Tug-of-war for short-term control intensifies as bulls defend 4,720 points

It would be interesting to see whether the bulls are able to close the downside ‘gap’ between 5,059-5,109 points in the weeks ahead, as this would be the first indication of some kind of strength

S&P Nifty close: 4888.05

Market Trend
Short-term: Sideways  Medium-term: Down  Long-term: Sideways

The Nifty opened sharply lower and dipped on the first two days of the week to test the recent low of 4,720 points. With the bulls defending this low, short-covering followed and the Nifty opened sharply higher on the last trading day of the week. Volumes were significantly lower as the Nifty closed 55 points (-1.12%) in the red. The sectoral indices which outperformed the market were BSE CGS (+0.74%), BSE Auto (-0.12%), BSE CDS (-0.24%) and BSE FCMG (-0.26%) while the ones which underperformed were BSE Bankex (-4.63%), BSE Teck (-1.74%) and BSE Reality (-1.53%). 

The Histogram MACD continues to be below the median line implying that the medium term trend is firmly down and what we are witnessing is a corrective rise.

Here are some key levels to watch out for this week.

  • As long as the S&P Nifty stays above 4,846 points (pivot) the bears will be under pressure.
  • Support levels in declines are pegged at 4,770 and 4,652 points.
  •  Resistance levels on the upside are pegged at 4,964 and 5,040 points.

Some Observations
The bulls did survive a scare last week as they defended the 4,720 points level, ably.
1.    Support in declines will be provided by the "gap area" between 4,827-4,861 points.
2.    If the above-mentioned upside gap is not filled in any correction, the immediate upside target is pegged in the 5,034-5,050 points range.
3.    If the Nifty fails to hold the recent low of 4,720 points there will be doubts about the strength of this recovery and the distance it could go.
4.    The Nifty not being able to cross the recent high of 5,169 points will signal that the upside in the market is capped to the 5,350-5,500 range in this corrective rise.

The bulls have to keep on defending the recent low of 4,720 points to keep their hopes alive. On the other hand, only a crossing of the recent high of 5,169 points will indicate that there is still some steam left in the current rise in the months ahead. It would be interesting to see whether the Bulls are able to close the downside "gap" between 5,059-5,109 points in the weeks ahead as this would be the first indication of some kind of strength. Last week's "high wave line" pattern on the weekly charts indicates equilibrium between the bulls and bears but it also gives an inkling that the market is readying itself for a small trending move in the weeks ahead.   

(Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist, www.trend4casting.com)


Upward Bias: Weekly Market Report

If Friday’s gains hold, expect the Nifty to touch 5,000-5,100

A slowdown in factory and services output last month, a rise in weekly food inflation and a downgrade of SBI (State Bank of India) were seen as the main reasons for the market ending 1% lower in the week.

Weak domestic factory output numbers for September and worries about Greece's financial difficulties pushed the market lower on Monday. Moody's downgrade of SBI's financial strength to 'D+' resulted in the market continuing its fall for the third day in a row.

While the market restrained its fall on Wednesday, the contraction in the services sector in September weighed on sentiments. Resuming trade after a day's break, optimism exuded by European leaders to support the continent's banks from collapsing helped the market to close with good gains on Friday.

Overall, the Sensex declined 221 points to close the week at 16,233, and the Nifty fell 55 points to 4,888. We see a positive trend, where the Nifty may touch 5,000-5,100.

The BSE Capital Goods index gained 1% while the BSE Auto index settled flat. Among the losers in the sectoral space, BSE Bankex tumbled 5% and BSE TECk fell 2%.

The top Sensex stocks this week were Maruti Suzuki, Larsen & Toubro (up 3% each), Tata Motors, Sun Pharma (up 2% each) and Coal India (up 1%). The losers were led by State Bank of India (down 8%), Bharti Airtel, ICICI Bank (down 6% each), Jindal Steel & Power (down 5%) and Hindalco Industries (down 4%).

The major gainers on the Nifty were Reliance Power (up 6%), IDFC, Reliance Infrastructure (up 5% each), BPCL and Maruti Suzuki (up 3% each). The key losers on the index were SBI (down 8%), Bharti Airtel, ICICI Bank (down 6% each), Jindal Steel & Power (down 5%) and Hindalco Industries (down 4%).

HSBC's Factory Purchasing Managers' Index in September 2011 was at 50.4, down from 52.6 in the previous month. The latest reading was the weakest in the current two-and-a-half year sequence of growth. While Indian manufacturers have recorded a modest rise in new business received in September, the rate of new order growth slowed for a sixth successive month.

Similarly, the HSBC Service Sector Business Activity Index for the last month contracted to 49.8 from 53.8 in August. The latest reading is the lowest since April 2009. An index reading above 50 indicates an overall increase in that variable, below 50 points to an overall decrease.

Commenting on the Services PMI data, Leif Eskesen, chief economist for India & ASEAN at HSBC said, "The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, especially for financial intermediation."

Food inflation rose to 9.41% for the week ended 24th September from 9.13% in the previous week, belying the government's expectations of a dip in food prices following a normal monsoon. Commenting on the development, finance minister Pranab Mukherjee said that he was in touch with the Reserve Bank of India to chalk out steps to bring it down to moderate levels.

