Nifty Market View: Volatility likely to persist

The trend remains up despite the correction and the first couple of days of next week should make the short-term picture clearer 


S&P Nifty close: 5,676.05




Market Trend
Short Term: Up                       Medium Term: Up                        Long Term: Down
After a flat opening for the week, the Nifty sold off immediately as the bulls remained under pressure throughout the week, barring Thursday where we saw a smart one day rebound. The effect was a result of the overbought nature of the weekly oscillators. If one has to take out some positivity from last week’s correction, the Nifty did not break the low of the week ended 28 September 2012 (5,638 points). Volumes were higher as compared to the previous week as the Nifty closed 70 points (-1.23%) in the red. The histogram MACD which is above the median level moved lower indicating that even though the bulls remain in control, they cannot allow the prices to drift like this for too long.
The sectoral indices which outperformed were CNX FMCG (+2.02%), CNX Pharma (+1.63%) and CNX MNC (+0.06%) while the underperformers were CNX Realty (-4.47%), CNX Energy (-3.05%), CNX Media (-3.04%), CNX IT (-2.96%), CNX PSU Bank (-2.17%), CNX Auto (-2.09%) and CNX Service (-1.83%). 
Here are some key levels to watch out for this week 
 As long as the S&P Nifty stays below 5,688 points (pivot) the bulls will be under pressure.
 Support levels in declines are pegged at 5,624 and 5,573 points. 
 Resistance levels on the upside are pegged at 5,740 and 5,803 points.
Some Observations
1. The Nifty has completed the 61.8% retracement level of the decline from 6,338-4,770 points pegged at 5,740.
2. The 78.6% retracement level of the fall from 6,338-4,770 points is pegged at 5,951 points, which also coincides with the top of the channel (in brown).
3. The Nifty is now moving within a sharp up sloping channel (in blue), support from which is pegged around 5,490 points and resistance is pegged around 5,898 points, this week.
4. We have remained above the previous weekly top of 5,629 points (24 February 2012) which is a sign of strength as long as it stays above it.
5. The weekly chart above also shows a channel (in brown) the resistance line of which is pegged around 5,970 points. This should be closely watched in the weeks ahead.
6. We have completed 89 weeks (Fibonacci number) from the top of 6338 points (05 November 2010) hence one has to keep a close watch whether the market starts correcting from around current or slightly higher levels.
7. The volumes were significantly higher as compared to the previous week, which was also the case a week prior to the previous significant top of 5,629 points (24 February 2012). Hence one needs to be alert for the slightest sign of a break of support.
We got a small dip after the Nifty broke through 5,694 points but it got support at the low of 5,638 points (28 September 2012) as well as the weekly pivot support which was pegged at 5,630 points last week. Therefore this 5,638 points level assumes significance from a short-term perspective. A decisive breach of this in close could result in the Nifty sliding down to 5,586, 5,515 or in a pessimistic scenario to 5,445 points which are the Fibonacci retracement levels of the rise from 5,215-5,815 points. This week should make the picture clear as to whether last week was just a correction and we resume the uptrend or the correction goes deeper which will be signaled by a decisive break of 5,638 points. Till then this choppiness and volatility will be there, which is treacherous for short-term traders. Wait patiently for the market to show its hand. The trend remains up despite the correction and the first couple of days of next week should make the short-term picture clearer.
(Vidur Pendharkar works as a consultant technical analyst & chief strategist at




5 years ago


As predicted, the Indian government has started its divestment drive. The govt. is behaving like the corrupt and bankrupt zamindar in a Tagore novel, who has to go to the old r a n d i (prostitute) to satisfy his private needs because the younger fresher one is too expensive. As outlined earlier, this is part of its plan. It is talking up the markets, announcing reforms that can never be developed on, and then selling its paper. It will recover Rs 40000 cr. from divestment and Rs. 30000 cr. from spectrum auctions. They say, the money will be applied towards the deficit. In reality it will be used to fund further sops and giveaways in the next budget. The deficit will be kept at 6 % of GDP and they will take their chances with the rating agencies like S and P later. SELL ALL STOCK. ( post below)

India. Reforms. Really?

Much has been made of the “burst of reforms” unleashed by Finance Minister Chidambaram in recent weeks. The stock market has rallied and animal spirits it seems are back. Everybody’s babbling about how the UPA, after eight years in power, has found religion ie “reforms”.

