Why is market falling?

A week of continuous negative news turns the market down. Power struggle in Karnataka elections, Currency hitting a new low of 68.12 to the dollar. RBI intervention to strengthen the Rupee. Flight of capital and falling SIP’s not a good sign to the current situation. Crude oil going higher, touching $80 has brought 50B$ increase to our import bills.

Weak results season, baring a few prominent names companies reporting tepid numbers. Public Sector Banks have lost more than 43K crores in FY17-18, almost 50% of the stimulus goes off in losses. Stock valuations tumble.

Markets needs to touch 32000 on SENSEX before it can gain good strength, it can take a couple of months before strength comes to the markets. No need to panic, volatility is the general tendency of the markets. FY18 can be a flat year for the markets, while we can see bounce back at the end of FY18.

COVID makes in roads

Amit Shah tests positive, Karnataka Chief Minister tests positive & TN Governor tests positive. As case count moves past 1.70 million in India it is slowly penetrating into the political and elite circles. As these big names come out safe from the infection, they will for sure give their our experience as directions to people about not to worry so much and go about with their works.

We cannot keep locked fearing death for infinite periods. With more than 60% of infected getting recovered along with reduction in fatality rates through out the world.

The fear of COVID will soon diminish and bring back life to normal. Very soon this will happen and there will be a rush of people going to places they missed in the last couple of months. Business is going to boom and for India, it is going to be a joyful journey.

As world shuns China, loads of money pouring into our country from big names across the globe. Along with this the tarnishing that China created to itself with India, which has brought in immense patriotism. Manufacturing is set to boom and absorb all possible jobs throughout the country.

Income will grow, standard of life will improve & life style will experience great change. India will become a very prosperous nation & Indians will be all around the globe spending their earnings, enjoying life.

As the green shoots, capacity expansions are planned by Britannia, ITC, Lever & many other big businesses to cater to the growing demand for packaged products.

Iphone has brought all of their 4 vendor manufacturers to India. Chennai plant has rolled out their production.

We are going to see beautiful days ahead.

No work no pay

Rajiv Bajaj’s stand on their handling of COVID19 cases in their Aurangabad facility was the real answer of the industry to the prevailing situation.

Co’s cannot survive by paying people sitting at home. If you want to sit at home till the vaccine come, you are welcome. While please understand that, no company in the world will continue to pay your wages for such long time.

They are going to implement ‘No Work, No Pay’ policy in their facilities.

He has also questioned few state governments taking a stand to continue lock-down.

By sitting at home fearing death, people are going to lose jobs and eventually die of hunger. Only till the time stomach gets fed that we will have the luxury of sitting at home. Soon, the world will realize that, they have to live with COVID19 going through their regular routines.

Those who still opt to sit at home, are going to lose their lives.

Governments all over the world except few countries among them which includes USA feared death and have put their whole populations life at stake. People should realize that, by locking at home you cannot win death. It is eventual that we will die one day, if the destiny is that, it has to happen today. By no means can we defer it.

Fearing an event on which we don’t have any control we are losing the precious days that have to be lived.

Hopefully people realize this soon and get back to work.

Market losing direction

Corona virus was causing the markets directionless was the thoughts that were spreading in the media. While it seems to be not so, when there is a steep fall and a strong recovery, it confuses traders.

When the market goes deep down, traders are prepared for shorting the market when it comes up a little. This is called a rally in bear market and gives a good shorting opportunity. When the rally happens & at the place where a trade in the direction of main trend gets whipsawed (Whipsaw is a trade that goes opposite to its intended direction). First the losing trade in a strong trend brings confusion to the traders. Then, when the market goes in the opposite side of the prevailing trend to reverse it, it adds to even more confusion.

This is what has happened in our markets now. After budget day fall, we had straight recovery for the next 5 days. As the recovery reached its top, steam of the uptrend was getting exhausted. It began losing momentum or strength to move up further. By then all the traders who were prepared for shorting the markets lost hope. Now, confused they are staying away, which has caused the market to stay directionless.

