Why Indian Equities Are Risky Even When Valuations Are Right

Indian Stocks Are Plunging

The Indian Equity markets are buzzing with stocks that are trading at their fair value or under. Surprisingly there are no takers. Investors seem to be selling whatever they can. Unfortunately, no one seems to have an answer to what might be the reason behind such lack of interest amongst buyers.

What’s the Real Story

The current scenario is a classic case of a shift in the global macroeconomics.

The three major reasons behind the plunging prices of Indian Stocks are

  1. Rise in the US Treasury Yield.
  2. The strengthening Dollar.
  3. The cost of carry trade.

nifty growth

Rising Treasury Yields

The US 10-year Treasury yield has climbed above its 4-year high 3.036 and is trading at 3.09. This indeed is an alarming sign which signals the inevitability of the rise the US Feed Funds Rate.The Dollar Index too will trigger panic buttons once it crosses the 95 mark and is currently trading at 93.45. Comex Gold is trading at 1294, below its 4-month support of 1300 also confirming the FED’s hawkish stance.

US 10Year Treasury yield

Impact Of INR Weakness On Indian Stocks

The looming danger for the Indian Equity markets stems out of the evident weakness of the INR.

Let us assume FIIs had bought a share in India when it was trading at RS.126 and the USD/INR was trading at 63 around that time. So FIIs had invested $2 for a share. At the current moment if the stock has moved up 10% and is Trading at Rs.138.6. However, the Rupee has depreciated 7.94% and is trading at 68 to a dollar. This means Rs 100 invested in stocks have yielded 10% returns while the weakness of the Rupee has given away 7.94% from the profits for every Rs.100 invested in the Indian Stocks. Thus, the net profit stands at (10 – 7.94) = 2.06%.

USD INR

Cost of Carry Trade

As if that’s not enough, the foreign investor also ends up paying 26% more towards the borrowing costs as the Fed Funds Rate has jumped 26% from 1.34 – 1.69 in the last five months. In other words, the drawdown due to a sharp rise the Fed Funds Rate is an additional 26% over the 7.94% loss from the fallin the INR. The net loss due to Currency fluctuations stand marginally above 10%. Resulting in a loss of the Foreign portfolio investor who had bought Indian Equities at their fair value.

Dollar Index

Why Isn’t History Repeating Itself

A similar situation was played out between July 2012 and May 2014 when the INR depreciated 40% and climbed to levels of 69.13 from its lows of 49. The US Treasury Yields also climbed 69% from its lows of 1.80 to 3.04 in the same period. However, the Indian equity markets climbed approximately 40% from it lows of 4588 to 6415 in the same timeframe.

Well the reason is pretty simple. The span between 2012 & 2014 was when the Fed was busy printing notes in the aftermath of the subprime crisis. In the current scenario the Fed is all set to hikeits fund rates.We also need to add that FPIs were long in the emerging markets currency between 2012 and 2014 as the dollar remained weak due to the introduction of Quantitative Easing however this time FPIs are long in the US dollar as the Fed is expected to roll out 7 rate hikes between 2018 & 2020.

Gold Chart

Is There A Possible Solution?

The smartest way to handle such a situation is to buy equities 10%-15% below its fair valuation. This Intelligent approach can neutralize the adverse impact of the Feds Hawkish stance in the days to come. In times such as these it’s best to fall back on the basics ” Buy when there’s blood on the streets.”

NIFTYdaily 16MAY2018

NIFTY AND BANKNIFTY STRATEGY FOR 16-MAY-2018

#.Nifty was on a flat trend and closed at 10801 level .So today on upside first intra resistance is at 10842-47 level. On downside first support is at 10761-56 level.Market is in bull zone .So today for intraday on upside intra resistance are at 10847 and 10887 level On downside be alert below 10756 and avoid all longs below 10715 level as selling may intensify below that level .

#. In the derivative market, FII’s bought 660.16 crores of Index futures and bought 2867.06 crores worth of Index options. In the Stock futures segment, FII’s sold -145.311 crores worth of stock futures and bought 134.38 crores of stock options.

Intraday NIFTY view:
Trend: BULL
We are Bearish on NIFTY  but suggest you please book profit every level. Follow our calls.

