Markets Unlikely To Witness Any Strong Rally In Short-Term
Last week, it was the time on the Dalal Street when market participants had started showing optimism about the stock markets and the market breadth also started to reflect signs of bottoming out. Moreover, there was no bad news related to some bank fraud or some corporate governance which had become quite frequent in last few months. And just when the investors had begun celebrating the improvement in internal strength of the stock markets, they were overwhelmed by some strong steps announced by the Finance Minister over the weekend to boost sagging exports and a stressed real estate sector. However, things can change very quickly in the stock markets, and none of us has a crystal ball to tell us when it will happen. The news of drone attacks at Saudi Aramco’s oil facilities, taking out 5.7 million barrels of crude oil production per day, made market participants’ blood run cold. The oil prices had their biggest spike in a decade and I’m quite sure that we all know the math how severely soaring oil prices can impact the Indian markets and economy. Adding insult to injury, the Fitment committee ruled out GST cut for Auto, Consumer Durables or Biscuits. These two negative catalysts rolled out the red carpet for the bears and as a result we saw a sharp fall in the markets. We’ve been reminded recently that in spite of all the hoo-ha about electric cars, we still dwell in the Hydrocarbon age. Crude oil remains the world’s prized possession commodity and serious supply breakdown can create chaos economically, politically and financially.
In the western world, all eyes were on wise men of the FOMC and as widely expected, the Fed lowered interest rates by quarter of a percentage point, but signaled further reductions could be difficult to come by. The policy provoked a fast and sharp tongue-lashing from President Donald Trump.
How does that matter to the domestic markets? This 25 bps rate cut by the Fed might not mean much at this point as our markets are grappled with domestic challenges. Soon, the spotlight will be on the all-important GST council meet to be held on 20th September, Friday. With automobiles sector probably out of the picture, different consumption sectors, which continue to face the brunt of worst demand slowdown in years, are pinning their hopes on GST cut for some interim relief. There is a strong consensus that the GST council may slash GST rates applicable to luxury hotels and outdoor catering industry. On the flipside, ‘singoods’ could be at the receiving end, as the council can take care of partly revenue losses for states by raising the cess on sin goods such as tobacco products.
Technically, Nifty is trading in the August month’s range. In fact, if we look back, index was so close to pierce the 11,150 mark, but it turned into a distant dream as Nifty, after multiple attempts, failed to cross this hurdle. We continue to believe short term picture for the markets looks skeptical. The 50-share index Nifty is within the striking distance of breaching the lower end of the range, whcatering industry. On the flipside, ‘singoods’
could be at the receiving end, as the council can take
care of partly revenue losses for states by raising the cess on
sin goods such as tobacco productsich once broken would open up gates for another 2-3 per cent fall. Let us now look at a couple of factors that point out the chances to occur: recently, the index has broken down of a triangle pattern along with higher volumes and the death cross that had formed earlier now shows that the gap between the 50-DMA and 200-DMA has widened. The 200-EMA is moving on a downward trajectory.
Nervous investors might be wondering what all these mean to their portfolio. If you hold a portfolio of fundamentally strong and sound companies, we would suggest you to hedge your positions, and for traders, we would advise to stay away from overleveraged positions and follow strict stop losses. Finally, to conclude, we would advise investors to adhere strictly to one of the sayings of Peter Lynch - ‘Know what you own, and know why you own it’.
