ARE WE IN A BEAR MARKET WITH A BULLISH NIFTY/SENSEX?

Indian Equity Markets were at an inflection point and we could see some big moves.

Sensex/Nifty was expected to bounce back and Nifty to target 6200-6300 levels. After making a low at 5580 the Nifty did move up to 6080-6090 levels

Even Now the Nifty is trading at 5650-5670 and above the long term trend line. But the whole assumption that Index could lead the broader markets has fallen flat on the face.

This is how the Sensex chart looks.

Nothing seems to be wrong technically till we dont break 18400 levels. A similar level for Nifty would be 5550-5600.

Even the bounce of 8-10% on the index could not make an impact on the broader markets. What we have seen is the broader markets or rather midcaps/smallcaps have just collapsed.

Look at the small cap index



The index is now below 15k Sensex levels and 4500 Nifty levels. So the mayhem is terrible. Quite a lot of manipulated stocks have just collapsed.
At the same time quality small caps have fallen into the Put Call Option System. This has led to a fall in quite a lot of quality companies with terribly low volumes and have seen a drop of 30-40%. There are many bargains available but the liquidity hurts any investment.
Falls of such size generally leads to big opportunities but one needs to be patient.
Markets have seen 1992 Harshad Mehta , 2000 Ketan Parekh and global falls in 2008-2009 and 2011.
So over a longer period of time quality stocks do catch up and fresh opportunities also come.

In the short term what we envisage is leveraged , manipulated and mid caps can see some panic falls. As we know panic has no logic and there is no point in being brave.

Also the best research is done in Bear Markets and this is when people don't really want to look at companies. So if you have good low debt companies and even if they are down 30% you just need to re- asses the investment logic. If there is no fundamental change just be patient for another year or two and you will be rewarded.

We at  are also seeing sharp falls of 30% in many of the recommended stocks but on terribly low volumes in smallcap stocks recommended. But there is no major fundamental change to warrant discomfort. Mind you the stocks do not comprise the Dlfs or Suzlons. Also in smallcaps the stocks just need 2 upper circuits to change the whole return factor in good times.

At the same time the short term trades have been profitable with nice moves in Nifty, Tech Mahindra, Bharti Airtel and some shorts in Fin tech , ITC , Adani and so on.

The strategy now is to be conservative with investment ideas , be patient, conserve cash but do a lot of research. Trading side it is a mix of long/short and strategies with strict stop losses. Also be ready for any sort of panic if Nifty breaks 5550 but with index management it may not be seriously damaging as certain sectors like IT are breaking out ( Infosys ), Bharti  and the weight-age of FMCG and Reliance increasing which may remain resilient. So a drop in Nifty will be well managed and with the current conditions a Nifty level is irrelevant for an investor/trader. There will be lots of rumors of a lower circuit in Nifty and so on over next couple of months. When people go on to that sort of despondency we may review to look for buying opportunities till that time be conservative and relax.

Technically we may continue to look for short term reversal signals if they do come by. If we do see a total trend change we can change the cautious stance. Also the shorts we are taking in trading are with extremely small stop losses and few as bear rallies can be big.

Some stocks which come into radar in the small cap screen is NBCC at 80-100 , Elecon Engineering at 12-15 levels where we might review whether to enter them.

IS FMCG A safe sector to bet on ?– I fear Not at All:

Over the last few months i have heard a lot of fundamental analyst saying people were stupid buying the Cyclical stocks.

They just keep giving examples of how one should buy good cash flow companies in the FMCG sector. Also there are many examples of how ITC, Hindustan Unilever, Godrej Consumer, Colgate and Dabur have withered the current storm and have given positive returns.

Actually Nifty has been able to hold on to 5500 levels because of the huge outperformance by ITC and HUL.

Over the last 3-4 years from the lows of 2008-2009 to 2013 quite a lot of stocks have moved up 3-4 times and 300-400 %.

Flash back to 2006-2008. Analysts would call the FMCGs a sluggish sector and what not because they did not perform at all when the Unitechs and Suzlons were zooming.

Let us look at the last 10-15 year performance of the above FMCG stocks.

Hindustan Unilever – No returns for 10 years. 
 
-> Hindustan Unilever the stock has doubled in the last couple of years.
-> Also above chart is not adjusted for the dividends.
-> After 1999-2000 tops of 320 the stock did not cross the levels of 320 for the next 10-12 years.
-> In this period the stock even dropped down to a low of 100 in 2003-2004.
-> If you would have bought in 2003-2004 the returns would have been phenomenal but if in 2000 you would be in a terrible investment.
->The stock was a major underperformer in 2006-2008 where we saw the biggest gains in equities.
-> The stock has done superbly in last couple of years does not guarantee the same for next 5 years.

ITC – Superb Returns though some sideways period for 2-5 years. 

 

-> One of the smoothest chart in last 10 years.
-> But if you were to look at the phase of 1999-2004 the stock could not cross 1999 highs.
-> Similar periods was also seen 1992-1997.
-> Also in 2006-2008 it could not cross 2006 highs.
-> The stock also fell 40-45% from peak in the drop of 2008.
-> The major returns in the stock have come from 2009-2013 where in it has given 3-4 times return.
-> Does this guarantee a similar move in next 5 years ?

