Sensex, Nifty trading below 200-DMA; Indian market in bear phase

A key technical stock market indicator is signaling a protracted gloom for Indian equities, reviving memories of a similar downtrend two years ago. Benchmark share indices Sensex and Nifty as well as broader indices such as the BSE-200 are trading below their 200-day moving average, or 200-DMA, an indication that Indian markets are in bear territory.

A decline below 200-DMA means that new buyers of indices or stocks are not willing to pay more than the average price of the previous 200 days. While Sensex and Nifty are about 6% below their 200-DMA, more than 75% stocks on the BSE-200 are below the mark, a technical sign of pessimism.

The downswing in equities market is also evident in Asian peers such as China's Shanghai Composite and Singapore's Straits Times that are trading below this mark, analysts said. The classic definition of a bear market is when key indices fall 20% below their peaks, though the 200-DMA gauge is also widely used.

"We are clearly in a bear market at the moment," said Alex Mathews, head-research, Geojit BNP Paribas Financial Services . "Charts are pointing to a downtrend and a reversal looks difficult unless there are positive cues," he said.

The Indian markets last experienced a similar trend in March 2009 when shares were reeling under the impact of a global financial meltdown, and almost 78% stocks on the BSE-200 were below 200-DMA, Enam Securities said in a report. The difference between the two periods is that the Sensex is at about 18,000 now, almost 12% below peak, while it was nearing 8,000 in early March 2009.

Liquidity Remains Global Concern

Foreign funds have dumped Indian shares, pulling down the markets in recent weeks as stubborn price pressures and the central bank's aggressive monetary tightening threaten to hurt growth and dent corporate profits. Overseas investors have net sold Indian stocks worth Rs 8,200 crore so far in May, dragging down benchmark indices 5%. They have pulled out almost Rs 3,500 crore on a net basis so far this year, after investing about Rs 1.33 lakh crore in 2010.

Liquidity remains a concern globally and investors will closely watch the foreign flow trend post-June, when the Federal Reserve's bond purchase, or the second round of quantitative easing, comes to an end, analysts said. Overseas markets have been jittery over the closing of the bond buyback that pumped billions of dollars into global stocks and commodities in the last couple of years. Though there is consensus in the market that the undertone may remain weak, any sharp decline from current levels may take investors and traders by surprise, analysts said.

"Monthly and quarterly charts are showing bearish trends. While there may be a brief upmove to about 5,550 levels over the next couple of weeks, the trend over the next two months shows the Nifty is likely to fall 15% to around 4,500 levels," said Sandeep Wagle, managing director, Aptart Technical Advisors.

Nifty seen higher; Tech Mahindra, Tata Motors watched

The 50-share Nifty index is seen opening higher on Friday while Asian markets drifted in red after euro slipped to a record low against Swiss Franc and a slight pull back in commodity prices weighed on the markets.

US economic data on Thursday showed the economy grew at an annual 1.8 percent rate in the first three months of the year, weaker than most forecasts. The weak economic data weighed on commodity markets, particularly oil, which dropped more than 1 percent overnight, but showed some signs of stability on Friday, according to a report.

Increasing concerns of high inflation, rising borrowing costs along with Europe debt crisis will keep investors on the edge. Also, surging inflations fanned concerns of further tightening by the Reserve Bank of India.

Food inflation rose to a four-week high of 8.55% for the week ended May 14 as prices of cereals, vegetables and milk rose during the week. Food inflation was up a sharp 1.08 percentage points during the week from 7.47% in the previous week, official data showed.

Markets ended the May F&O series with intense last minute tussle between options buyers and sellers while the Nifty managed to close above 5400 should give some heart to the bulls.

"There is a fair chance that markets will see a sharp pullback back to 5500 levels on the Nifty in the next few trading sessions", says Kunal Saraogi, CEO, Equityrush. Traders must initiate long positions on select stocks with tight stop losses. Automobiles and pharma companies look best positioned on the charts and may lead the recovery, he adds.

According to a report, benchmark share indices - Sensex and Nifty as well as broader indices such as BSE-200 are trading below their 200-day moving averages indicating markets are in a bearish phase.

The benchmark index is still down 1.5 per cent on the week and nearly 6 per cent down for the month of May but losing interest of FII in Indian markets which pulled out nearly $1.7 billion this month remains key concerns for investors. The benchmark index slipped more than 12 per cent in 2011.

At 07:50 A.M, the Nifty India stock futures in Singapore trading 63 points higher.

Shares in Tata Motors will be in focus after the largest truck and bus maker posted its highest-ever quarterly consolidated profits for the March 2011 quarter in line with the Street's expectations. Profits were mainly driven by higher sales at home and at its Jaguar and Land Rover unit, but warned of competition and high commodity prices

Shares in State Bank of India will be in focus after the biggest lender said it will submit the revised proposal to the government for Rs 20,000 crore right issue next month.

Other important results to watch out in today are - Bank of Baroda , HDIL, NHPC, Reliance Infra and Reliance Power .

Stocks to watch:

HPCL after the state-run refiner posted 48 per cent jump in quarterly profits from a year earlier. The company has also revived plans to build in a consortium a $10 billion refinery-cum-petrochemical project in Vizag city.

BGR Energy after the power project firm said it expects its sales to grow by 15 per cent in FY12 and expect good order flow.

Zee TV after the company it has joined hands with Murdoch's News Corp, Star India to distribute their television channels in the domestic market.

According to sources, Coal India is in talks to buy up to 40 per cent stake in Indonesia's Golden Energy Mines. The shares of the company are expected to move higher in trade today.

