“Sell in May and go
away” adage held true for the 3rd straight year!! With the D-Street experiencing
a major sell-off after infusion of a record high hot money (FII) in the
Jan-March quarter, May has rather been a dull month for equities with the BSE losing
nearly 1000-odd points in this month alone.
The S&P Nifty has been trading at mouth watering levels,
with a P/E of nearly 12-13 times and 11 times its FY14 earnings. With a lot of
positive reports and comments from the so called “Contrarian” investors, one
may feel pestered to go for bargain hunting. Also, those investors who missed
the rallies of 2009 and so on, believing the doomsayers, are eager to jump the
bandwagon. But, bottom fishing with bleak macro-economic variables, may not
prove to be a wise choice.
It would be a difficult call to predict the bottoming out of markets
which is stung by twin deficits, weak government, a burgeoning Euro zone crisis,
and warning signals from the Chinese Economy!
Some of the trigger points for the coming months and their
probable impacts:
RBI Policy: With the RBI Policy in the coming month, despite the
increment of the Govt. to increment the Petrol prices, the possibility of an
Interest rate cut remains low, due to a low weight-age of Petrol in the consumer
basket. The impact of the hawkish 50bps cut in the rates, and other policy
effectiveness will be visible once the Economic growth data for the Jan-Mar
quarter is available on May 31st.
Also, the investor sentiment in the rate sensitive sectors like real
Estate has been marred by other issues like delayed real-estate approvals, etc.
Also, the deposit rates have not been picking up as per RBI`s expectations. So,
probability of a further Interest cut stands at 25%. The second option
available to the RBI is to announce a CRR cut of around 50bps, injecting
approx. 30,000cr in the system. This seems to be a more feasible policy stance,
considering the liquidity crunch in the system, with the bank borrowings
remaining above RBI comfort zone (in tune of 60,000cr) at over 1lakh crore.
Also, this has been further propelled by the RBI selling dollars to control the
greenback from inching towards the 56-57mark against the Rupee. The OMO of
12,000cr by the RBI concluded today is an indication of its stance in the
coming policy meet. However, the eyes would be more on the RBI`s activity to
cool off the $ bulls. Also, the Govt. policy to revise the Diesel and CNG
prices may be cheered by the Investors with a 273 point rally. However, don`t
expect any strong policy decisions from the UPA stable.
Greece Elections: On the
Global front, the Greece elections to be held on the 17th of June
will have a lot of volatility as well as panic selling, based on the various
voices coming out of the EU. Although the attempts would be have Greece continue
to be a part of the EU. If cues are taken from the French elections, which chose
growth over austerity, we might see a similar Greece outcome, with the blooming
Syriza`s support, we may see the Holland- Syriza duo forcing the Merkel
dominated austerity measure traversed towards a more growth oriented measure.
Also, the slowly improving growth of the US coupled with the
warning signals from China, may result the FED to announce a relatively smaller
and ultimate round of QE3
All the above positive outcomes may materialize only after
mid-June. Till then, the markets may wear a gloomy look. The following charts will help us to
understand the future course of the markets:
The breakout post the Descending
Triangle Pattern, after a subsequent rally from the highs in Jan & Feb
confirms the May sell-off (had tweeted about this pattern earlier) . Although
this breakout from the descending triangle has been taken out, we now fast a
stiff resistance from the downward sloping trend line
joining the tops of the rallies of 2010, 2011, 2012. This lower top, lower
bottom formation, confirms a bearish long term trend with strong resistances at
the levels of 4950-5000.
Nifty also has a strong support formation, thus, we could see Nifty having a
strong support at 4800-4775
levels. Therefore, we expect the Nifty to trade in a range from 4775 – 4975, until there is a clear
breakout on the either side.
Sensex:
Trend lines and Fibonacci retracements indicates a correction
to the extent of 15300-14800. A close
below the 23.8% retracement level, at 16220 of Sensex, further confirms our
bearish view on the markets with immediate retracements to 15400 levels. Weekly
closing above 16300 would falsify the bearishness of the downward sloping trend
line, and offer a chance rally till 16900. On a daily basis, we might see a
rally up to the 16400 levels, which offer a good opportunity to sell. If the
PCR of the NIFTY Jun expiry is to be considered, it would confirm our bearish
sentiment.
For the coming week,
we expect the markets to adopt a cautious approach, it may be range bound at 15653-16600 levels.
Commodity:
On the commodity front, Gold/$ may rally to 1583-1585 levels, where it may face
resistance, thereby retracing to 1565
levels, and a drop below that leading it to 1520 levels.
That`s all for the time being, will try and add a follow up
post or tweets depending on time availability.
Happy Investing!
Happy Investing!
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