The market is now at 21 times price to earnings (trailing twelve month free float adjusted as per the National Stock Exchange). Once more the mood swings violently. More interestingly the India VIX , the fear index is at 3 year lows of 15. This is usually an indicator of complacency, and historically such lows have signified a massive sell off. The combination of the stretched price to earnings and the VIX means the market is ripe for a big sell off. My two bit as an Ivy educated fund manager in Bombay who has worked internationally on some of the world’s major structural adjustment and economic reform programs.

In reality, the reforms amount to bureaucratic tinkerings with percentages – of a sort that only tax mavens and accountants can comprehend. Witholding taxes go down by a percentage point or two. FII margin percentages change. Service tax percentages for insurance companies change. Now an attempt's been made to increase the percentages foreigners can hold in insurance and pensions. (This last will never pass through Parliament given the unanimous opposition to it). Blah Blah Blah.

The Indian economy, in fact, requires Parashurama’s ax and not the surgeon’s scalpel. The reference is to the mythical woodcutter of Indian mythology who wields a massive axe when needed. Wholesale violence will have to be committed on large areas of India’s economy with Parashurama’s axe, if we are to resume a decent growth rate.

The government had no choice but to unleash this wave of tinkering and call it “reform”. It is trying to keep the capital markets buoyant because it needs to sell or “chipkao” (i.e. stick, as we say in the business) close to Rs 40,000 crores worth of equity. This with spectrum auctions, hopefully plug the budget deficit a little by March. More crucially, it will also free up resources for massive election giveaways in next March’s budget. This is especially needed if the Food Security Bill –Madame Sonia’s chosen strategy for reelection – is to be passed.

Real reforms for India will not happen for a long time. These include financial sector reform, and an end to the financial repression signified by the statutory liquidity ratio. Privatization of the banking system that’s put an end to the ridiculous spectacle of 75 % of the banking system being owned by the government in a market economy. Bankruptcy and exit laws will have to be introduced. Labour market liberalization and the freedom to hire and fire labour will have to be allowed.

The collapsed state of Indian cities will have to be addressed by building 30 to 40 cities to accommodate massive rural urban migration. Land acquisition which is impossible now will have to be addressed. This list does not even include the sector changes required in real estate and infrastructure and sugar, and so on and so on. None of this is happening ever, it seems.

Everybody’s babbling in the media about how crucial the February budget is going to be for the UPA because it will be packed with big ticket sops like the Food Security Bill. Remember game theory however. It is crucial to take your opponent’s reaction into account. The Opposition also knows that the budget will be crucial to the UPA’s reelection chances ! Why then will they allow the UPA to present the budget at all. Especially when they have the numbers and the government is already on life support and in a minority. !!!

The government therefore, will, in all likelihood, fall in November-December, during the winter session of Parliament. Elections will take place in March-April as India needs the school system for a general election. This will allow the Opposition the chance to deny the government’s attempt to pass a budget full of sops and giveaways. The February budget will consequently be a vote on account. This scenario will suit all parties except the Congress and hence it will happen.

Is the market discounting the possibility that in a few weeks, all these guys PC etc. etc. will be gone ? Looking at the way its going up, I think not.

The logical conclusion also is that this is the high point of the markets move this year. India has gone from having the most incompetent FM (Pranab) to the most cunning FM (Chidambaram). The later is deliberately doing all he can to talk up markets to implement his plan. There is little need to oblige him and his plans of using the stock market as a financing vehicle, by buying high and losing one’s hard earned capital.

When the government sell guns to MPs, VIPs with criminal records…

Why do our  netas need to brandish guns when they roam with police protection all the time? And when there are several criminal cases pending against MPs, the government itself has sold these guns to them


Vithal Radadiya, a Member of Parliament (MP) belonging to the Congress party, from Porbandar in Gujarat, has been caught on camera pulling out a gun, brandishing it and threatening employees at a toll plaza near Vadorara.

But what is surprising is the Union government itself has sold 756 guns to MPs and VIPs since 1987. Out of the 82 MPs who bought guns (seized by the Customs Department) from the government between 2001 and 2012, around 18 MPs had pending criminal cases, including charges of murder, attempt to murder and kidnapping, when the guns were sold!

