Sensex may fall 10%

MUMBAI:India’s stock market may fall by as much as 10 % within six months as company earnings fail to meet expectations, according to Pankaj Tibrewal, manager of the country’s best performing equity fund this year.

“The stock prices have run up; fundamentals now need to catch up,” Tibrewal said in an interview yesterday. “If that doesn’t happen, you could see real disappointment.”

India’s benchmark stock index is the second-most expensive among the four biggest emerging markets, based on profit predictions. The gauge has doubled from its March 9 low, helped by record low borrowing costs and increased government spending.

“If something looks too good, then we need to take it with a pinch of salt,” said Tibrewal, 30, whose Principal Emerging Bluechip Fund’s 120 % return this year was almost double the gain in the Bombay Stock Exchange’s 30-member Sensitive Index, or Sensex. The prices of most shares in the benchmark measure already reflect 2011 earnings, he said.

The Sensex is valued at 19.1 times estimated earnings, the most expensive among the so-called BRIC countries after China’s Shanghai Composite Index, which trades at 23.3 times. Brazil’s Bovespa index is valued at 16.1 times, while Russia’s Micex trades at 12.2 times.

Disappointments

Second-quarter profit at some of India’s biggest companies disappointed investors. Reliance Industries Ltd., the country’s largest company by market value, last week reported operating profit that fell short of analysts’ estimates.

DLF Ltd., India’s biggest developer, whose net income fell for a fifth straight quarter, said this week the economy needs to expand by 7 % to 9 % a year for commercial property demand to recover. India’s gross domestic product may expand by as little as 6 % in the year to March 31, the central bank forecast.

The next six to 12 months will be a stock picker’s market, said Tibrewal, adding that he gets his best investment ideas by talking to a company’s competitors, clients and workers.

BNP Paribas yesterday predicted Indian stocks may gain as much as 32 % by the end of next year as a recovery in companies’ production output and more efficient use of factory lines help boost economic growth and earnings. Nomura Holdings Inc. also said this week Indian stocks entered “attractive territory” after the retreat from this year’s high.

Tibrewal holds about 5 % of the $300 million he manages in cash to buy stocks when prices fall. He prefers Pantaloon Retail India Ltd., India’s biggest retailer, and Asian Paints Ltd., as well as companies operating ports, tollways and utilities, and avoids telecommunication and cement stocks.

Index Outlook: The long-awaited correction

Sensex (15,896.3)

The breezy roller-coaster ride that we had expected turned in to a scary hurtle downward as the Sensex plunged 914 points last week recording the largest weekly decline in the last three months. The cut was much deeper in mid and small stocks especially those reporting adverse earnings as tolerance to negative news nosedived. The truncated week ahead is likely to be influenced by the Federal Open Market Committee meeting scheduled next week and the signals that are flashed from there.

Sudden reversal in stock prices made volumes soar sky-high, especially in derivative segment. Volumes in futures and options segment reached record levels mid-week close to the expiry of October contracts. The vicious side of the market was amply demonstrated in the way it waited for the belief in the current rally’s invincibility to get all-pervasive before reversing lower: waiting for the last bear to turn in to a bull. Sensex’ close below the 50-day moving average is a negative as is the close below the previous peak of 16,002. 10-day rate of change indicator declined in to the negative zone for the first time since August and the 14-day relative strength index has declined to 32. The weekly oscillators are however still in the positive zone implying that though the short-term trend is very weak, the medium term trend is not overtly so yet.

Though we had anticipated a correction last week, the magnitude was far greater than envisaged. We had expected a terminal corrective wave that moved sideways for a few weeks before the move from July lows ended. But the decline last week throws up a zigzag formation from July lows that could mark the completion of the C wave from March lows.

But we will wait for a confirmation of one more week to see if this decline prolongs and leads the index to a firm close below 16,000. Another fight-back by the bulls from these levels can result in a sideways move between 16,000 and 18000 for the rest of this year, indicated in our previous columns.

If the Sensex records a strong close below 16,000 next week, it would mean that an intermediate term correction is in progress that has the minimum targets of 14659 and 13885 – the opportunity that those who have missed the rally so far, are waiting for.

A rebound next week can take the Sensex higher to 16,450, 16,650 or 16,848. Failure to move above the first resistance would imply that weakness will persist to drag the index down to 14917 or 14740.

Nifty (4,711.7)

It was a harsh 285-point tumble in the Nifty last week. The supports at which we had expected the index to halt were pierced effortlessly.

We had expected one more leg higher to 5200 or 5300 followed by some sideways movement before the entire move from the 3918 low ended. But the decline last week implies that the move from this low has ended at 5182. It is a little early to decide if this is the end of the rally that began in March. The current decline needs to prolong next week and Nifty needs to record a strong close below 4700 to signal an intermediate term correction that has the minimum targets of 4389 and 4170.

The short-term trend in the index is down. A brief pull-back can take Nifty to 4876, 4940 or 4993.

Failure to move past the first resistance would be the cue to initiate fresh shorts with a stop at 5000. Downward targets for the week are 4581 and 4497.

Global Cues

The much-awaited correction finally materialised in global equity markets and many benchmarks gave up over 5 per cent last week. CBOE Volatility Index jumped above 30 on Friday, the highest level seen since this July.

