Is this a new bull market or just a bounce back??

On 24^th March 2020 Prime minister of India announced the first locked down in the country. On the same day Nifty made a short term bottom around 7511. Stock market is a derivative product of the economy. When economy is booming, stock market gives abnormal profits and vice versa. Then why stock markets are going up in the locked down phase?? Ideally it should go down…

That’s because of liquidity pumped in by central banks in the economy. All central banks in the world have reduced interest rates sharply and purchased bonds from open markets. RBI announced moratorium till august 2020 so that borrowers will not have to worry about their EMIs. Now all banks can book the interest income in their books though they have not received EMIs. Since it is a moratorium period no new NPAs.   

Is this rally sustainable?? No, it’s impossible. Then when will this bubble burst?? It may be a week or a month or a quarter or two. We have already reached almost 60% of fiscal deficit in the first quarter of financial year. Unless Government opens the economy we may not achieve budgeted tax collections. Right now RBI has increased overdraft limits of state governments still many state governments are not in a position to pay salaries of employees. In private sector and MSME we have already seen so many job cuts. Situation is very bad on the ground. We locked down our economy when there are just 500 odd covid-19 cases and after 3.5 months we still reached to more than 8 lakh cases.

We may see so many NPAs in next 6 to 12 months. All leveraged businesses are in big trouble. So avoid buying leveraged companies. Bear market always gives you a chance to buy good stocks at cheap valuations.  

 

On technical front, Nifty is taking support of the trend line shown in the chart. Near term support of this trend line comes around 10500. If Nifty closes below 10500 on weekly chart, please exit all your long positions and wait for more correction.

To conclude, this is just a bounced back. So use this opportunity to exit your long trades. I repeat, you will get a chance to enter again at much lower levels. Happy Trading!! Stay Healthy and wealthy!!

Perfect time to enter equity through Mid-cap stocks!!!!

I had recommended to book profits when loksabha elections (May-2019) results came out. I had mentioned 12000 is upper side for Nifty and support will come around 11000. As I expected, after election results Nifty made a High of 12104 and then came down to 10700 levels. Though Nifty started it’s sell off after elections results but Midcap and small cap stocks started its correction from February 2018 (Introduction of Capital gain tax).

Since last 2 years Midcap and Small cap indices have corrected more than 25%. Normally corrections in Indian stock markets are of 13 to 21 months, so most probably correction is over. On technical front, BSE Midcap index has given breakout of falling trend line since January 2018. Now it has started sustaining above that resistance line. In last 2 months Midcap index has outperformed Nifty and SENSEX. Normally Midcap and Small Cap indices start out performing in the Bull Run. So I recommend to increase exposure in Mid and Small cap Stocks.

Selecting Mid and Small cap stocks is difficult task. Ideally one should invest through Midcap mutual funds rather than directly investing in stocks. 

Following are good Midcap funds to invest.

·         Axis Midcap Fund

·         DSP Midcap Fund

·         Kotak Emerging Equity Fund

·         L&T Midcap Fund

·         HDFC Midcap Opportunities Fund

On fundamental front, data is still not that positive. But RBI and Govt have taken steps to boost the economy. It will start giving results in next 2-3 quarters.  This year Kharip crop got damaged due to extended monsoon but Rabi crop is very well due water availability. I am hoping that rural demand will increase in next 2-3 months after harvesting of Rabi crop. Right now external factors are more damaging sentiments. Market has corrected this month due to corona virus in China. I think this is blessing in disguise. China has become manufacturing hub for entire world. Now India has a chance to become second supplier to world. I hope more foreign companies will start manufacturing units in India.

To conclude, one should start investing in Midcap and Small cap stocks through Mutual fund route for next 3-4 years. (Low interest rates, low inflation and adequate liquidity)I don’t think we will get such opportunity every now and then. So don’t miss this opportunity of minting money.

Happy Investing!!!