Reliance Industries after the largest company by market value has submitted an expression of interest to buy Australia's Premier Coal. According to sources, RIL is likely to initiate due diligence on the assets of Premier Coal.

Tech Mahindra after the India's No. 5 software company reported 59 per cent drop in fourth quarterly profits on account of legal expenses incurred by Mahindra Satyam.

Shares in Aanjaneya Lifecare will be watched in today's trade which lists on India bourses today.

Cairn India after a Group of Ministers (GOM) are likely to decide today (1630 hours) if the government should approve Cairn Energy Plc's sale of stake in its Indian unit to mining group Vedanta Resources.

Sensex to touch 24000 sometime during the year: Raamdeo Agrawal

In an interview with ET Now, Raamdeo Agrawal , Jt. MD, Motilal Oswal Financial Services , talks about contra investing and his contra calls.

Define contra investing for us.

The stock which does not deserve popular opinion is what is called contrarian kind of view. You make money when you buy a stock which is absolutely unpopular, because most of the money is made in this kind of stock when the perception changes. Perception is the driver of PE. If the perception of the stock is negative and from there it changes to positive to a PE multiple of 10 to 100, it makes you a lot of money.

Has contra investing worked for you?

I am not a contra investing type. However, in one or two situations, I bought in the past and was very successful in those ideas. I had bought Calcutta Electric 5-6 years back at about Rs 13. The whole company was available at about Rs 90 crores. There were factors like monopoly into Calcutta, employing transmission and profitability and they were highly leveraged and the interest rates fell from 13-14% to around 6-7%. We did a ratio called interest cost to the market cap and it turned out that interest was 3 times or 4 times more than the total market cap and hence the impact of the interest rate decline would have been most on Calcutta Electric. People around me from Calcutta told me that it looked worse than BMC office and I couldn't even stand there. They told me not to look at it and that was the reason it was at Rs 13.

What prompted you to buy that stock?

I had a very bullish view on change in the value of a stock once the interest rates declined and we saw major decline in the interest rates. I wanted to buy something which was getting hurt due to the high interest rate scenario at that point of time and would be significant beneficiary. Calculated business was very stable and it had a good reputation in Calcutta under RPG management but yet the net profit after tax was low because it was heavily leveraged and West Bengal Government was disputing about what costs were allowed to be passed on. As the interest rate came down, the profits that were marginal or negative shot up by 4-5-6 times because all the interest became benefits to the company. The stock flew from Rs 13-14 to around Rs 150 in 2 years time and then I sold it at about Rs 120. The stock further went up to Rs 400-500.

Rupee nears 3-month low on local shares, euro weakness

The Indian rupee fell further in afternoon trades on Wednesday to hover near its three-month lows as concerns of dollar outflows heightened on the back of the continuing fall in local shares.

* The persistent weakness in the common European unit also weighed on the rupee, traders said.

* At 1:45 p.m., the partially convertible rupee was at 45.41/42 per dollar, weaker than the last close of 45.21/22.

* The rupee had last crossed the 45.43 level on Feb. 25, and if it breaches this level, it could drop to near 45.50 before any support is seen, traders said.

* The euro was at $1.4026 and the index of the dollar against six major currencies was at 76.227 points. * The euro fell on Wednesday, as investors including hedge funds cut bullish bets on mounting worries over Greece's finances, with many traders expecting the single currency to test key support levels on charts.

* Indian shares extended losses to more than 1 percent in afternoon trades on Wednesday as fresh worries about Europe's spreading debt crisis and weak Asian markets dampened investor sentiment.

* The actively traded one-year onshore forward premium was 247.75 points against 248.25 points last close.

Sensex close in green, Bankex gains.....Nifty below 5400

BSE Sensex ended at 18,011 adding 19 points. Nifty closed at 5,398 adding 12 points.

After a steep fall on Monday, the Indian markets ended with modest gains on Tuesday amid some volatility ahead of the F&O expiry. The key stock indices started off with smart gains despite weak cues from the US and European equity markets. However, the Asian indices recovered from the previous session's drubbing and European markets too managed to break the recent sequence of losses. As a result, the sentiment on Indian bourses too improved.

FMCG, Realty and PSU stocks were among the major laggards. On the other hand, Capital Goods, Consumer Durables and Banking stocks were in demand.

Domestic headwinds like inflation and policy stalemate on key issues continue to haunt the Indian markets. Technically, the NSE Nifty could find meaningful support around the 5340 levels. While on the upside the 5490 levels could be the near term resistance for the index.

The fact that the crude oil has softened in recent days also supported the Indian markets. Results from the likes of L&T, Bajaj Auto, BHEL, Gail and ITC have been well received by the markets as well.

"Volatility could escalate ahead of the F&O expiry. Overall mood will hinge on upcoming results, FII flows, possible policy announcement, monsoon and of course overseas markets.Safety of one’s portfolio should be top priority. So, avoid undue risk taking.
There could be a minor bounce after a steep selloff but don’t aggressively buy into it as there could be further weakness. One will get opportunities in the coming days to pick up quality stocks for medium- to long-term perspective," says Amar Ambani, Head of Research (India Private Clients) - IIFL.

The BSE Sensex ended at 18,011 adding 19 points. It had earlier touched a day's high of 18,110 and a day's low of 17,933. It opened at 18,016. The NSE Nifty closed at 5,398 adding 12 points.

The European markets were trading in the green, the FTSE index was up 1%, CAC index was up 1.3% and DAX index was up 1.4%.

Outside the index, the major gainers were Patni, Shriram Trans, Jub Food, Biocon and Canara Bank. Among the major loses were DB Realty, Bharat Forge, PFC and Tata Global.

www.indiainfoline.com