Sunday, October 25, 2009

ENTRY EXIT STRATEGY FOR NIFTY


In this article we will like to accentuate the upcoming fundamental status, trend, analysis and foresight of the current Indian stock market. In this article we have discused and opined the strategy one should follow while doing investment. In other words we have tried to opine an Exit and Entry strategy for the market as a whole.
The 2nd quarter corporate results of India have started flowing along with 3rd quarter results of US and other countries. In this article we have only focused on two countries economic data’s, US and China. We have taken these two countries since we find major economic and financial stability coming back in these two prime countries.
On 9th of October the Indian stock market started the day with the 2nd quarter results with infosys. In the next two weeks we got many companies results that scaled and boosted the optimize among us.

• We are in the mids of 2nd corporate results.
• Till now most of corporate results are in the comfort zone.
• The strengthening of the IIP numbers has increased the confidence of upcoming quarter results along with this term results.
• The market has more reason to scale up the nifty near to 5200 levels. Liquidity. Yes good inflow of liquidity has increased the nifty close to 5200.
• If we look at the net figures of FII’s inflow we find in the month of October till now investment in equity Rs.7651.90cr. and in Debt side Rs.6860.90 cr.
In the coming days we will get more results which will boost up the nifty with rollover in nifty in this week. RBI review meet will be keenly watched but no interest rates hikes in the immediate but will be well hinted. Some major heavy weights are waiting to declare their 2nd quarter results. So nifty is bound to remain up provided we don’t get major shocks from other economies.

An important factor to watch includes investor sentiments in the global as well as domestic markets, and the trend of funds coming in from abroad. Any upset in these two factors might trigger a deeper correction in the markets. Positive US and China economic data’s have increased the optimize into the market. Sentiments of the investors have boosted up but still a skeptical outlook is still maintained among them. In this month till now we find that China economy grew at 8.9%.Automobile sector of china touched since the beginning of this year to 10 million units when other auto majors struggling to survive. US companies also posted some brilliant results beating the low expectation. But most of the companies have posted profit due to extensive cost cutting, and takeovers. Consumption in real terms of goods and services are very low and yet to revive back to normal levels.

Even after all these positive cues the US market remains in deep fog in term of rising unemployment ,fiscal deficit and last by adding more fuel to the fire falling of dollar
• Unemployment is standing at 9.8% hitting 26 years high figure.
• The U.S. federal deficit of the 2009 fiscal year reached a record high of 1.42 trillion U.S. dollars.

The above two are enough to put pressure on the recovery path of US economy. High unemployment will reduce consumption and forcing the US citizen to save more than spend. The unexpectedly early recovery has largely been driven by expansionary fiscal policy, particularly in the U.S. and China. As these countries confront worsening budget deficits, they will face growing pressure to moderate their spending. This reduced support will slow the economic recovery. Both the government of US and china don’t want to squeeze liquidity. But excess liquidity is giving slow birth to a huge rising inflation. Once commodities prices increase the profitability of US and China will take a much bigger hit as compared to other countries economy.

The growth of Chinese economic should be taken as massive threat rather than security.
• Over capacity of Chinese production.
• This increase the dumping goods by china to other countries resulting to increased complains to WTO.
• Over production leads to increased inventory build up creating pressure on the Chinese companies working capital flow.
• In order to clear the excess production, the products are sold at cost price resulting less on the profits of the company.
• In coming days the Chinese companies will post huge losses instead of profits since they are only focused on excess production.

All these indicate a massive threat in the near term as the bubble of over capacity will kill many financial markets. The over capacity idea took the birth from that over capacity will lead to economic growth and increased profitability. More over the Chinese companies will be able to take benefit of the falling industrial position of many countries. But now the game is changed and Chinese companies are facing the hurdle of selling their over capacity and once this will become stagnant in coming days the bubble will burst out.
 Hence for the time being we are sitting on some comfort zone but in the coming days we might get some hard times. Among all these we need to look into our portfolio’s.


As the results season is coming to an end, it is also time to review the overall portfolio to make changes according to the changes in the economic and business conditions. The individual stocks are trading at a higher valuation resulting skeptical movement among the investors. All the Large cap and mid cap are trading at much higher levels giving less space for buying at this stage.

• In terms of stock portfolio for the next 6 months we will get some fine growth despite of ups and downs provided no major consolidation.
• Cement, auto, capital goods will be few of the sectors which will post fantastic growth.
• Steel sectors will also remain positive.
• Regarding oil sector its will be very difficult sector to post some favorable growth as falling dollar will increase the crude value resulting losses in the hands of the oil majors.
• In telecommunications segment RCOM remains under pressure due to audit and other regulatory probs. But the 3g auction remains a secret winning horse in the game. Who ever gets 3g license will be the key decider of telecommunication structure of India
• I am not placing any bet on banking sector since RBI in the next 6 months might go for hike in the interest rates to suck up the excess liquidity.
• So banking stocks will take hit but still that will not a major hit. We could find marginal fall in the profitability of the banking sector.
• SBI and ICICI bank still remains in the top slot for doing investment in banking space.
Invest in quality large cap since that will swim across in hard times that might come in the coming days. In mid caps space my opinion to invest will be in top mid cap scripts. Not doing investment in low profile mid cap space. As investments in small-cap stocks come with higher risk, especially during market corrections.
Those who have invested in the markets with short or medium-term perspective should look for opportunities to book profits.
During the year 2008, large cap (-52%) stocks continued to perform better than small (-72%) and mid cap (-67%) stocks.The below chart shows the comparison.


We see in the above chart that in 2009,that  large cap have fallen much less as compared to small and midcap.So its well clear that when ever after downfall we will get the first roll back in large cap at much faster space.

Now for those who have done investment in Mutual Funds and ULIP. Those who have done investment in mutual funds when the sensex was in the range of 13000-14000 should go for profit booking. They should book profit around 50% of their portfolio. If they books 50% profits they stand with few prime advantages.
• If the market goes down profit is booked 50% which acts as a cushion from major happenings.
• Major happenings will result to advantage of investing again in lower levels. Purchasing mutual funds units in low NAV.
• Major advantage is that if you stay invested with the remaining 50% you might get the advantage of further upside.
So in both ways you keep you door of entry and exit open.
In insurance those who have done investment in UILP should also follow the above principal. But here there is a twist.
• Investors should switch over their portfolio from equity fund to debt fund or balanced fund. The percentage of switch should remain the same as opined for mutual fund.
• As stock valuation and market is almost Double from its November 2008 lows its is now wise decision to book profits AND SWITCH OVER TO DEBT FUND FROM EQUITY FUND OPTION.
• So use switches now and Book your Appreciated Value of your Equity Funds and transfer it to Debt Option.

Investors should hold a cash position - liquid fund or other investments which can be easily liquidated - and wait for a correction in the markets. Switches enable the investors to rebalance their portfolio to maintain their asset allocation in the long term. This is one of the closely guarded secrets of Ulips and is to be used over and over again. However, remember that it can also backfire if you are not careful because frequent switching amounts to timing the markets. But don’t use too much switching as this might result to trading and hence might end up with loosing of Benefits of Switches.
So over all it indicates that bull journey of nifty is still lefta s few heavy weights to declare reports.At the same time over all economic condition of other countries remains a huge threat in the near term standing on the present staistics.

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