Nifty on the daily chart has gone non-trending. Bank Nifty is kind of holding on at the moment, one are 2 more days of tightness, even bank nifty will go directionless.

When the major indices are off trading, there will be only few stocks that will push the markets into a new direction. In that manner we had Reliance, Hindalco & Vedanta leading the bear pressure. Reliance short trade which had a target at 1392, fell short of its target by a larger margin and has reversed. Even with such a move Reliance has given a 25 points winning trade, which closed today.

Corona virus was causing the markets directionless was the thoughts that were spreading in the media. While it seems to be not so, when there is a steep fall and a strong recovery, it confuses traders.

When the market goes deep down, traders are prepared for shorting the market when it comes up a little. This is called a rally in bear market and gives a good shorting opportunity. When the rally happens & at the place where a trade in the direction of main trend gets whipsawed (Whipsaw is a trade that goes opposite to its intended direction). First the losing trade in a strong trend brings confusion to the traders. Then, when the market goes in the opposite side of the prevailing trend to reverse it, it adds to even more confusion.

This is what has happened in our markets now. After budget day fall, we had straight recovery for the next 5 days. As the recovery reached its top, steam of the uptrend was getting exhausted. It began losing momentum or strength to move up further. By then all the traders who were prepared for shorting the markets lost hope. Now, confused they are staying away, which has caused the market to stay directionless.

Nifty on the daily chart has gone non-trending. Bank Nifty is kind of holding on at the moment, one are 2 more days of tightness, even bank nifty will go directionless.

When the major indices are off trading, there will be only few stocks that will push the markets into a new direction. In that manner we had Reliance, Hindalco & Vedanta leading the bear pressure. Reliance short trade which had a target at 1392, fell short of its target by a larger margin and has reversed. Even with such a move Reliance has given a 25 points winning trade, which closed today.

4% gain over the week

After getting beaten last week, markets went up on all the days this week. Over reaction to budget announcement created a mess in the markets, only to recover back in the next 5 days. While, the damage is done for some more time.

When such big drops happen, it shatters confidence of traders. They will shy away from taking positions for some time. This will dry up volumes and bring a lot of losing trades in the market.

As the markets have been moving up, in the last 2 days we are not seeing big run up in price, it shows that, weakness is setting in.

Among the charts we had discussed yesterday, Reliance has played out well on the short side. Hindalco had a few whipsaws & is getting ready for a fall. So is Vedanta. We have positions in Reliance, will share the experience once the trade is completed.

For Monday on the intraday, all the 3 stocks Reliance, Hindalco & Vedanta holds good for short. There are no long trade possibilities. This is also another indication that the markets are likely to go down in the next week. How much? We cannot gauge it. It can be a small drop, for a support and turn up. Or can have a slide, then get ready for a bigger bounty.

It is always good to re-test bottom and then go up. It gives more space as well as more participation. Instead, if the run up comes without forming a base, it will remain a short stint.

Potential Daily trades:

Stocks to look for trades this week. We have 3 stocks from the total NSE 200 list that qualify for a potential trade this week. All of them are for short. When most of the expected trades are in one direction, that gives an indication of what the market is likely to do in the coming days.

As per the data we have, market is expected to be down in the coming week. And this is obvious with the straight upside we had in the last week.

Nifty and Bank Nifty are likely to trade sideways for some time. When the indices go sideways, it gives an indication that there are likely chances of whipsaws in trades. Whipsaws are losing trades in a system.

Stocks that are candidates for potential short trades are HAVELLS, Hindustan Petroleum & Balkrishna Industries. Balkrishna is getting weak after a good rally while Havells and Hind Petro are already weak & are reaching value zone for further shorting.

Let’s examine Balkrishna in detail

 

This is the weekly chart of Balrishna Ind, 2 green arrows at the bottom is where we had trend reversals in this stock. First one failed while second one developed into a strong trend. This happened in September 2019. The time when the whole markets bottomed out.