EAS Sarma, former secretary of the Government of India (GoI), has asked the authorities to launch a campaign to revoke all gun licenses and withdraw all weapons as a measure to reduce criminality across the country.

Mr Sarma, in a letter to RK Singh, home secretary, GoI, said, “If someone needs to be empowered in India against the mafia and the money power, it is the ordinary citizen that stands totally helpless. He or she cannot approach the authorities for a gun license or a gun. I hope your ministry will act fast on this before another arrogant MP brandishes his weapon against another voiceless citizen!”

“There are more fundamental questions that arise from such unsavoury instances of political arrogance among our legislators and other VIPs and the concessions they claim as a matter of right,” he said.

Quoting information procured by Ambarish Pandey, a Right to Information (RTI) activist, Mr Sarma raised some questions...

1. Why should such guns be sold only to MPs when several of them already have police protection?

2. When several MPs have serious criminal cases against them, including 13 with serious cases, why are guns sold to them?

3. Why should the policy of allotment of guns be discriminatory against ordinary citizens, in favour of the legislators?

4. Does the government track the possession of such guns after some years to check if those who were sold such guns still have them in their possession? It is well known that the black market price for such guns is much higher than what the government sells it for.

5. When a person ceases to be a legislator, should not the government withdraw the gun from him or her and revoke his or her license?

6. In the first instance, why should guns, especially the prohibited type, be given at all to anyone including an MP, unless it is the policy of the government to promote crime and gun-touting as status symbols of a democracy in which we live?

Mr Pandey has filed an RTI on sale of guns to MPs and VIPs. The reply received by him was analysed by Association for Democratic Reforms (ADR) and National Election Watch (NCW). Here are the highlights of the analysis...

•    A total of 756 guns were sold to MPs and VIPs between 1987 and 2012.  
•    A total of 675 guns were sold between 1987 and 2001, 39 between 2001 and 2004, and 42 between 2005 and 2012.
•    Between 2001 and 2012, 82 MPs have purchased guns from the government.
•    18 of these 82 MPs who were sold guns have pending criminal cases against them, including charges of murder, attempt to murder, kidnapping etc., at the time of sale.
•    Amongst the 82 MPs who have been allotted guns from the government,  Atiq Ahmed from Uttar Pradesh has 44 criminal cases including charges of murder, attempt to murder etc, followed by Abu Asim Azmi from Maharashtra and Rakesh Sachan from Uttar Pradesh with seven cases each.  
•    These are guns seized by the Customs and then sold to MPs and VIPs on a first-come-first-served basis. In earlier years these guns were sold well below market price. Recently the price was hiked to include tariff.

Commenting on the data received through a RTI, Mr Pandey said that “This centralised sale point for VIPs under the finance ministry allows the government to follow an ad hoc, discretionary and opaque policy of allotment. For example, a gun was denied to ex-DG, Central Economic Intelligence Bureau, SPS Pundir despite the fact that his vigilance-related work posed a security risk but allotted to another officer doing a desk job.”

“The evidence shows over 40 exceptional allotments out of a total of 800,” Mr Pandey points out.

Here is the analysis carried out by ADR and NCW...




Dr Anantha K Ramdas

5 years ago

Since this MP brandished his gun to "claim" his rights, it is the duty of the police to have it confiscated for misuse.
To my mind, it must have been given to him for his "self-protection" rather than for any sort of "aggression" and that too against an unarmed "civilian" just doing his duty in a public place.

This MP should be suspended until an independent authority enquires into the incident, which is recorded on CCTV, and the party, if they have any sense of public responsibility, should not given him a "ticket" to stand in the next election. In fact, NO party should be allowed to "sponsor" such an aggressive candidate. Such a unruly person cannot represent people or "democracy".

Such gun-wielding goons should be debared from standing for elections and should be punished for their behaviour.

R*Shares ETFs : Should you invest in R*Shares Consumption Fund and R*Shares Dividend Opportunity Fund?

