Money going out of Equity MF

 

Retail investors taking money out of Equity mutual funds. Not a surprise, as it was expected when the markets bounce back from lows. Sad part is that, they came with big dreams, stayed invested for 3 years, moving out with loss. Unfortunate that, their impatience is letting them participate in the next very big move that our market will have in the coming years.

MF Stops 14-08-2020

MF Stop losses for 14th Aug 2020. As the market is going up, all the funds are locking profits on the go.

Our Pharma Funds stops have made tremendous gains. For example, SBI Pharma which we had been tracking since recommendation has locked 16.70% gains so far. This pharma fund is presently carrying 4.42% risk on its NAV.

Something different is happening in the markets today. Risks on Mutual Funds which used to be at 5% have now got down to below 4.50%. What this means?

Volatility is dropping in the markets. This is advantage is the trend continues in a smooth manner. On the other hand, if the tide changing direction. We will have exits coming on all funds soon.

Invest with caution.

Mutual Fund Stops – 07-08-2020

Stop loss values for Mutual Funds tracked and recommended by us.

Pharma funds have reached 15% lock in profits. Trend is likely to continue for few more weeks. Value funds are leading with good returns now due to the big drop that facilitated them to pick best bargains. When value funds perform, they give very big returns.

Use stop losses for all your positions, it helps protect your profits as well as your capital.

HDFC Bank exposure in Mutual Funds

We have had a good correction in stock prices of Mid & Small cap segments in the last 2 years. When Small cap saw 40% drop in prices and Mid cap had a near 30% drop, Large cap segment which kept the markets up in most part of 2018 have not participated in the weakness. Even now, after more than 20 months of broad correction in our markets, Large cap indices like SENSEX and NIFTY have given back only about 4 to 6%, which is not at all a correction in prices of those stocks.

The present patterns in the indices and the stocks that kept them at high’s are showing signs of weakness. When the turn comes, most of the stocks that lead the rally will give way to weakness in prices. This will have a big downside move, on the funds that hold these giant large cap caps.

Stocks like HDFC Bank have maximum exposure in many Mutual Fund Schemes. 14.41% of the Bank’s Equity is held by Mutual Funds present across 395 schemes, most of them holding it to the max permissible limits.

Fundamentally HDFC Bank is one of the biggest contributor to stock market wealth creation in the last 2 decades. Along with its parent, HDFC, which was having a 500 Crores market cap when it was listed in the early 90’s, current value of both these companies along with their subsidiaries have crossed 13 plus lakh crores.

HDFC Bank had been growing at 30% per annum for a very long period, in the recent past for a couple of years its growth has tapered to below 20s. Even the September quarter results is expected to hold the 18 to 20% growth range.

On the technical side, HDFC Bank’s chart seems to be getting close to bearish divergences, which is an indication that it is getting saturated at the top. Post the results, if the price moves are not pretty strong, it will give way to the bears.

Two possible outcomes is likely in this stock.

  1. It succumbs to bear power and goes down, which will become a very good opportunity for long term investors to add this stock to their legacy holdings or
  2. Lose momentum, will hold to the current range to build strength for the next rally.

In the present condition, later is most likely to happen. Though the stock might not see a steep fall, as it has formed a range of 1050-1250 on its prices, this range should hold and then have an up side breakout. When this consolidation plays out, all of the mutual fund schemes that hold this stock will go through the same pattern of consolidation because of the large exposure this stock has in all the portfolios. Today 14.41% of the Bank’s Equity is held by mutual funds, which is present across 395 mutual fund schemes.

Like HDFC Bank we have many such Giant Large Cap stocks which are having similar patterns both on their profit numbers and technical patterns. This raises concern on the near future performance of funds holding exposure into these stocks. This also coincides with the thought of non-participation of large cap in the correction. Now with the developments that are expected, we will see good amount participation, which will mean that we have to brace for another bout of weakness for our markets.

Since it is the big businesses of our country that will go through this change of correcting themselves, it might not be a big drop in values.