Trend entry came at 852 & today the stock is trading at 1150 levels. Those who are holding a trending position in this stock can continue to hold as the trend is getting strong.

Then how do we talk about a short in Balkrisind? At the right edge 2nd week of Feb, price made a new high, while the bar is still Blue, it did not change to Green. The colour coding of bars is to indicate if the EMA and the histogram are in sync. That is, when Price goes up, EMA will go up because it is the average of price movement. Along with that, if the MACD Histogram also goes up, bar will get coloured Green.

Bar gets blue colour when either one of the indicators, EMA or Histogram going up. IN this case, Histogram did not go up. It is an indication that the stock is losing strength. In trading we trade the dominant side of the stock’s strength. We call this colour coding of price bars as ‘Impulse’.

Price can go in 2 directions, up or down. It can go sideways, that is, stay where it is with very small movement both up and down. This happens when the stock is in non trending. Here Balkrishna is trending bullish.

How to know if the stock is trending? On the chart we have Green & Red bars at the top. That gives indication of whether the stock is trending, if yes, in what direction. At the right edge we have Green Bar, which indicates that, the  stock is trending bullish.

Now, Balkrisind is in bullish trend and it is losing strength on the upside. So, next direction is, down. As weekly gives direction for a short trade, we need to look at the daily chart to find if it supports and take the trade there. For Balkrisind, Daily chart is still to clear the trade because as of last Friday, it still holds green impulse.

Daily chart of Balkrishna Ind.

At the right edge of the chart, price is reaching for a higher high, histogram is below zero, no bullish strength shown on the indicator. At the same time, impulse of the price bar is Green. Till it turns blue, going short on the stock will not work.

When will the bar change to Blue?

As of the last bar on the chart, if the next price close is below 1101.23, bar will change to Blue and allow short. It can come in the next session. Let’s track.

Markets cracked, was there an indication?

Post the killing of Iran’s Army Boss Quassem Soleimani, markets world over went into a jitter and so was it for India. We tanked 2% & continue to be weak.

Was this a surprise for the markets, were investors caught unawares? Not at all. It is just that this incident was a coincidence. Market was already showing signs of weakness from the last week of December.

After the up trend that began in September post the Corporate tax cut announcement, market had a 10% upside. In the course of 3 months that this up trend lasted, it began getting weak.

Any move for that matter, whether it is up or down, will come to an end after some time. It was the same with the markets this time. In this chart shown here, we can see as the price climbs 12k, indicators have begun showing weakness.Weakness on the index first showed at the end of November, while market did not give way, it kept pushing higher, testing patience of investors and traders. By end December, there were 3 attempts to move past 12K, each time it was only able to muster small strength.

On 1st Jan, Nifty tried to move into a new high, it lost strength as it approached close to the recent high and from there it could not manage to hold on further.

Soleimani’s death came only on 3rd Jan, it only added more fuel to fire. Else if not for this incident, some thing would have come and taken the markets down.

Almost always charts show up signs of weakness before any major events. It has happened in the past and will happen in the future. Those who had followed the indications, had the opportunity to protect their investments, either by selling the holdings, move into cash. Take a hedge with a short on futures or options. Or just be prepared that there is going to be a small move downwards and that needs to panic.

Even better option is to add to investments as these kind of events, I am not talking about the death, the correction in the markets, provide opportunity to take investments at a bargain.

Reason for slowdown on Brand Consumption

Since the beginning of 2019, our economy has been going slow on consumption. Questions of why people are not consuming? Are they not having money? Is there a recession looming at our economy?

Media had been creating more and more fear in people’s mind that our economy is doomed. Was all these news true?

Consumption has gone down not because people don’t have money to spend. If it was true, the recent IPO’s in the stock market for IRCTC and UJJIVAN together have mopped up more than 1 lakh crores where only a little more than 1000 crores was required.