NIFTY50  INTRADAY LEVEL

R4 10961 BULL
R3 10894 UP BREAKOUT
R2 10869 UP CAUTION
R1 10853 SELL
PIVOT 10837  
S1 10751 BUY
S2 10735 DOWN CAUTION
S3 10710 DOWN BREAK OUT
S4 10643 BEAR

SGX Nifty
10,748.00 Down -77.50  (-0.72%)

FII Activity on nifty future:

Index Futures: 660.16 Crs
Index Options: 2867.06 Crs
Stock Futures: -145.311 Crs
Stock Options: 134.38 Crs

NIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 10859 10846 10910 11007 11071
Sell 10802 10857 10760 10696 10599

BankNIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 26626 26593 26819 27140 27366
Sell 26472 26620 26299 26073 25753

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SELLING #NIFTY FUTURE POSITIONAL 15-MAY-2018

Trade 8: We are selling nifty May future 50% @10844 with SL 10900 (NIFTY Fund Performance)

DATE Buy/Sell Price SL Exit1 EXIT2 Lots Profit
15 -May Sell 10844 10900 NA NA 1 Holding

Note: Please don’t trade in this call as this level is for educational purpose. if you making any position please read the  Disclaimer)

lots entry exit profit

Date: 14-May-

 

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NIFTYdaily 15MAY2018

NIFTY AND BANKNIFTY STRATEGY FOR 15-MAY-2018

#.Nifty was on a flat trend and closed at 10806 level .So today on upside first intra resistance is at 10839-44 level. On downside first support is at 10773-68 level. Market is in bull zone .So today for intraday on upside intra resistance are at 10844 and 10871 level On downside be alert below 10768 and avoid all longs below 10741 level as selling may intensify below that level.

#.  In the cash market today, FII’s bought 717.99 crores stock whereas DII’s bought 687.23 crores worth of stock.

#. In the derivative market, FII’s bought 200.86 crores of Index futures and sold -1358.54 crores worth of Index options. In the Stock futures segment, FII’s bought 117.92 crores worth of stock futures and bought 5.87012 crores of stock options.

Intraday NIFTY view:
Trend: Bull
We are bullish on NIFTY  but suggest you please book profit every level. Follow our calls.

NIFTY50  INTRADAY LEVEL

R4 10878 BULL
R3 10850 UP BREAKOUT
R2 10840 UP CAUTION
R1 10834 SELL
PIVOT 10805  
S1 10779 BUY
S2 10773 DOWN CAUTION
S3 10763 DOWN BREAK OUT
S4 10736 BEAR

SGX Nifty
10,785.00 Down -24.00 (-0.22%)

FII Activity on nifty future:

Index Futures: 200.86 Crs
Index Options: -1358.54 Crs
Stock Futures: 117.92 Crs
Stock Options: 5.87012 Crs

NIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 10823 10809 10843 10877 10910
Sell 10798 10820 10787 10753 10719

BankNIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 26474 26434 26558 26676 26801
Sell 26408 26460 26343 26218 26100

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NIFTYdaily 14 MAY 2015

NIFTY AND BANKNIFTY STRATEGY FOR 14-MAY-2018

#.Nifty was on a strong bull trend and closed at 10806 level .So today on upside first intra resistance is at 10833-38 level. On downside first support is at 10780-75 level. Market is in bull zone .So today for intraday on upside intra resistance are at 10838 and 10864 level On downside be alert below 10775 and avoid all longs below 10748 level as selling may intensify below that level

#.  In the cash market today, FII’s sold -325.44 crores stock whereas DII’s bought 1163.35 crores worth of stock.  In the derivative market, FII’s bought 863.59 crores of Index futures and sold -623.301 crores worth of Index options. In the Stock futures segment, FII’s bought 560.26 crores worth of stock futures and sold -149.85 crores of stock options.

Intraday NIFTY view:
Trend: Bull
We are bullish on NIFTY  but suggest you please book profit every level. Follow our calls.

NIFTY50 INTRADAY LEVEL

R4 10914 BULL
R3 10870 UP BREAKOUT
R2 10854 UP CAUTION
R1 10844 SELL
PIVOT 10778  
S1 10769 BUY
S2 10759 DOWN CAUTION
S3 10743 DOWN BREAK OUT
S4 10699 BEAR

SGX Nifty
10,823.50 UP+0.50 +0.01%

FII Activity on nifty future:

Index Futures: 863.59 Crs
Index Options: -623.301 Crs
Stock Futures: 560.26 Crs
Stock Options: -149.85 Crs

NIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 10828 10789 10847 10880 10938
Sell 10778 10800 10768 10710 10677

BankNIFTY Future Levels to watch:

Signal       Signal Price  Stop Loss Target-1 Target-2 Target-3
Buy 26420 26284 26520 26653 26890
Sell 26257 26310 26177 25941 25807

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