Markets are headed higher but buy only on declines
Another fortnight is over and the short-term top of 15th April has not been scaled as yet. But is a trend change at hand? Two weeks ago, I had suggested that “if the US goes down by 10%-15%, India will not stand tall; it will go down too, quite sharply as we have repeatedly seen. The US market seems to be headed down again at the time of writing.” However, the Indian outperformance continued.
The US market and the Chinese market did go down last fortnight but the Indian market hardly budged. Indeed, it has traded in a very tight range over the past three weeks and is now about to head higher. The Sensex had hit a high of 17,919 on 21st June. It hit a low of 17,373 on 30th June and closed this week at 17,833. Investments by foreign institutional investors have been robust; although, as the market has headed higher, their net investments have come down to modest levels.
Last fortnight, we had said that the Indian market was reaching a high of its very short-term cycle. The market immediately declined and then stabilised. A new short-term global rally has started and the market is headed higher. There is a likelihood that the short-term high would now be around 18,300 on the Sensex. If it crosses that, we are in for a major extended rally driven by global liquidity that would defy all logic. On the downside, the lines on the sand for the bulls to defend are at 17,300 and then 16,500 on the Sensex.
One of the reasons for the market heading higher is that the global markets have stabilised now after the savage fall of May and June. The Chinese market had declined 26% and the US market by 16%. Their recent stability has boosted all markets around the world. But note that neither of these two major markets (US and China) is back on a long-term uptrend. They may decline again in a month and a fresh, more serious, downturn will start in India as well. We are sticking to our view that the Indian market is, ultimately, not insulated from the rest of the world.
The trend of global markets will depend on where the US economy and markets are headed. Here is an important indicator. According to The Economic Cycle Research Institute, a New York-based independent forecasting group, which has a very good record of forecasting business cycles, economic growth fell to the lowest since July 2009, indicating that the economy will continue to slow. Its Weekly Leading Index fell to 121.5, the lowest level since July 24, 2009 (120.3).
We expect that after a brief rally that is currently under way, global markets would swoon. Hence, to participate in the current upmove, buy the declines, not the momentum and run for the exit fast.
Beginning this issue, we are putting out only medium-term and long-term forecasts. Short-term forecasts will be available in our daily market coverage on our website. This is because the market has been highly volatile in shorter-time horizon and, by the time you receive the magazine, a short-term trend change would have already happened.
The market is climbing a wall of worry. Watch 18,300 on the Sensex
The domestic market ended the week with a gain on positive global sentiments. Although the week stared with a subdued performance on the bourses weighed by the 'Bharat Bandh' called by the opposition parties; the market staged a sharp recovery the very next day. After settling lower on Wednesday, it posted huge gains on the last two days of the week. Finally, the Sensex and Nifty closed 2% higher on a weekly basis
The top Sensex gainers were Bharti Airtel (up 16%), Mahindra & Mahindra (M&M) (up 6%), Infosys Technologies, DLF and HDFC Bank (up 5% each. The top losers included ACC, Hindustan Unilever (HUL) (down 3% each), Reliance Infrastructure (R-Infra), NTPC and Jaiprakash Associates (down 2% each).
In the sectoral space on the BSE, the teck index gained 6% and consumer durables surged 5% while the oil & gas index shed 1%.
The Reserve Bank of India (RBI) last Friday (2nd July) raised interest rates earlier than expected, ahead of its 27th July policy review and days after the government freed fuel prices. Analysts expect another 25 basis points (bps) hike on 27th July, on concerns over inflation hovering above the 10% levels.
The finance ministry said that direct tax collections rose an annual 15.5% to Rs686.8 billion in the April-June period. Corporate taxes during the period rose 21.65% on the year to Rs434.4 billion.
US president Barak Obama said that the country is expected to double exports over the next five years. The White House Council of Economic Advisers estimates that rising US exports have added more than one percentage point to US growth in the last nine months.
China has tried to clear doubts over concerns on whether it will dump its huge stock of US bonds, stating that any increase or decrease in the holding of US bonds is a normal investment operation. China held $900.20 billion in US Treasuries at the end of April, according to US Treasury data released on 15th June.
In its latest analysis of the global manufacturing competitiveness index, Deloitte said that Asian giants China, India and South Korea led the current competitiveness index and were expected to retain their top three rankings over the next five years. In contrast, the dominant manufacturing superpowers of the late 20th century are expected to become less competitive. Other Western European nations will be similarly challenged, especially the Czech Republic, the Netherlands, Switzerland, Ireland, Italy and Belgium.
India's annual food inflation eased to 12.63% for the week ended 26th June from 12.92% in the previous week, but fuel inflation shot up to 18.02% after the hike in rates of petroleum products. Fuel inflation for the week under review rose sharply to 18.02% (from 12.90% in the previous week) after the impact of the fuel price hike. Prices of petrol and diesel were raised by up to Rs3.50 a litre, while that of liquefied petroleum gas (LPG) and kerosene were hiked by Rs35 per cylinder and Rs3 a litre respectively.
Industrial output is forecast to grow at 16% in May this year from a year earlier, lower than the annual growth of 17.6% in April.
India's car sales may go up by 12%-13% in 2010-11 to 1.7 million units as estimated by the Society of Indian Automobile Manufacturers (SIAM). In June this year, 1,41,184 cars were sold compared with 107,948 units a year ago, lower than the record 1,48,481 units sold in May. Sales of trucks and buses rose 44% to 52,211 units in June, while motorcycle sales rose by 30% to 715,985 units.
The Securities and Exchange Board of India (SEBI) on Wednesday relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants.