There is plenty of money with people. They are not spending? Why, do they not have a requirement?
There is requirement, while not very essential. All those that are essential is getting consumed, where there cannot be big growth because we have kind of reached a peak with the present population. And population growth is slowing down.

Here is one example showing consumption. All the businesses of Atta, Snacks, Spices, Tea & Edible Oils have registered good growth in the branded segment. While there is a big decline in the unbranded segment.

There are 2 reasons for this change. One, GST has forced businesses to get organised and many of them are moving to organised. Those who did not have been losing business.

Two, people are also getting conscious about using branded products. Which is a natural phenomenon in any country that is getting rich. Our country is getting rich. Think of income levels 15 years back, you will realize that your spending patterns have changed. You don’t buy a ₹2 pack of biscuits anymore, you prefer a ₹ 10 pack. In the same manner all the spending patterns have grown 5X.

It is obvious that people will prefer quality and brands. Manufacturers in the un organised sector who did not transform, are taking a hit. This has caused un-employment. When there is fear of un-employment, it is general to defer purchases.

The way we were doing business and doing it now is changing rapidly. Companies are in the situation to adapt to this change. While they have been constantly blaming the government and have not been taking responsibility for the situation.

There is no compelling need for people to spend, unless there is no new user experience created by manufacturers, consumption will not improve. Government have been doing all that it can, industry has to adapt and get ready to change.

Looks like it is time for them to realize and work on the required change, in about a year from now, we are sure to have some unique experiences of living standards in India. Which all of us will love and splurge to have a part of that experience to ourselves. Then consumption will grow and bring a new twist to the growth that India will have.

The stage of transformation brings pain, once it is through, there is abundant joy waiting to come. Enjoy the good times.

Market direction after corporate tax reform

After corporate tax cut, what is the markets next direction?

Is it going to be up, getting into a new bull market?

Obviously not, at least not so soon. The damage from where we are coming from is big, it has not completed its cycle. Through all these stimulus packages and announcements government is making things more worse. They are not letting the market have its own direction.Economy has slowed down, it is not because of taxes or liquidity or any such government issues. In simple words, it is because the economy has become lazy and have to rejuvenate and think differently.

We cannot keep blaming that all that which is outside of me is against me, that is the reason I am not growing. What is the effort we have taken for growth. On one end there is disruption doing its rampage on the mankind. Giving a nightmare of what he will do for his living when machines take over all the work.

There is a need to become creative, accept the reality that change has come bringing in the need to innovate. We cannot keep running same old mill, churning what is now a junk or near to junk products and expect business to be normal. In all areas of the economy, need for change has penetrated. Unless people realize that, take action and get to a solution mode, it will not look rosy on the other side. With all the stimulus packages, the government has made the normal working of the markets disrupted. They have killed traders with regular surprise news flows. Now, traders will shy away from the markets.Stay out, work their next plan to strike, that strike will be a terrible blow to the markets.It will take time to happen. In the meantime, markets will get into sleep mode. Will lose direction, bring more pain to those traders who will be left there to venture out.

The next opportunity on the down side will be big, if it is not going down and changing direction from here? The build up of strength will happen at current level and then market will take direction.

Auto Sales Down

Declining auto sales, media crying that Auto sector is the biggest contributor for the country’s GDP and slowdown there would mean big job losses and hit to the economy. It is unfortunate that, these days the media in order to prove themselves right, has always been on the wrong foot.

Sales down because people are not buying cars. Was it that, in the past we were guzzling vehicles? No, our country moved to a better standard of living and people afforded to own a car. That population which is getting transformed from poor to affordable has slowed down. Then one basic requirement for growth is hurger for it.

That population which was hungry for growth moved to the next level, rather a part of them. They are now wanting a better car, not the same old entry level variants. The reason why entry level cars sales have dropped 56%.

Our manufacturer’s have built huge capacities for entry level variants, copying all that is possible from higher level products. Now there is over production which is piling up more on the inventories.