India's exports maintained their growth momentum in August 2011, rising by 44.2% year-on-year to $24.30 billion despite the economic woes in traditional Western markets. However, the rise was in sharp contract to the 81.79% growth recorded in July at $29.30 billion. Commerce secretary Rahul Khullar has said that growth in coming months will be difficult on account of uncertainty in Western markets.

On the international front, the Bank of England has initiated a second round of quantitative easing to boost the country's faltering economy while the European Central Bank said that it would help commercial banks in the continent by lending them one-year funding in two operations-this month and in December.

Moody's on Friday downgraded the ratings of a dozen British banks, including RBS and Lloyds TSB, as well as of nine Portuguese lenders, amid uncertain financial conditions in Europe.

In the US, monthly non-farm payrolls number rose more-than-expected in September, jumping by 103,000; however, unemployment rate remained steady at 9.1%, according to the US Labor Department.


India Infoline launches NIFTY ETF with low annual recurring expenses. Will this be a game-changer?

The IIFL Mutual Fund's NIFTY ETF can be a game-changer, as expense ratios in actively-managed funds are a major component of costs—and can substantially erode your investment over the long term 

India Infoline (IIFL) group entity IIFl Mutual Fund has launched its NIFTY ETF which will charge annual recurring expense of just 0.25%. Expense ratios of actively-managed funds are as high as 2% p.a. Normally, an ETF’s expense ratio is typically in the range of 0.25%-0.75%.

This unique feature of the fund makes it attractive to investors. Is it worth buying? As a concept, it’s a breakthrough idea. But the question that arises is, how will it survive with such a low expense ratio? Out of 0.25%, IIFL would get only 0.05% as management fees. Is it that IIFL will be paying all expenses out of its pocket—or will it increase the fees once the corporate decision starts hurting?

If IIFL can keep the cost low, this scheme would be a winner. It is hard to assess what an investment will do for you over the long term. One factor is how much you are spending on having fund companies manage your money. Costs can eat up your returns like termites. By and large, investors pay far too little attention to the costs of investing. When so many costs are hidden (transaction costs, front-end sales charges, taxes incurred on realised gains, etc) or when the stock market returns are high or when investors are focused on short-term returns, the impact of cost over an investment lifetime is ignored. But costs can kill. Here is how. Assume that the stock market generates an average return of 15% a year over 20 years. Now let’s assume that the costs of the average mutual fund are 2.25% a year. Result: a net annual return of just 12.75% for the average fund. Whereas assume that the cost of another mutual fund is 0.25% a year. Result: a net annual return of 14.75% for the average fund. This 2% will make a big difference over the long term. 

Funds charging costs of 2.25% a year have to give an average return of 17.2% a year over 20 years to match the net annual return of 14.75% of IIFL Nifty, which is a tough target to achieve.

What you see here—please don’t ever forget it!—is that over the long-term, the miracle of compounding returns is overwhelmed by the tyranny of compounding costs.

This is where this fund of India Infoline scores. The investment management fee is a ridiculous 0.25% per annum while other actively-managed funds charge you 2.5% a year! Thanks to such low costs, over the long term, compounding will make a massive difference to your returns. All else being equal, an IIFL Nifty ETF investor can make 47% more than an average fund investor over 20 years only due to low charges.




R Nandy

5 years ago

I would like to point out that other index funds in india(non ETF) also typically charge below 1%(eg HDFC Nifty index fund).Also there are no entry or exit loads.Out of the 1% fee,
0.5% is traling comission for the distributors.So,the actual AUM fee goint to the fund house is 0.5% and they also have the overhead of processing redeemptions,SIP,purchases etc.

An ETF might be cheap but there will be a brokerage involved during buying and selling the ETF's which can be close to 0.5% for retail investors.Secondly,ETF's have no traling comission of 0.5% per year so that reduces the expense ratio by straight 0.5% at an average.

So,IIFL's Nifty ETF has to assessed in the perspective as stated above.Taking the ETF route they reduced 0.5% of the expense ratio through no trailing comission.Secondly,because it is an ETF there are no major processing overheads like normal index funds.So,they can very well give the product below 0.5% expense ratio.Well yes,0.25% is bit of a strech but then they will have their business model in place to do it at that cost.May be better automated fund management software etc.There are always better ways of running a business.


Moneylife Digital Team

In Reply to R Nandy 5 years ago

Well, the fund management expense is just 0.05%. On a Rs1,000 crore of AUM, management fee is just Rs50 lakhs. That is the actual income of the fund management company. Won't even cover the cost of fund manager's salary. Even at Rs10,000 crores of AUM, there is no break even What business model are we talking of?

R Nandy

In Reply to Moneylife Digital Team 5 years ago

Ok.Where is the 0.2% of the expense ratio going?

R Nandy

In Reply to R Nandy 5 years ago

Where is the 0.2% portion of the expense ratio going?


In Reply to R Nandy 5 years ago

MFs have lots of costs including advertising, marketing, demat etc

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