European Central Bank President Jean-Claude Trichet dismissed the idea that the cost-cutting measures taken by the governments in various EU nations would bring about recession.
The International Monetary Fund (IMF) on Thursday raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia. However, it expressed its concern over the downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product (GDP) forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%. The multilateral lender also raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. It expects India's economy to grow 8.5% in 2011. South Korea's central bank raised its key interest rate from a record low amid prospects for growth in the country's economy.
Initial claims on State unemployment benefits dropped 21,000 to a seasonally-adjusted 454,000 in the week ended 3rd July, the lowest level since early May, the US Labor Department said.
India said that it will be committed to the Doha round of global trade talks and does not believe that bilateral and regional trade deals will affect the multilateral process. Trade minister Anand Sharma opined that an acceptable global trade agenda was the need of the hour for economic recovery.
Thousands of clients of ICICIdirect were left in the lurch on Thursday, as its trading site was nonoperational for more than 24 hours. Many customers are venting their anger through comments on Moneylife.in and other forums
The unavailability of ICICIdirect's trading portal during trading hours on Thursday has left many of its customers feeling let down and some of them are even looking at ways to initiate proceedings against the brokerage.
Several hapless customers have been venting their frustration on various forums on the Internet. One of the comments on our previous article reads, "They should pay a fine or forego their fees for the year when the site crashes for the whole day. Site not working for a short period is understandable, but a system where people are likely to have lost crores of rupees has to be accountable. How I wish I could sue them like in countries like the US."
A reader in his comment on moneycontrol.com has asked whether there is any way the Securities and Exchange Board of India (SEBI) can interfere, or if the Company Law Board can take some action. "How can the losses of the members of ICICIdirect services be compensated? Can we move the consumer court for a remedy?" the reader asked.
However, customers using online trading accounts cannot initiate legal proceedings against their brokerage for website malfunction. While opening an online trading account, customers sign an agreement, which clearly says that the brokerage cannot, and does not guarantee continuous, uninterrupted or secure access to the Internet, the website or linked site(s).
This is what the disclaimer on ICICIdirect.com says, "ICICI Securities Ltd (ISEC) along with its directors, employees, associates or other representatives and its Affiliates along with its directors, employees, associates or other representatives shall not be liable for damages or injury arising out of or in connection with the use of the www.icicidirect.com (Website) or its non-use including non-availability, compensatory, direct, indirect or consequential damages, loss of data, income or profit, loss of or damage to property, including without limitation loss of profits, loss or corruption of data, loss of goodwill, work stoppage, computer failure or malfunction, or interruption of business; under any contract, negligence, strict liability or other theory arising out of or relating in any way to the Website, site-related services, or any products or services and claims of third parties damages or injury caused by any performance, failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information, whether resulting, in whole or in part, from or relating to any of the services offered or displayed by ISEC on the Website."
On Thursday, Moneylife had revealed how the trading system as well as the phone-order service of ICICIdirect broke down yesterday, leaving numerous customers totally hapless. ICICIdirect is one of the largest trading portals in the country and its inability to set right the technical snags in its system is indeed appalling.
"Considering the number of account-holders on ICICIdirect and the position that ICICIdirect holds in the online trading business, this episode and the inadequate response of the company to it, reflects gross negligence on their part. I urge the authorities (SEBI and other regulatory bodies) to kindly investigate this failure and work out a mechanism by which the service provider is held accountable in instances of such failure to provide the services promised," read one comment on moneycontrol.com.
Usually, all the sites, especially those which deal directly with customers, have sufficient resources to fall back upon in case there is a technical problem. However, in the case of ICICIdirect's technical glitch, it appears that there was no backup available to handle such situations.
Despite our repeated attempts to know the exact reasons for the site crash, ICICIdirect and ICICI Securities were unable to provide any answer. This is what the spokesperson from both these entities has said: "We have resolved the technical glitch that we had faced yesterday. ICICIdirect.com is now completely functional and all our customers have been able to trade seamlessly on the site." There is neither any word on the brokerage's plan of action to avoid such situations in the future nor about any compensation to its customers who may have suffered losses.
According to Kirti Desai, a chartered accountant, this is not the first time a site of a brokerage has crashed. "The question is when SEBI does not allow any broker to stop trading, then how come such things happen time and again? I think there should be more transparency in the manner online sites of brokers operate," Mr Desai said.
With the advancement in technology - in terms of connectivity and infrastructure - online trading has reached a new high, where even delay of a second in placing an order can have significant financial impact. This exactly is the reason why more and more traders are opting for broadband or dedicated leased lines and trading terminals. However, since common investors are dependent on their broker's terminal or portal, they have no other option but to bear with the broker.
In addition, when the online trading portal of a reputed broker crashes then it may lead to irreparable damage for both the brokerage as well as its customers.
In his comment on moneycontrol.com, one reader even accuses the brokerage. The reader said: "My experience with ICICIdirect is whenever there is (a) big movement in (the) market, ICICI's site goes down due to reasons best known to them. There is nothing like 'technical error'. You can assume what is a big movement in markets on either side is beyond the control of ICICIdirect so they just hang up their system to prevent damage to their personal interests."
Echoing a similar feeling, one reader said, "I think SEBI should pitch in here. The quality of the website has been inconsistent. Some insiders say that ICICIdirect slows down when you need it the most. Not sure how true this is, but of late I have experienced trouble in modifying allocation on several occasions. The helpdesk is a paid-phone service that keeps (the) customer on wait for at least 5 minutes. To summarise, it is so unhelpful that one would rather keep to oneself than go to them."