True that the economic cycle has slowed down. People have now started to postpone purchases due to various reasons. One of it is availability of money. The other reasons are, no good compelling design or product experience that is forcing people to change. Manufacturer’s are now coming up with creative design changes, they are only tinkering a little bit here and there and making the new variants look different.

In the era of disruption, there is poor creativity here.

Then, there is this hiring and rentals. Today with cost of owning a car getting higher along with the challenges of traffic and parking. The peaceful lot of the population prefer to do away with nuisances. OLA, Uber kind of disruptions have put down the need to own a car these days. For a person who is busy, a chauffer driven car will help him or her do some work on the way as the drive consumes huge amount of time due to traffic.

Elder people prefer to be driven than to drive on their own. In all these levels, hiring a car is a better choice. Even if 1 out of 5 users prefer to hire, car sales will drop 20%. Then, rentals is one more option, you need not own the car. Rent it when you need for some long drives. So, for short distance, hire, for long distance rent. Relief from the thought that, I should have one in case of a need to travel a little longer than in and around the city.

No creativity, over productions, options to hire and rent and then the buzz of the change to electric. Those who are planning a purchase in a year or two will prefer to wait for the new developments because if there is a chance to get the new technology why miss it, kind of thought.

Manufacturers need to find a better way out to improve sales rather than blaming on the government in the name of GST and Demonetization. Both of these transformations which our country saw was to kill black money generation. Welcome the change, your next generation will have a better living standards in this country.

A lot can happen in a business – VG Siddhartha, Founder, Cafe Coffee Day, commits Suicide!

VG Sidhartha founder of Café Coffee Day (CCD) commits suicide due to debt pressure. One more big name to fall in the Indian corporate world. 8000 crores of debt at stake, where almost all the banks have exposure except Bandhan Bank. Along with them a handful of Mutual funds too.

In his last letter to the employees and board, he states that, all his debts are backed by assets. Then why should this drastic step be taken?

Don’t know how much is true of the values that are taken into account on the assets. Even if there is assets, most of it is real estate and plantation assets. Real estate is an asset which puts the holders into very bad situations when it has to be liquidated. Yet people throng to real estate because of big numbers, only to succumb to greed.

It is the same here too, liquidating all the assets to pay back liabilities will not be possible in short period and at a period where real estate has taken a back seat.

In the meantime, pressure mounts for honouring commitments and kills, some physical and many in mental manner.

Such big name collapses and having them on a continuous basis, there seems to be some basic systemic process failure in our country that has triggered this gloom.

Siddhartha says that, pressure from a PE investor and a DG in the Income Tax Dept were causing him to give up. As the news came out, both the parties are showing themselves as the cleanest now. There can be deals struck between all these interested parties who would have made big chunks of money, now they show up as the real good boys.

The financial system of our country is very poorly equipped to take the country to the next level. Till there were defaults happening and they were not caught or not made responsible, banks kept banks are starved of business, when there is some avenue available, all of them want a share of the pie.

Due to this rush, they compromise quality & also take a share of the lent money. Get a good name for the bank, by showing a good loan book at par with competition and also pocket a good sum of the lent money as kick backs from promoters who have weak balance sheets.

End of the day, none of them have an intention to cheat. Only that, they had high hopes on a weak horse. Promoters expecting that, they could manage the challenges and come out of the financial trap. Bankers having hopes that these already beaten down & tired promoters will continue their run which will some how get the loans paid back.

Finally hopes go into thin air, bankers happily blame the promoters and corporates fold.

Till IL&FS issue came out our financial system was re-financing debt and keeping the books in good condition. In this period if the promoters had some challenges, they borrowed from other sources and made good of their commitments. Now, funding has totally stopped, all of a sudden the lending community shut shop & went vigorous on collections, which they themselves know will kill them eventually, as the exposures are with very thin line of cover.

With promoters running from pillar to post to help keep their commitments with the lenders, attention to business has eventually come down. In an already slowed market, lower attention will further deteriorate growth.

There is a possibility of some more big names going down before we see a fruitful solution to the financial crisis that India has entered into.