Ooh, I Spoke Too Soon on No Volatility in 2013

2 comments Written on June 21st, 2013 by
Categories: ChartOfTheDay, Nifty, Options

Remember when I said that there were no 2% days in 2013, and I was worried? That was April 10,  we’re now just two months and 10 days ahead, and we’ve already had six 2% days since.

What I said then was:

The answer, perhaps, is that this is a lull for stocks, and we are likely to see dramatic changes in volatility in the coming years. The “zeroes” in 2013 in the above charts strike me as particularly dangerous: We are likely to see a lot more volatility later this year, and probably in all coming years.

The zeroes in 2013 have now gone. We’re still not anywhere close to the volatility seen earlier, but we’re definitely on the journey:

2% days on the Nifty

I’ve traded the lack of volatility using options, and I think there’s a lot more volatility to come. However, it’s unlikely to all be in one direction, and options remain cheap.

VIX Not Indicating Panic Even As Market Slides 3%

6 comments Written on June 20th, 2013 by
Categories: ChartOfTheDay, Nifty, Options

While broad markets fell 3% today, the biggest intra-day move in more than a year, it seems the Volatility Index (VIX) based on option premiums wasn’t hitting any peaks.


With a figure of 19.19, the VIX is way lower than the heights of 35+ that it saw in 2011 (when, btw, the rupee was sliding just as much and markets were falling).

What this means is: the VIX is not really an indicator of volatility anymore. Options have become a massive part of the market nowadays, especially on the Nifty. This can substantially skew calculations. For instance, the market puts the 5700 put on the Nifty at just Rs. 92.65, when the Nifty’s at 5655 (and the future is even lower, at 5640). Effectively that option is in the money if the Nifty falls 40 points in one week (expiry is next Thursday) and the Nifty just fell 150 points in a single day!

When options are so mispriced it is very useful to buy them. I have a December 2013 5500 put that I bought at Rs. 120, and which is now at Rs. 185, and even that sounds cheap! (a 6% further downmove would take it to in the money – and even less to make the option more valuable, which is what you really want)

However less useful the VIX as a number is, the trend of its move and a comparison to its own historical past tells you if people expect the market to be volatile. We’re coloured by recent experiences of “bouncebacks” and directionless-ness, which might explain the lack of panic. If it comes when we least expect it, we’re least expecting it now.

Destiny will meet us on the road we take to avoid it.

FedEx Takes the Rupee 6-0, Nifty Below 200DMA

5 comments Written on June 20th, 2013 by
Categories: ExchangeRates, Nifty, Stocks

The Federal Reserve has decided to Exit the Stimulus it has been giving the US economy by purchasing bonds worth $85 billion each month. The Fed Exit (“FedEx”?) will be tapered down later this year and further purchases will be completely stopped by mid-2014.


“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” Bernanke said, referring to the FOMC’s outlook for “moderate” economic growth, further labor-market gains and inflation accelerating toward the Fed’s 2 percent goal.

If such gains are maintained, “we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” he said. A “strong majority” on the FOMC now expects it won’t sell mortgage-backed securities as part of their exit strategy.

The result: The rupee goes to Rs. 60 to a dollar. Indian markets are down 3%. Nearly every world market is down 2%. Indian banks are down nearly 4%.

This, on the back of the Fed saying it *might* cut purchases.

We are now in the enviable position of having had a crisis, and the world’s largest bond purchase program to help get out of that crisis, and then just the THOUGHT of no longer buying any more is triggering a panic?

Note that it’s not a crisis situation. 2-3% moves are nothing great, though the fear is that now, we’ve fallen 8-9% from the highs, and are just 10% off the all time high. Our P/E (standalone, I agree) is still 17.


(Click for larger picture)

On the downside, we have broken down below the 200 DMA again and are now 3% below it. Stocks that were supported largely by banks are now breaking down because the Bank Nifty is in really bad shape, having fallen 20% off the peaks of 13,200.

Does the Fed move hurt that much? How do bond purchases by the Fed even impact us? Here’s the theory: The fed buys bonds in large quantities, printing money. That takes bonds off the books of banks, who now have money to lend. They lend some, they invest some. The money finds its way into investors’ hands, who them pump money all around the globe. India gets some of it. And when they stop, we don’t get it, and there’s no replacement for this “FII” money.

Another way: when bond purchases stop, the bond yields go up. Indeed the 10 year bond yield in the US is now over 2%, having been at 1.5% recently. The drop in bond prices (which go inversely with yields) drives people out of bonds. And to take those losses, investors exit bond positions everywhere else. In India, they have supposedly gotten out of about $5bn worth of bonds.

