Trade Nivesh | FMCG sector tends to remain under pressure, underperforming benchmark Nifty. Realty index has stood out as among the top 5 gainers in previous pre-election rallies.
A historical analysis of past general elections reveals that BankNifty & financials tends to outperform the Nifty ahead of elections (i.e. from March 1 to the result day), Pritesh Mehta, Senior Vice President - Research, YES Securities (India) Limited,
Edited excerpts:
Q) As we inch closer to elections verdict, what should be the strategy for investors?
A) The month of March and April saw Nifty taking a momentous leap forward as it scaled past the peak of August 2018 and is currently whiskers away from 12,000-mark.
In fact, the action of the last two months foreshadowed the roller-coaster ride the index had witnessed since December 2018.
Apart from domestic issues, global economic worries weighed heavily on Indian market. Thereafter, in February, shocking terror attack in Pulwama led to tremors on Dalal Street.
March saw Nifty breaking out from a prolonged consolidation period and also climbed the above-mentioned wall of worries.
Terming the recent move as a pre-election rally won’t be a right approach as time-wise correction prior to previous months explosive move has set the wheels in motion for higher targets irrespective of election verdict.
Q) FIIs are net buyers in Indian markets ahead of the election verdict so far in 2019 compared to EMs. What does it tell about the positioning of FIIs?
A) The Nifty is now playing catch up with other EMs and global market peers. In early February, Indian indices were at the bottom of the pack. Now they are among the best performers.
Derivatives' positioning suggests that long index futures positions taken in the past two months are likely to keep the momentum on the upside as currently, index futures long-short ratio moves towards 3X levels compared to 1X in the month of January 2019.
It indicates the long bias from FIIs is intact and momentum is likely to continue in the near term. Historically, on several occasions, it is observed that whenever Nifty retraces less than 61.8 percent of the prior move, follow up move tends to achieve 138.2-150% extension levels.
Based on the principle of fractal nature, fib extension, and Gann analysis, we expect Nifty to gradually move towards 12,100-12,200 zone.
Q) Are there any sectors which tend to outperform ahead of election results?
A) With the mega event of Lok Sabha elections lurking around the corner, action on Dalal Street has already begun. A historical analysis of past general elections reveals that Bank Nifty & financials tends to outperform the Nifty ahead of election (i.e. from March 1 to result day).
FMCG sector tends to remain under pressure, underperforming benchmark Nifty. Realty index has stood out as among the top 5 gainers in previous pre-election rallies.
I am a firm believer in the adage that “strength of an up trending market is always judged on corrections”. The movement of the previous week has clearly shown the métier of the current set-up.
In previous Wednesday’s session, the confluence of support around 11,600 came into play which resulted in a sharp rally, resuming its prevailing uptrend.
Presence of three-digit gann number of 116(00), the second line of defense as per Gann rule of 8 and midpoint of the entire up move from the recent low of 11,312 came to Nifty’s rescue. The same also coincided with the previous breakout point.
An appearance of bullish candle suggests a shift of range on the upside with immediate support placed around three-digit gann number of 116(00).
Such price set-ups usually indicate a sudden change in market sentiment with renewed buying interest near key support levels.
Q) What is your view on the small & midcaps which have so far not been able to pick up momentum even though benchmark indices are trading near record highs?
A) The Nifty doesn't really echo Street sentiment. Although benchmark index has rallied by 8 percent in 2019 and largecaps continue to rule the roost, Nifty Midcap100 index is down 2 percent so far, clearly an intriguingly divergent trend at play.
Going by the overall market situation, and with strong support at play, a pick-up in midcaps is a likely scenario.
The Nifty Midcap100 index, which was at the receiving end in April (down over 3%), managed to find support around the midpoint of March’s green bar which suggests that action could pick up in this space resulting in broad-based participation going forward.
Following fractal nature, wherein post-correction of 13-15 months Nifty Midcap index marks a reversal; we expect the midcaps index to be among the major movers in 2019.
The rally from Feb lows is at the nascent stage of a major up move. In the near term, volatility is plausible with the outcome of election around the corner, but the support of 4-year mean (which coincides with Feb 2019 low) is likely to act as strong support.
Q) Any stock which you think just witnessed a breakout and is ripe for cherry picking and why?
A) HDFC:
It attempted lifetime new highs in the previous month’s trade. However, it failed to sustain at the top which resulted in a retracement in an ongoing uptrend.
During the corrective phase, it found support around the midpoint of the four-digit Gann channel (1937) and staged a pullback. The broader structure clearly highlights that the stock had been consolidating at the top.
Any kind of consolidation in an up trending stock at the top is considered as bullish in nature. Retracement on the downside in April was merely a dip in an ongoing uptrend.
A move above Rs 2,025 would result in a shift in the orbit on the upside. So, keeping in mind above-mentioned observations, we recommend a buy on HDFC above Rs 2,025 with a stop loss of Rs1,950 for the target of Rs 2,200.
