Market Update

Saturday, 18 March 2017

This bull market has a long way to go: And there are strong reasons

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The domestic stock market fired on all cylinders at the beginning of the week, taking the indices to new highs, pulling along with it every sector in its fold. The electoral mandate vindicated the past policies and therefore such reforms will now further acceleration. Markets have already sensed this, which is why new highs are being made.

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FPI’s have re-started their buying spree with full force. They have made purchases of upwards of Rs 15,000 crore, which includes large deals in HDFC Bank BSE 0.55 % and Kotak Bank BSE -0.45 %. The rupee is also touching its yearly highs. If countries were to be labelled as stock scripts, then currencies would represent their measuring barometer.

The strengthening of the rupee to yearly highs in the midst of faltering currencies of other Asian peers indicates that our country when seen in terms of stock script is far more resilient and strong than any of our peers. So if a country, measured by the strength of the currency is strong, there is no reason to fear about new highs in the stock market, they will keep on moving higher, remain invested.

Events of the week
The US Fed once again raised the interest rate by 0.25% with guidance for two more this year and three hikes next year. The current spell of supersonic bull run in the US is ignoring this policy outlook, but sooner such tightening will have an implication of derailing the bull party. Lessons from early 90s are forgotten when era of irrational exuberance were bombarded by with interest rate hikes by Ben Bernanke and the bull party got over.


Technical Outlook

The market has given a valid breakout above 9,000 level in the Nifty50. Some indicators have turned overbought at these levels. But during price breakouts, it is better to avoid indicators, as most will signal a red flag. Breakouts must be bought at market prices.

On the weekly charts, the breakout price pattern indicates a powerful rally unfolding. Traders are expected to place bets at the market price during times of breakout and keep stops at appropriate levels rather than waiting for corrections. Long positional trades must have stops at the 8,850 level of the Nifty50.

Expectations for the week
The market has indeed seen a valid breakout. Sceptics should not be fearful about the markets’ elevated levels. If the US can scale newer highs every day, why can’t India go higher with much more robust fundamentals, sensible governance and a great political leadership in place.

News is playing important role in stock-specific movements. The effect of news is shortlived but it certainly causes high volatility in the stock. For instance the news for tyre sector that China will curtail exports to India, lead to flare up of tyre stocks, but nonetheless it was short lived. Trading news events in a mature bull market is a sensible strategy.

There are no major triggers before the end of this financial year and hence the market is likely to remain lacklustre but firm. Investors should invest currently a good portion of their liquidity at current market levels for superior long-term returns. Nifty50 closed for the week at 9160, up 2.52 per cent.

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