After the mid and small cap value correction, now it is time for the big stocks to correct. Since the last 2 years, we have had investors complaining about non-performance of their portfolios where very few of them still had some positive growth in their investments. This was due to the over stretching of the Giant Large Caps in our country. Thanks to the current developments, soon this non-correlation will come to an end.

All of these developments are bringing new opportunities too, since the large cap space is going to correct now. It will be good to take exit from your existing investments, move the funds to liquid and have the same get back into the same large cap scheme in a staggered manner through STP. This will help you book available profits, not take the hit when NAV drops and also get in with an average NAV to participate in the next rally.

Those of you who have exposure to schemes which are in the large cap space, which has completed their exist load period. Mainly having stocks that are likely to turn negative can take this unique opportunity to add more returns to your investments.

Above 50 EMA Index

This blog post talks about one of the big picture features available on our website, the Above 50 EMA Index.

What is the use of the Index and how to interpret its signals?

This index tracks the number of stocks that are trading above their 50 Day Exponential Moving Average.

Why 50 days and not more or less?

50 days represents 10 weeks of market activity, which forms almost 20% of the year. It is a shorter term strength guidance for a stock. So, if a stock is trading above 50EMA it is termed to be bullish and below the EMA the stock is termed to be bearish.

How to use this Index?

When the index moves above 75 market is likely to turn down and when the same goes below 25, the market is likely to turn up. When such instances come up, traders can look to identify stocks that have made a base at the bottom for going long or stocks that are forming weakness at the overvalued zone to go short.

When the index is at 75, investors can use the signal to exit some of their long term holdings which are finding it tough to move up. They can even be good stocks, which are facing resistance in price moves on the short term. By selling and buying back when they get a little cheaper, you get an opportunity to reduce the weakness in your investment portfolio when there is a correction in the markets.

What is the logic behind this thought of 75 & 25?

If the index moves above 75, it means 75% of the stocks in the market are bullish. At the same time, not all of them are at the same levels of bullishness. Some of them would have up even when the market was down while some would been early risers, which were the ones that ticked the index to move up. These old timers and early birds would have completed their journey when the index reaches above 75.

When most of the market is bullish, some early investors and institutions who are holding big positions running for a long period would want to book profits. Some of the stocks that went up due to fundamental strength will begin to slow down on their growth, triggering a downward price move. At the same time some stocks would have run up on expectations of big results where the companies would not have met the expectations and have triggered a selloff.

All of the above happens at the top and thereby qualifies as a selling level when the index moves above 75.

The same happens with buying when the index goes below 25. As more and more stocks turn down, those that began the downward move would have completed their bottom and base formation. After drop in prices, company’s earning would look attractive on the stocks valuation. Turn around will trigger institutional buying. Along with this the common adage,’ when there is fear in the market, go ahead and buy, you will make the biggest gains’.

Many such instances of turn around from the bottom can be seen in the chart. July 2019, Oct 2019, Feb 2019 & Mid-May 2019. Now it is again below 25 on 12thJuly 2019. Exactly 1 year from where it also had a similar pattern.

It is time now to look for stocks that have bottomed on their prices. Stocks having bullish divergence on the MACD or histogram on the daily charts. Stocks that are showing strong bullish patterns in the weekly chart and come down in price to reach value zone. These are stocks that will have big rally on a turnaround.

One can easily find a minimum of 5 stocks with the above qualifies and most of them end up giving above 3 times the risk exposed on the positions.

The Above 50 EMA index chart is published on our website with weekly updates. It has been populated on Weekly updates to have a smoother chart, else it will be more crowded if it is populated with daily data.

 

SENSEX rises from 20k to 40k, but no income rise for the equity mutual fund investors

SEX is reaching new high’s, investors portfolios are not going up. Reasons why it is not? Only a handful of stocks are moving up in price, why it is so? What is happening to the broad market? SEBI, recategorization, high valuations along with why fund managers were forced to park money in small & mid-cap segment in 2017. Why they are now parking funds into large cap, which has been doing well and taking SENSEX up. Not to have concentrated exposure, diversification is good. India is poised for big growth, keep off worries and take advantage of growth.