A historical analysis of past general elections reveals that BankNifty & financials tends to outperform the Nifty ahead of elections (i.e. from March 1 to the result day), Pritesh Mehta, Senior Vice President - Research, YES Securities (India) Limited,
Edited excerpts:
Q) As we inch closer to elections verdict, what should be the strategy for investors?
A) The month of March and April saw Nifty taking a momentous leap forward as it scaled past the peak of August 2018 and is currently whiskers away from 12,000-mark.
In fact, the action of the last two months foreshadowed the roller-coaster ride the index had witnessed since December 2018.
Apart from domestic issues, global economic worries weighed heavily on Indian market. Thereafter, in February, shocking terror attack in Pulwama led to tremors on Dalal Street.
March saw Nifty breaking out from a prolonged consolidation period and also climbed the above-mentioned wall of worries.
Terming the recent move as a pre-election rally won’t be a right approach as time-wise correction prior to previous months explosive move has set the wheels in motion for higher targets irrespective of election verdict.
Q) FIIs are net buyers in Indian markets ahead of the election verdict so far in 2019 compared to EMs. What does it tell about the positioning of FIIs?
A) The Nifty is now playing catch up with other EMs and global market peers. In early February, Indian indices were at the bottom of the pack. Now they are among the best performers.
Derivatives' positioning suggests that long index futures positions taken in the past two months are likely to keep the momentum on the upside as currently, index futures long-short ratio moves towards 3X levels compared to 1X in the month of January 2019.
It indicates the long bias from FIIs is intact and momentum is likely to continue in the near term. Historically, on several occasions, it is observed that whenever Nifty retraces less than 61.8 percent of the prior move, follow up move tends to achieve 138.2-150% extension levels.
Based on the principle of fractal nature, fib extension, and Gann analysis, we expect Nifty to gradually move towards 12,100-12,200 zone.
Q) Are there any sectors which tend to outperform ahead of election results?
A) With the mega event of Lok Sabha elections lurking around the corner, action on Dalal Street has already begun. A historical analysis of past general elections reveals that Bank Nifty & financials tends to outperform the Nifty ahead of election (i.e. from March 1 to result day).
FMCG sector tends to remain under pressure, underperforming benchmark Nifty. Realty index has stood out as among the top 5 gainers in previous pre-election rallies.
I am a firm believer in the adage that “strength of an up trending market is always judged on corrections”. The movement of the previous week has clearly shown the métier of the current set-up.
In previous Wednesday’s session, the confluence of support around 11,600 came into play which resulted in a sharp rally, resuming its prevailing uptrend.
Presence of three-digit gann number of 116(00), the second line of defense as per Gann rule of 8 and midpoint of the entire up move from the recent low of 11,312 came to Nifty’s rescue. The same also coincided with the previous breakout point.
An appearance of bullish candle suggests a shift of range on the upside with immediate support placed around three-digit gann number of 116(00).
Such price set-ups usually indicate a sudden change in market sentiment with renewed buying interest near key support levels.
Q) What is your view on the small & midcaps which have so far not been able to pick up momentum even though benchmark indices are trading near record highs?
A) The Nifty doesn't really echo Street sentiment. Although benchmark index has rallied by 8 percent in 2019 and largecaps continue to rule the roost, Nifty Midcap100 index is down 2 percent so far, clearly an intriguingly divergent trend at play.
Going by the overall market situation, and with strong support at play, a pick-up in midcaps is a likely scenario.
The Nifty Midcap100 index, which was at the receiving end in April (down over 3%), managed to find support around the midpoint of March’s green bar which suggests that action could pick up in this space resulting in broad-based participation going forward.
Following fractal nature, wherein post-correction of 13-15 months Nifty Midcap index marks a reversal; we expect the midcaps index to be among the major movers in 2019.
The rally from Feb lows is at the nascent stage of a major up move. In the near term, volatility is plausible with the outcome of election around the corner, but the support of 4-year mean (which coincides with Feb 2019 low) is likely to act as strong support.
Q) Any stock which you think just witnessed a breakout and is ripe for cherry picking and why?
A) HDFC:
It attempted lifetime new highs in the previous month’s trade. However, it failed to sustain at the top which resulted in a retracement in an ongoing uptrend.
During the corrective phase, it found support around the midpoint of the four-digit Gann channel (1937) and staged a pullback. The broader structure clearly highlights that the stock had been consolidating at the top.
Any kind of consolidation in an up trending stock at the top is considered as bullish in nature. Retracement on the downside in April was merely a dip in an ongoing uptrend.
A move above Rs 2,025 would result in a shift in the orbit on the upside. So, keeping in mind above-mentioned observations, we recommend a buy on HDFC above Rs 2,025 with a stop loss of Rs1,950 for the target of Rs 2,200.
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