SGX Nifty 29th June 2016

SGX Nifty

LTP  8,576.00   -128.00   -1.49% High 8,710.00 Low 8,546.50

SGX Nifty 29th June 2016


SGX Nifty / Nifty Futures today continued its consolidation after the sharp fall seen on Friday post the Brexit event. Regular readers and clients of this website are well aware that we do not track news flow and the evening before Brexit news was out we had clearly mentioned that regardless of the outcome of Brexit we see Global stock markets falling sharply. Even now there is a lot of talk about a second referendum and so on but we do not see that taking place and we see all global stock markets including India will start falling.  Some may out perform for some time like Nifty is doing right now but the out performance will soon turn to under performance as most of the money that has walked in has been EM basket money.  There is only a small amount of India dedicated money that has come in form 6825 onwards.

Let us understand the overall picture the rally that started on 29th Feb 2016 was a global stock market rally. India did not rally in isolation and all world stock markets performed amazingly well during that time. Brazil and Russia which were almost written off markets were the bets performers in the move. We had mentioned in 2-3rd week of Feb 2016 that Nifty will make a top in this round around 8250-8000 area and that target also has been completed though we started shorting a bit earlier and we could have timed our shorts better but does not matter.  Coming back to the point the rally was Global and India did not rally in isolation hence we see a very strong correlation. With most global stock markets breaking important support levels in the past 2-3 trading days and the manner and speed with which the fall has taken place we clearly see that Nifty and Indian stock markets will shortly  start under performing the Global stock markets and start playing catch up. It never has happened in the history of stock markets that all global indices will keep falling and breaking important supports and India will remain isolated. India too will have its share of the risk off that is taking place globally for now.  Bottom line is that risk off is a global event taking place and India will not be spared from it in a few days we see India starting to play catch up with all global stock markets and under performing please keep that in mind.

Now let us look at the charts. If we see the overall move from 6825 to the recent highs of 8285 the stand out feature of the rally was that Nifty used to move fast for the first few trading days approximately 4-5 trading days and then loose momentum and just drag along. In addition to that during the drag along the volumes on the up moves were decreasing also the important notable character was that overall advance declines in the broader stock market started favoring declines which meant the rally as it went higher kept becoming narrower and that to our analysis is surely not a tezi cycle move. So since 8285 now is done which completed a g wave we see the resumption of the fall that started from 9119 on 4th March 2015.  Please go back to our Feb post and see we were very clearly saying that when Nifty nears the target zone for this round at that time everyone will start talking about 9000-10500 but we do not see that happening and as per our analysis we see Global risk off returning to all risk on assets so if that is the case we do not see how Nifty will sustain at such prices and levels.  In fact after the top of 8285 we did see a faster retacement  which broke key levels on the downside and that confirmed our view. Further after the sharp fall though the pullback has come to around 8150 spot Nifty levels we see that the speed of the pullback is extremely slow and hence we can safely infer that new down move has started.  We will get final confirmation also on this in the next few trading days but as things stand right now we are very clear that on coming fall will be very sharp and this is not the price and time to buy any risk on assets forget equities or even Indian stock market.

Another important factor that we track closely is the sentiment on the street. As usual we this time did a survey of 200 asset managers and we did see some really amazing replies in fact over 99 percent of fund manager effectively were trying to convince our survey team that you must deploy fresh capital in India and then free of cost they started suggesting where to invest what to buy which sectors to buy etc (no one mentioned sugar except 2 percent, no one else mentioned agri commodities which means that is another confirmation for us that is the place to be) .  When we asked them about Global risk off they all were so complacent that most of them said “reforms are in full swing in India”and that will take care of any global jitters. While I personally have extremely high regards for some of those fund managers from whom I have learnt invaluable lessons but for this time once again I beg to differ with all the 99 percent of them. The reason is that when everyone starts saying “India has good fundamentals” “Indian economy will turn around” ” Monsoon will help growth” etc they are ignoring the larger picture that no market will rally in isolation.  Further we know that who is controlling the rally and Rahu (North Node) will play deception. When he has aligned everyone into thinking the same thing we are clear Rahu (North Node) has done his work.  When everyone are on the same side and there is absolute consensus that Stock Markets will rally in our historical studies it never has. History will repeat itself this time too. We are very clear about that.  As Gann said there is nothing new under the sun. Future is nothing but a repetition of the past.

In addition to the above factors one of the most important aspects to make money is to buy at cheap valuations where growth is visible. Now as per our analysis shows that Nifty valuations are not cheap in fact they are expensive ad in our historical studies no one has made money buying at such high valuations where forward growth is not clear and not visible.  Further India is much more expensive than its EM basket peers so if we do look at the picture then there are better opportunities within the EM basket but let us for now just focus on the Indian stock valuations.  No growth or no clear visible growth and such hefty valuations are a recipe for disaster.  With such kind of a scenario just have a look at how the world back ground looks like. It does look really clear that risk on assets will not make much money in fact in our stats models for portfolios we see fixed income has out performed. So again on this parameter too we feel that it is not safe to deploy fresh capital. Most DM’s like the USA are trading at almost their highest valuations in history. As of yesterdays close Dow is at its third highest valuation. The only last 2 times it was higher than now was in 1929 and 2007 so we know what followed post those valuations and even in India we have seen that 23 times trailing earnings means at least a 10 % dip if not more.  Bull markets do not start or continue beyond a time line.  Time cycle also is indicating that game is about to end. When it does end it will not allow you to exit or short sell or churn your portfolio. It will be sharp and shift and before you understand what the hell is going on markets will be far lower.  

There are many other factors and frankly our charts are clearly indicating that Nifty will fall sharply. Upsides are capped and we do not see any sense in buying here besides MSl, Renuka sugar, eid Parry, Ugar sugar, Nmdc, Tata coffee we do not see any sense in buying fresh at current levels. We are clear as per our analysis that we will get much lower and better entry prices from now.  The overall complacency in the market clearly indicates that most market participants are under estimating the Brexit event and further under estimating that Global growth is very slow. In addition to that in the next few days onwards we expect the news flow from China also to start upsetting the global risk on assets.  Keep in mind that we do not see a good agri season this time around and hence we do not expect demand from rural India picking up much. 

Overall macro picture.  The more and more we dig into the on ground economic situation the more we see fresh problems. The slow down in the real estate sector will add to the banking NPA’s and as per our under standing they are not yet factored in the bad assets. So over the next few months we expect more issues and problems for the banking system which currently has not been accounted for.  The rotation of money on the ground has become nearly non existent and that too will add to banking sectors problems. Inflation on the rise for 3 months in a row and we expect that even though the next month print may be a but flattish or bit lower due to base effect but that will not allow RBI to cut rates in India for the time being.  Exports falling now for 17 months in a row is also a concerning factor.  Crude Oil import bill going up by 100% is also a factor and such macro headwinds too have never helped India historically.

Bottom line The risk reward ratio is not in favor of buying.  Sure time pass can go on for a few more days but that does not mean that Nifty will zoom higher from here now.  Be careful as the on coming astro cycles indicate real panic in the coming days.  Gold and Silver breakouts also confirm that stocks are near a top.  There are too many factors indicating imminent danger.

Good Trading To You!