Both the indices being tracked by the ETFs have delivered reasonable returns in the past. However, much would depend on how well the fund managers are able to track the schemes and ETFs per se are prone to many issues such as poor liquidity


Reliance Mutual Fund plans to launch two open ended index exchange traded funds (ETFs)—R*Shares Consumption Fund and R*Shares Dividend Opportunity Fund— according to offer documents filed with the Securities and Exchange Board of India (SEBI). The index ETFs will track the thematic Indices of NSE— the CNX Consumption Index and CNX Dividend Opportunities Index respectively. The schemes would invest over 95% of their assets in the securities of the respective index. The remaining part of the assets would be invested in debt and money market instruments. The units of the scheme would be listed on the National Stock Exchange (NSE). The trading will be as per the normal settlement cycle.

Though both the indices have delivered decent returns compared to the Sensex in the past, liquidity of the ETFs could be an issue. One of the biggest negatives is precisely that you have to buy them through an exchange—and, therefore, you are at the mercy of the market’s liquidity. Low trading volumes and settlement concerns are major factors leading to low liquidity.

How would the schemes invest?

Since the schemes would be investing in the companies based on their weightage in the index, it is essential to know how the stocks are picked for the respective index. The CNX Consumption Index chooses from the top 500 companies ranked by average free-float market capitalization and aggregate turnover for the last six months and more than 50% of the company’s revenue must come from domestic markets. The final selection of 30 companies shall be done on the basis of free-float market capitalization of the companies. The CNX Dividend Opportunities Index chooses from companies that rank within the top 300 by average free-float market capitalization and aggregate turnover for the last six months. The Top 50 companies ranked by annual dividend yield will form part of the index.

How have the indices performed compared to the Sensex?

We have compared the returns over quarterly periods from June 2008 to September 2012. On taking the mean, the Sensex delivered an annualised return of 7.91% whereas the CNX Consumption Index and the CNX Dividend Opportunities Index delivered 12.01% and 15.77% respectively. The CNX Consumption index has outperformed the Sensex in nine out of the 17 periods whereas the CNX Dividend Opportunities index has beaten in Sensex in 11 periods. When the market rallied, for example, in the quarter ended 30 June 2009, the Sensex returned as much as 51% whereas the other indices returned 36.95% and 48.58% respectively. We do not have a very long track record of the new indices as the base date dates back to just 2006.


Are the constituents any different for the Sensex?

First, Reliance Industries is not present in the top 10 constituents as per the weightage, which is a good thing going by its high volatility. On the Sensex its weightage is more than 9%. ITC and Hindustan Unilever are the only two companies that find themselves in the top ten constituents (according to weightage) of all the three indices. The top five constituents of the CNX Consumption Index are ITC, HUL, Mahindra and Mahindra, Bharti Airtel and Bajaj Auto. For the CNX Dividend Opportunities index— ONGC, ITC, HUL, Bajaj Auto and Hero MotoCorp make up the top five constituents.

How have ETFs from Reliance performed in the past?

Reliance also has two other ETFs—R*Shares Banking ETF and R*Shares Gold ETF – Dividend. Over the quarterly periods from June 2008 to September 2012 the R*Shares Banking ETF delivered an annualised return of 24.61% compared to its benchmark—CNX bank Nifty—which delivered an annualised return of 23.40%. It managed to beat the benchmark on eight of the 17 occasions. The Gold ETF delivered 20.26% compared to prices of gold which delivered a return of 21.86%, beating the benchmark on just six out of the 17 periods. Considering that ETFs are allowed to charge an expense ratio of up to 1.50%, Both the schemes have done relatively well to their benchmarks.

Should you invest in these schemes?

Going by the short-term performance, the two indices have done comparatively better than the Sensex. But a lot would also depend how well the fund managers are able to track the index. As we have seen, the Reliance schemes have done well in the past and a couple of the equity diversified schemes too have performed well. But if you invest in any of these schemes you would be exposed to just one particular sector or category of scheme. Liquidity of ETFs is another issue. The R*Shares Banking ETF has a corpus of just 11.29 crores.

We have written widely about ETFs in the past which you should consider reading before investing. If a particular market is not as efficient as it should be, it may also take time to match an ETF seller with a buyer. The bid-ask spread will be wide. ETFs are structured in such a way that you could end up buying it at a premium to the portfolio’s value and selling it at a discount. Unless these ETFs are widely traded, liquidity will always be an issue.

ETF: Don’t be passive about it

Market volatility exposes perils of Exchange Traded Funds


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