Eventually, when foreigners exit, the rupee drops. And the rupee hit the 60 mark in intraday trading today:


The good part: Calculated Risk tells us that it’s not like the US will stop buying bonds tomorrow. It is only likely to, if the broad economic data tells it that a recovery is in place. And for that the US GDP needs to grow at nearly 3% for the next six months, unemployment would have to drop another 0.4% and inflation should be closer to the 2% the Fed expects. This is so that the Fed tapers in September, so it’s likely we will miss that and go to December instead (for the taper, which is more or less a definite thing, so it’s when, not if).

Samir Arora says we’re bullshitting ourselves that this will make any difference. We all knew the taper was going to happen, he says, so what’s new? The answer: We all knew QE3 was coming, more or less, and when it happened it still changed market dynamics. This market is about emotions.

Ben and Janet say it like they’re surprised that we’re surprised: Really?

My take: It doesn’t matter. I was long when it went up. I exited most positions at a stop loss, five profitable exits and 2 unprofitable ones. I’m now short. All this about sentiment, it shows in the price: the Nifty was down 6% from it’s recent high before it fell 3% today. The Dollar fell just 2% today but 8% from the 55 levels about two months ago. The price was talking before Bernanke was talking.

Nifty Needs To Go Up 50% to Recover Inflation Adjusted High

28 comments Written on June 10th, 2013 by
Categories: ChartOfTheDay, Nifty

If you look at the Nifty and it’s all time high of 6300, we are just 7% below it right now, around the 5900 levels.

But if you adjust for WPI inflation – a component that is still substantially lower than consumer price inflation – we are 50% away from the highs.



I’ve taken the Nifty monthly chart and adjusted every month for the inflation indexed since then, so we are speaking of the Nifty in 1994 terms. In those terms, Nifty must make another 50% after inflation to realize its highs.

Some of you are thinking, but what about dividends? Dividends add about 2% a year or so, but they can be useful in cutting some of the inflation downside. The Nifty “Total Returns” (including reinvestment of dividends) is only available since 1999, and here’s the deal:


The Nifty needs to rise 44% to recover its highest purchase value, even after considering reinvestment of dividends.

This long term buy and hold is now getting more and more suspect. Given the headwinds, I think we see another huge drop in the index.

I should also chart the Nifty in dollar terms and see how THAT has done. There’s even an index for that called the DEFTY. Coming soon, to a blog post near you.

The May 31st fall drops Nifty Gains to 0.9%

Comments Off Written on June 1st, 2013 by
Categories: ChartOfTheDay, Nifty

The monthly Nifty move for May 2013 shows a headline gain of 0.94%, which masks the extreme volatility the month showed – the Nifty went all the way to nearly 6200 before retreating back to close at 5986.


The Sensex was marginally better:


And here is, as usual, the year-to-date gain till May over the years.


There’s nothing special about 2013, but then there are seven months left; even 2007 was relatively benign till it went nuts towards the end.

Market Melt-Up Takes Nifty to Reaching Distance of New High

7 comments Written on May 15th, 2013 by
Categories: Nifty

Market investors will rejoice today as the Nifty went up 2.5% to reach 6140, in reaching distance of the all time high of 6312.


(Click for larger picture)

Note that both the 50 and 200 day moving averages are pointing upwards again, and in very short time we have climbed 12% to reach these numbers again. Where do we go from here?

The Bullish View

We are not at new highs, despite the large upmove we have had so far. Japan is, and the US is. A new high is what describes euphoria.

The P/E ratio isn’t insane. We are still at 18 levels (on standalone, trailing 12 month earnings), and the consolidated numbers will give us even higher earnings. This is pretty much where the Index has been for the last 10 years or so. Remember, at the last two times we were at these highs, the index P/E was way above 22.

EPS Growth is at 15%, which is close to the highest EPS growth numbers since 2011. If EPS growth is returning, paying a higher P/E for our market makes sense – and the P/E isn’t unnaturally high.


Liquidity remains strong worldwide. With the US printing $85 billion a month and Japan doing $75 billion a month, we have a lot of money being created outside. If even a sprinkling of that money comes to India, our markets will go up. Our market volumes are still not so huge that we are speaking of euphoria – just about $2bn a day in the whole stock market.

Where are the IPOs? At nearly all market tops, there are these massive IPOs that come along. Promoters are continuing to avoid listing, and they will come at some point – that’s when it might be time to be wary, not now.