Key resistance for the VIX is at 33 where the 200-day moving average is positioned. Close above this level will imply that the investor sentiment will stay edgy for a few more months.

Surprisingly the chart of the Dow appears much more resilient when compared to other global indices.

The short-term trend has been roiled by the 250-point decline on Friday but the index is holding above the 50-day moving average at 9725. Oscillators are however pointing towards the decline continuing in the near term. Medium-term target for the index is 9350.

Latin American benchmarks recorded deep cuts following decline in commodity prices.

Asian markets did not fare too badly last week though some such as the Seoul Composite Index, Thailand’s SET and Sri Lanka All share Index are already in a medium-term down trend.

Bharti Airtel a good long term bet

"From the long term point of view I would only look at Bharti Airtel, I do think this fall has been way overdone and suddenly there is doom and gloom all around. All these 3-4 factors like the 50 paisa calls or the one second billing or the portability, it’s all not come out of the blue and it’s a good story and a play and its one of the hottest sector in India. But there is tonne of competition but then the fall has been also very dramatic and you can see SingTel and the serious investors of the world are voting with their checkbooks, so from a long term point of view, I think its been overdone. So I do think Bharti even though the tonne of gloomy prognosis out there, it’s a good long term bet.” By Expert

Correction Time

The stock market faced a sell-off last week, with the Sensitive Index finishing 5.44% or 914.53 points lower, and the Nifty 5.71% down. The CNX Midcap Index suffered a similar loss of 5.85%. Tata Motors was the biggest winner among index stocks with a 6.7% gain. The other index stocks to go up included Wipro, Sun Pharmaceutical, Grasim and Hindustan Unilever with gains between 3.2% and 0.9%. Reliance Communications was the biggest loser among index stocks with a 23.3% loss. The other index stocks to go down included DLF, Reliance Infrastructure, Hindalco and ICICI Bank with losses falling between 18.6% and 12.7%. Thinksoft Global Services was the biggest winner among the more heavily traded non-index stocks with a 38.0% gain. The other non-index stocks to go up included Crompton Greaves, Balrampur Chini, United Spirits, Dr Reddy?s Laboratories, Ranbaxy Laboratories, PTC India and Voltas with gains between 10.4% and 3.1%.

Aptech was the biggest loser among the more heavily traded non-index stocks with a 31.0% loss. The other non-index stocks to go down included Ajmera Realty & Infra India, Reliance Natural Resources, Bank of India, Punj Lloyd, Dena Bank, Suzlon Energy and Ispat Industries with losses falling between 24.6% and 19.1%.

INTERMEDIATE TREND: The Sensitive Index and Nifty are now in established intermediate downtrends. The downtrend started from the Sensitive Index?s October 17 high of 17,493, which is also the current bull market peak. The CNX Midcap still has to breach 6,475 to confirm the existence of an intermediate downtrend. The Sensitive Index will have to cross its October 17 high of 17,493 to be back in an uptrend. The Nifty?s equivalent is 5,182. These levels will be replaced by those where the next minor rally tops out. Most global indices are also in intermediate downtrends. Thursday?s strong rallies were not sufficient to trigger new uptrends.

LONG-TERM TREND: Our market?s long term trend is still up. A close below the last intermediate bottom of 14,600 would end the bull market for the Sensitive Index. The Nifty?s equivalent is 4,350, and that for the CNX Midcap Index is 5,600. A handful of stocks, including most of the telecoms, have entered major downtrends recently. About one in eight of the more heavily traded stocks had fallen to three-month lows or worse. The Sensitive Index has already retraced 60% of the 2,809-point gain made in the preceding intermediate uptrend. A 67% retracement is generally considered to be a threat to the bull market. The majority of global indices are also in major (long-term) uptrends at this time.

TRADING & INVESTING STRATEGIES: Buying for longer-term investing should now be attempted only when this intermediate downtrend shows signs of ending. It may be better to wait for signs of a fresh intermediate uptrend before going bargain-hunting, as the bull market is now over a year old. Consider dropping stocks which have fallen to three-month lows or worse, from portfolios. This may be done either by way of switching to less risky stocks, or converting to cash until the next uptrend develops.

GLOBAL PERSPECTIVE: The Dow is one of the few which have managed to remain in an uptrend. A majority of global indices are in major uptrends, making this a global bull phase. It would take a fall below 8,000 for the Dow to go into a bear market. The Sensitive Index had gained 77.5% in the twelve months that ended on Thursday, up three positions to 4th place among 35 well-known global indices considered for the study. Argentina continues to head the list with a 126.6% gain. Indonesia, Turkey, the Sensitive Index and Russia follow. The Dow Jones Industrial Average has gained 8.5% and the NASDAQ Composite gained 23.5% over the same period. (These rankings do not take exchange rate effects into consideration).

Monsoon deficit

Monsoon deficit 20 percentace falls in india. Raining only kerala and delhi. due to rain deficit FMGC sector felt down. because rural area buying power may fall. so expenditure may down this sector. so when you buy FMGC stocks you should carefuly handle. It may fall 5 percentage.

Market Up coming days

Market past 2 weeks consolidated up coming days it may fall down. because soon it's going to touch resistance level. so shor term traders/investors can book profit.

Appollo tyres touches 52 week high.
resistance level 56 so when it touch 55 level you should sell.
when it reaches 56 or 57 you can buy this stock.

up coming days trade with caution.

happy investing.