INSUBCONTINENT EXCLUSIVE:
The domestic equity market witnessed a euphoric rally, albeit a fractured one, in recent times, making everyone envy about not owning
Typically, this is called the Fifth Wave in terms of Elliott Wave theory, when there is a large divergence in the market breadth
Factually, only 54 per cent of the total stocks are trading above their 200 DMAs, which is the second lowest in a decade post the 2008 top,
when 52 per cent of the total stocks traded above their 200 DMAs.
This further confirms the Fifth Wave theory
Many stocks did not participate in the rally and lagged the broader market; whether these laggards will move up eventually is a big question
But by the time the Fifth Wave ends, majority of the laggards would have again gone south
One should, therefore, trade in the laggards with stop losses, as this seems to be the most sensible strategy in the current situation.
Some
companies posted stellar numbers this week, with JSW Steel delivering 275 per cent profit growth aided by strong demand, ITC clocking a
robust 10 per cent PAT growth after weak results over the past few quarters, Biocon showing strong growth at 47% and Colgate Palmolive
delivering a strong bottomline growth at 39 per cent
These quarterly numbers were key triggers for the market to touch new highs this week.
Events of the Week:Hindalco’s acquisition of Aleris
at about $2.6 billion was the talk of the town this week
It might look rosy at first glance, but when you look at it closely, such high debt levels in a commodity-type business are always risky
Similar large ticket acquisitions such as Tata Steel’s acquisition of Bhushan Steel and UPL’s acquisition of Arysta LifeScience are all
highly risky investments.
Investors should remain cautious and not forget that similar hype during the Sun Pharma-Ranbaxy acquisition and
what happened to them post-merger.
Technical OutlookThe Nifty50 has broken all resistance levels and is in a new price territory
The movement should last unless it reverses; if the Nifty50 slips below 11,100, then it shall be a major reversal for the entire market
But till such times, the bulls should remain long and buy on decline
The Nifty IT index has lost its upward velocity and is, therefore, beginning to enter a corrective phase
Traders should focus on stock-specific movements
For buy positions, stop loss should be placed below 11,100 for capital protection.
Expectations for the WeekThe third bimonthly monetary
policy may do nothing to change the mood of the market next week
This time around, interest rates are expected to remain the same given that inflation is under control and US interest rates are
range-bound.
The buoyancy in the market is expected to remain for some more time aided by encouraging corporate numbers, which will justify
At this euphoric stage, investors must avoid sectors such as IT, FMCG, cyclical commodity and private sector banks for some time, as they
are trading at high valuations
One can choose to enter realty, pharma, PSU banks, cement, aviation and OMCs for a medium-term investment horizon.
The Nifty50 closed the
week at new highs of 11,278, up by 2.43 per cent.
