November Outlook Report

As expected the equity markets set in for a correction despite better than expected results. The consolidated Nifty PAT was at Rs. 421 billion against expectations of Rs. 402 billion, higher by 4.5%. The reason for correction is higher valuations. At 5100 the Nifty trailing PE reached to a higher band of 22.5x. Market has corrected around 7.5% from the peak and current PE on
trailing basis is 20.7x. The correction is also triggered by some profit booking by FIIs. In the last 6 months the FIIs have put in over Rs. 75000 crs in the Indian equity markets and are sitting on handsome profits. With valuations getting stretched, FIIs started booking profits post Diwali.

November Road Ahead

The Nov series opened at 42,245 cr. as against 41,204 cr. last month, wherein the Nifty future was 14,606 cr. and Stock futures were 27,639 cr. compared to Nifty Future 13,915 cr. and Stock Future 27,289 cr. last month. The rollovers in the Nov series were high even after the indices corrected almost 5% in Oct from their recent high of 5,181. It appears that many were stuck at higher levels and opted to shift their positions into the next series hoping that market will recover in Nov series.

But from the first day of the Nov series, 23rd Oct we saw huge distribution happening and on that day Reliance Ind, the index heavyweight plunged 4% to close at Rs. 2,047 after Hardy Oil said it has not found any hydrocarbon in D9 block exploration well of KG basin and from 23rd Oct till 3rd Nov the Nifty started correcting consistently on the daily basis and lost almost 9.8% in 6 trading sessions. This fall was in line with the negative global cues as the S&P 500 also corrected sharply from 23rd Oct high of 1,095 and made a low of 1,034 on 3rd Nov.

Though the markets have corrected 12% from their Oct 09 highs, it still looks a bit nervous as Nifty is still trading below its short term 5, 21 and 50‐day moving average of 4,712 / 4,955 / 4,867 which clearly suggests that the short term trend is under threat. Even if we look at the long term 100 & 200 day moving average which is placed at 4,634 / 3,952, Nifty on 3rd Nov broke the 100‐day moving average with huge volumes, negative market breadth and closed well below the moving average.

On 3rd Nov the leading oscillator RSI was at 27 well below the oversold region indicating that a sharp bounce was expected in the coming day Now  technically the markets look very unsafe as the upside for the Nifty seems to be limited to the extent of 4,770 / 4,870 but on the downside if Nifty breaks the important support level of 4,535 then we could see a second leg of extreme sell‐off happening and chances are that nifty might test 4,330 / 4,240 / 4,140 which could be the safe area to buy from an investment view.

In the short term support for the market is at 4,535 / 15,330 unless we see markets closing below these levels we don’t expect fresh sell‐off happening, on the higher side 4,870 / 16,450 should be crossed and sustained for some time to regain positive momentum. This bearish view could change only if markets trade above 4,940 / 16,700 till then every rise in the market should be
used as a selling/exit opportunity.

Stock Idea

Dhanlakshmi Bank, Infosys, HCC, Jet Airways, Jindal Steel & Power, Mphasis BFL, PTC, Tata Motors, Axis Bank, PNB, Sesa Goa, Aurobindo Pharma, Polaris Software, Jindal Saw, Sunil Hi Tech, PVR and Balrampur Chini can be bought on dip from an investment view.

NIFTY FUTRUE DAILY CHART

The trend is cautious for the near term; Nifty has to maintain above 4,770 / 4,870 which are the two important resistance levels where we could witness selling pressure coming. So unless markets trade above 4,870 buying should
be avoided and on the lower side if 4,500 breaks then witness extreme selling emerging and Nifty could test 4,370 shortly.

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