Colgate – A big FMCG stock with the longest sideways cycle


-> The stock had the superb run in the 1980-1990 ( I believe people got it cheap in the IPO because of the regulations and compulsions in the 1980s )
-> After the superb run in 1994 the stock could not reach similar levels till 2009. This is like 15 years. This is not a dividend adjusted chart so returns came only in form of dividends.
-> The stock saw a good correction also in the next many years from 1994.
-> But if you would have bought in 2004 i would be 6 times in next 5 years.
-> The stock remained sideways in the bull market of 2006-2008.
-> Majority of the returns have come in 2009-2013.


Godrej Consumers – A superb Multibagger in last decade


-> This has been the biggest mover in the FMCG segment with lesser dips and sideways period.
-> In 2006-2009 the stock did remain sideways but did not fall as much in the crack of 2008.
-> The stock has moved up 5-6 times in last 5 years.
-> If you were to look at from 2001-2002 the stock has been just amazing !!!

Dabur – A steady performer but the top in 1999-2000 was painful.



-> The stock has moved superbly from the lows of 2003 and 2009 giving superlative returns.
-> As like others it saw a major sideways period between 2006-2009.
-> The stock also did drop 50% in the fall of 2008.


From the above analysis what we come to know is

-> FMCG stocks can also fall 50%.

-> FMCG stocks have 3-4 years of sideways period and can drop 50% in the interim.

-> Many older FMCG stocks also had a 10-14 year sluggish period.

-> FMCG stocks underperform terribly in bull markets like they did 2006-2008

-> After a major euphoric move in a decade FMCG stocks can get into a terribly frustrating stock movement for many years. ( 1992-1994 , 1999-2000)

-> The  drawdowns or pits or not like other cyclicals which fall 80-90% from peaks. ( Look at Tata Motors, Infosys, Tata Steel etc )

-> FMCG stocks are not immune to bear markets.

-> FMCG stocks tend to underperform terribly in bull markets.


Conclusions – The best time to buy FMCG is when they are available at good dividend yields and after a long sluggish period for investors.
So if you are buying FMCG today then better be aware that after a year or two or maybe we may right now be at 1994/2000/2006 type topping out.
Do not let the superb run of last 3-4 years be the deciding factor to choose FMCG stocks. HUL buying at 600 is more a loan arbitrage ( Yeye they raised a billion dollars in US check this link  ).

If an investor do a little more research before just taking A so called SIP in HUL or FMCG stocks. This may not be the best time for FMCG.
The best buy in FMCG are new brands. According to me that could be Bajaj Corp ( Example Marico and Godrej did superb in last decade)
For traders the best time to buy FMCG is in 3/5/10 year highs.

CALL OF THE MONTH: COAL INDIA BOKED PROFIT 41000 RS JUST 2 DAYS

THIS WAS MY POST  2 DAYS BACK
http://trendzofmarket.blogspot.in/2013/07/coal-india-heading-towards-250.html


COAL INDIA SOLD AT 285 IN FUT BOOKED PROFIT  NOW 256 LOT SIZE 1000 TOLD TO BUY PE AT 3.75 PS NOW 16.50 WENT UP 5 TIMES IN JUST 2  DAYS
PROFIT 29000 RS IN FUT & 12750 IN OPTIONS TOTAL 41750

COAL INDIA   I POSTED  HERE IN MY BLOG  2  DAYS BACK ON 30 TH JULY TO SELL COAL INDIA NEAR TO 285 IT CAME TO 256 GAVE US THE OPPORTUNITY TO GO SHORT ON THE COUNTER TO TO BUY 270 PE ALSO IT WAS PURELY A TECHNICAL BREAK DOWN  AGAIN CHARTS DON'T LIE AFTER THE TECHNICAL  BREAK DOWN HAPPENED YESTERDAY NEWS CAME ABOUT THE OFS GOVT PLANNING TO DO

WHERE IS NIFTY/ECONOMY GOING?

Goldman Sachs has downgraded Indian market. Economy is really in bad shape and very few people have any hopes of revival. The sad part: Market is bearing the brunt of that anger and frustration.

I don’t think one needs any analysis to tell what kind of market we are in. Market structurally is getting hammered on daily basis.

Here’s the daily chart of Nifty

As you can see in the chart above: Nifty has been all over all the place in last six months: Up, Down, Up and Down. You would be surprised to know that in FY14 – Nifty is still up 0.8%. So, the idea that Nifty is done with correction is completely misplaced. Nifty has not yet seen the capitulation and that makes the market more dangerous.
In trading – what matters is the direction. One cannot tell what can happen on day-2-day basis but we know that broader direction of the market is down. So, bounces can happen and market can rally for day or may be few days but eventually – market has to go down. That’s what trend does. As long as the current trend prevails: one should be careful on long side. Remember, in Bear market: Traders use rallies to go short.

Trading Rule: One should never go Long in a Bear market and One should never go short in a Bull market.
The only +ve factor for market: Global cues. But prevailing mood and sentiment on Indian market is so bad that it would be difficult for market to overcome that.