• Negative Divergence
• VIX started rising for the 1st time since Oct’2018
• Nifty facing strong resistance around 12300
• Signs of reversal are even visible in half of those handful of companies which were solely responsible for Nifty gains in the last 1 year
• Nifty PE is at an all-time high
• Falling growth rate for last 2 quarters
• Moody’s cutting India’s outlook to negative
• NBFC Crisis
• 2019 being Auto industry’s one of the toughest years
• Telecom in trouble
• Scam after scam unfolding leading to loss of mutual trust amongst the different stakeholders of economy
• Expected negative impact on India’s economy from Iran oil sanctions
My question here is very simple –
Even if these fundamental factors are only temporary (may be lasting for another quarter or 2) but the fact is that they’re still there and can’t be ignored. Also, looking at it from a chart perspective, one can see that even a long-term upward trending chart doesn’t go continuously straight up without corrections. Market participants do book profits and they try to do it at a level where it is highest but the near to mid-term prospects for it are not so good. So, both technically and fundamentally, Nifty and its components are showing signs of reversal, then what exactly is still making the markets go higher and higher?
P.S. – My observations or interpretations could be partially inaccurate as, quite obvious, I am just a learner in this field with a very short experience as of now.
Expectations of earnings revival based on corporate tax cut + upcoming budget measures
Regarding technicals, market is consolidating in range since 2+ months. So I wont call this straight line move.
Also regarding divergence, I dont use those indicators but I think they measure speed of upmove. So if market stops for 2 months and goes sideways, then maybe all divergences start flashing. Should we short here? Or maybe market is stopping for 2 months and will go 1000 points up again? Please explain?
Apart from ‘expectations of a non-disappointing earning season due to CT cut’, other things don’t seem to be that significant or convincing to be as strong as creating buying interests at such levels. The expectations from the budget aren’t that big. For instance, expectation of personal IT cut (which anyway happened Last Feb interim budget) is nothing new or else it would have been creating pre-budget rallies in previous budgets as well. Then, industries wanting some further relief other than the already given CT cut is also not very strong as its very clear that the govt has limited space to act now given CT cut and lowering GST has already put significant dents in the govt’s coffer.
Plus, as goes the technical part, certainly there are momentum indicators like RSI and MACD that will be reflecting the speed of the movement and might throw divergences in a range-bound scenario but indicators like MFI combine volume with price and divergences in such indicators may reflect that the movement is weak from a volume perspective and might not be able to hold its position for long.
So, yes in an absolute sense it is hard to say anything about the markets but the factors in favour of a reversal seem much stronger than factors helping it to break ATH levels.
Logic says that those who are buying at such levels really know what they’re doing but it’s really intriguing what exactly could be the basis of buying in an environment of slowing growth (even if it is cyclical).
There is a category of market participants who believe a new bull market is just beginning, I am not believing that.
So the reasons I mentioned are not good enough for a big bull market, or a consistent rise from here. But they are good enough for a last hurrah kind of move.
And dont underestimate it, last move doesnt mean 300-500 points, it can be 1000-2000 points easy on Nifty. It can be short in terms of time period, but in terms of points, as I said even 1000+ is no surprise.
Yeah! Perma-bulls do exist. They are a reality and I agree that anything can happen at anytime in the Markets and the logic behind is sometimes very very far from (at least a retail trader’s) understanding. But still, I feel there is no harm in trying to figure out… Who knows, in the search of a Centaur, one might end up finding a Unicorn!
Yes negative divergences are clearly visible on index charts. If we compare Nifty chart with Nifty inverse chart, there also divergences are visible & Nifty inverse is about to break out on the upside. In my experience & study divergences are very strong & useful, especially on MACD. I always assume that chart indicators are very useful to know about the later price actions. Present market rally is liquidity driven , many times divergences happens before the big events. Since the Union Budget is near , one can easily assume its a budget rally , if Budget comes with not much changes compare to previous one or with surprises , i assume there will be corrections on the market.
As bala said, the relative low interest rate on fixed deposits is forcing people to move their money from FDs to Mutual Fund.
Corona and lockdown has created lot of time in the hands of individuals and the simplest form of business is to do stock trading (apart from starting you tube video). Look at the stats of the number of individuals who has opened demat account since last year.
