL VIEW ON THE NIFTY AND THAT DOES NOT MEAN PRECISE ENTRY AND EXIT POINTS WILL BE MENTIONED IN THIS POST. IF YOU ARE TRADING ONLY ON THE BASIS OF THIS POST PLEASE USE APPROPRIATE RISK MANAGEMENT AND THEN ONLY TRADE.
SGX Nifty / Nifty Futures continued its consolidation and has been outperforming the global markets by a decent margin along expected lines but we do not expect this out performance to continue for many more days. The important development in this week has been that most global markets rather DM’s have broken down and now are in a down ward trend. Sure pullbacks will come there too but those pullbacks in DM’s will not last and they will eventually resume their down ward journey. As per our Nifty Prediction / Nifty View we have said the price element of the top being formed is more or less in place however the time element also needs to be completed and we see the time element being completed in the next few days. The larger point is that Nifty from these prices does not offer any value to buy and there are multiple indicators showing us that.
From a investors perspective let’s look at the overall valuations. As of yesterday Nifty is almost at 19 times fwd earnings and 23 times trailing earnings. In our historical studies no investor has made money buying at such hefty valuations in our recorded history. We do not see this time being any different and this time too we will see that investors who buy fresh or deploy cash at these levels end up losing money. There have been few brokerages and some veteran investors have started cautioning fresh buying at current levels and though we do not fully agree with their view what we do agree is that buying fresh here will not make any money from a 6 month perspective. In other words we will see a sharp fall giving much better entry points in the near to medium term.
There has been a lot of talk about sugar sector in the past few trading days. The sector has been performing very well on the back of good international sugar prices. Locally Govt did impose a 20% duty on exports and in the immediate term that could create some degree of volatility but in the medium term and longer term we do not expect any damage to the trend. In fact we see this move as a move in the right direction for sugar companies in the medium to longer term. We remain very bullish on sugar stocks and maintain that Renuka sugar, Eid Parry, Bajaj Hindustan, Ugar Sugar will do very well in the coming time. Other than sugar stocks we see great time in coffee as a commodity and we strongly recommend to accumulate Tata Coffee in the coming time. Those investors who have a time horizon of 18-36 months must accumulate Tata Coffee on dips only and hold. We expect this stock to give very good returns in the coming time. MSL is another stock which has deep value and can be bought at current prices and on dips for the next few months. There is a good time cycle support starting in a few months time.
Monsoon 2016 update. Few weeks back there was a lot of talk about good monsoons and how monsoon will start etc but in the first half of June 2016 monsoon has been deficient and the progress of monsoon also has been slow. As per per our astro cycles we do not want to forecast the exact move that we see for monsoon but one thing is very clear that food inflation will rise regardless of the monsoon. Agri commodities output will not be good and that in turn will not be great news for the Indian rural sector and also for the stock markets. The entire premise for now is that good monsoon will spur rural demand and unfortunately we do not see that for now. We do not expect rural demand to pick up in the near term at least for the next 5 months. Monsoon as per our analysis will not help agri sector this time and we will see prices of coffee, sugar, wheat move up higher. One of the commodity we have mentioned here may even start crazy bullishness so keep in mind that agri out put is not looking good at all. Food inflation will not allow Reserve Bank to cut rates further nor will it allow short term liquidity measures to be undertaken. This will effectively not allow lower rates from here in fact there could be upside risk to interest rates.
If we look at the overall wave character then we have been saying that post a few trading days of sharp momentum after that move Nifty has failed to show any real momentum in fact prices have always been seen grinding slowly. Further on rise after the initial rally the volumes start decreasing significantly and this is not a sign of a tezi cycle. Besides these points the breath indicators show a alarming picture. The rally has been becoming narrow and that too has a clear implication that this is a corrective not a real tezi cycle. Regular readers and clients of this website may recall that in 2/3rd week of Feb 2016 we had clearly predicted this scenario to take place since Rahu (North Node) is controlling the rally and he will deceive everyone into massive bullishness like he had trapped everyone into massive bearishness at 7000 levels. (Few more days before he lays the trap and before he actually starts showing the true picture some minor volatility could be seen in the markets)
Besides all the above factors we have some signals coming in from the commodity side too. Gold and Silver have confirmed a breakout. (Confirmed breakout does not mean buy anywhere any how). Generally when Gol and Silver do give breakouts post massive down moves then that is another sign of equities market about to top out. Extreme caution is advised in longs.
Bottom line is that from a near term perspective some more time pass is possible and I am not suggesting that fall will begin tomorrow morning. Our view is valid for the next 2-3 months and we see sharp global sell off including Indian stock markets falling sharply. Global stock markets are showing breakdown signals and India will follow them in a matter of few days and then Nifty will begin under performing world stock markets also. Please note this is my view. I may be wrong also. I am not God I am human. Those trading only on the basis of this post please never over trade and manage your risk well before you trade.
Good Trading To You!