During March 2020 when nifty fell to around 7,500 (approx) it was the the FII who ran away selling. They thought that the world would end and never ever did they think that there would be hockey stick recovery in the stock market. The index which fell from 12,000 to 7,500 to 14,000 and then even touched 15,000. This must have given them sleepless nights and hence, they are not running away now. Even they must be having FOMO (fear of missing out) syndrome.
During my generation, the first source of savings was Banks and FD and then Real Estate and if the person was savvy eneough, go for MF. The current breed is go for Liquid funds from their first salary onwards. All this will create an upward move.
Think FT crisis and scores of scams that happened at brokerage level (Anugrah, Karvy episode) and still people are willing to look at this aside and invest in stock market. Sensex I am told was 100 when it was started and it touched 50,000 over the long time.
Media has kind of educated people about inflation adjusted returns and they talk about retirement now. All this will have an effect on the younger lot.
I feel just like in USA, we will not see very high interest rate on deposit regime going forward. Government will support companies for their growth and offer tax benefits and hence people think that stock market investment with a good asset allocation is the way to go forward.
To conclude, I do believe that stock market is the only option other than doing your own business if you want relatively higher return than FD. If all have my mindset nifty will only go higher. The point is we are not bothered when it will go as over time, it will have to go up. (Just like we do not keep checking our FD balance as to how much it increased daily, we need to let the market do its thing and give it time.
Everything will become costly but inflation will be low
Costly is a relative term. My father salary was 2000 when he retired at the age of 60 in 1989, but with his salary he could feed a family of 3 (children) mother was working too and it was ok life. So I agree everything will be costly if you start comparing. Inflation is something that will always be there, but then most of the working staff will be compensated as they will be getting salary to live a decent life at the current time. This is the only reason there is a bonus and salary increase etc. If not, there was no need for any salary increase given by companies.
This applies even to labor, not sure if you know, people migrate to middle east so that they can get better salary due to conversion, do you know, for labor from north India, Kerala is their Dubai or Middle East. The daily wage is so high, on an average it is 1,000 for a day. This means minimum 30,000. The unfortunate thing is that I belive most will consume and spend it away as it is given once a day.
Interest Rates. Every time there is a crises, the interest rates will be further brought down in a calibrated manner - market will keep going up
This is going to be the norm. In India we have a good percentage of the population who live on FD interest rates like pensioners etc, Inspite of this population, Interest rate on FD keep falling down so that corporates can borrow and invest in capex. Government will come in and support, just like RBI has done to various businesses.
This is the additional support or comfort investors have in investing in shares. FD deposit holders do not have any such support but still we need to thank God we are in India, at least we have some schemes like senior citizen scheme or post office where rates are little higher. In US, I am told there is no concept of FD or interest earned from deposits. Everyone will have to invest in something called 401K account. This is basically the market. India has not yet come to that level due to inflation and pensioners being quite a number but slowly and surely it will get there.
The government will interfere and support corporates as it is kind of reflects their performance.
We are becoming rich because the number looks bigger
Yes, look at the present-day salary and if I say this number to my mother she will be shell shocked. But it is the value that the money can generate. Hence it is critical that we need to save and invest wisely. Just because the number looks bigger, you are NOT Rich. Rich is something where you have so much money that you will not be writing about money or investment in these forum. Anyone who do not have to worry about money inflow I think is rich.
Once pandemic is over, everyone will be herded back into offices until a way to tax WFH is discovered
Not clear of WFH term and hence leaving this question unanswered.
All other numbers being bigger - salaries will remain constant
Never, same as point 1, your salary will increase and cannot remain constant. The moment it becomes constant you will jump jobs or do something extra. Salary is kind of inflation-adjusted if not I should be getting the same salary as my father at 2,000. Most think, their income source is salary an will remain fixed. No it is not, Income is in your hands, you should find ways to increase it. I met a uber driver, he was holding mid level management roles but he was driving, when I asked him why, he said, I am doing nothing on weekends and in the evenings, why not as I enjoy driving and at the same time earn. My neighbor cooks cake and things like that and sells it us.
This is only an example of what people can generate additional money. Investing is also a part of it.
I remember a quote of Ronald Reagan “Nobody has died of hardwork”. Most of us are by nature lazy and think our income should come from salary without putting in any efforts. Mohnish Pabrai said, when you work you are expected to put in 8 hours a day, what about the remaining hours? What do you do with it. Most of us including the undersigned will sleep and keep complaining about our salary. I always say, “The choice is Mine”