The general sentiment continues to be bearish. Do you see overjoyed looks on faces as the Nifty charges towards a high? Not really. The average retail investor is absent, and most market commentators don’t like this rally. It has climbed a wall of worry, despite all the bad data out there.

Inflation’s easing, and interest rates are falling. Falling interest rates are supposed to do a lot – make loans cheaper, stimulate growth etc. They may do nothing of the sort, but the “feeling” is that they will, and that’s what seems to matter.

The Bearish View

India is slowing down. In the last two market highs in 2008 and 2010, India’s economy was growing at 8%+. Today, the growth story has been curtailed with the last quarter seeing just 4.5% growth, the lowest in nearly a decade.

We face high retail inflation. With CPI inflation at 9.39%, the “real” interest rates are deeply negative, and it’s unlikely people will want to invest when much of their discretionary spends are getting eaten up by the service components of inflation (housing, salaries, travel etc).

Car sales are down, home sale transactions are down. As discretionary spends reduce, you find money moving towards the essentials. This does not augur well for many industries, and remember that nearly 2/3rd of our GDP is private consumption.

The Current Account Deficit continues to be high, as Gold purchases have increased so much they have accounted for a record trade deficit in April. Services exports could make up for it, but the western world’s growth remains weak, and they are slowly erecting barriers to prevent the taking away of jobs by Indian outsourcers. While we finance the deficit there through foreign inflows, any sort of liquidity crunch in the west, or even a tapering out, will cut our financial tap and hit us both at the layer of USD-INR and inflation.

The rally isn’t secular. Most mid and small caps remain beaten down while some market leaders are at highs. Reliance isn’t making new highs. L&T, despite a strong move in the last few days, is way below where it used to be. BHEL, too. The banks are going through the roof, as are paint and tyre manufacturers. (This could be taken to mean there is a larger upside to come, of course)

My View

The trend is up. Shut up about all the bearish noise and ride the tide. This rally has so much power behind it that it can’t even face a 2% down turn – and neither can markets in the west. It will end badly, as all bull rallies do, but if it made a 50% gain from here, and then fell 20%, you will still be higher than where you are today. If there is a reason this market is going higher, it is because it is going higher.

I continue to be long in my portfolio in certain stocks that have been making all time highs – Berger Paints, Supreme Industries, Finolex Industries and so on – entries abound in other stocks that have just about started to move. I may not like financial stocks, but it is tough to ignore that HDFC and HDFC Bank have made new all-time highs. The strength in strong stocks is likely to drive the market up; you have to watch the setup attract the regular junta who will then invest.

There is no reason to be underweight stocks. However, even in an up market, there could be scope for shorting certain stocks or sectors at intermediate points, but I will do so only with a strict stop loss.

Where you should be careful is: Gold. It’s moving back down and might start to crack if momentum goes against it. The rupee isn’t showing signs of great strength either, and neither are most commodities (Iron ore has been going deeply negative). While FMCG has given great gains, it may just be time to say goodbye, as inflation eats into their profits as well. Auto stocks are likely to be a better buy next year.

Overall, I would keep a trader’s mindset for this rally; stay on it, because it will make you money, and get off when the music looks like it wants to stop. It doesn’t matter if you miss the last 10%.

Nifty in April Turns 2013 Around with a 4.4% Return

Comments Off Written on May 4th, 2013 by
Categories: ChartOfTheDay, Nifty

The Nifty was up 4.4% in a reversal month of April, 2013, bringing the Year-To-Date return up to a marginally positive number (0.4%).


May has traditionally been a volatile month, skewed largely by the 28% move in 2009 (post elections), –17% in 2004 (again, post elections), –14% in 2006 (after RPL’s IPO and a quick drop) and large moves in the 90s.

May has the highest standard-deviation which tells you why the “average” means little. Given that, it may be useful to trade calls and puts (straddles or strangles) that will make money on large moves in either direction. However, I would do this closer to the 10th of the month to lose lesser and lesser from time decay.

The Sensex, too, has done well, but only a 3.5% move:


And finally, that 2013 is benign upto April. If it’s anything like other such benign-till-April years of 2007 and 2010, it’s just likely to go up.


The Total Return Index: Nifty Including Dividends

9 comments Written on April 30th, 2013 by
Categories: ChartOfTheDay, Nifty

When you hear comparisons of the Nifty with another investment, a mutual fund, or an insurance policy or such, you tend to look at their “outperformance” as something they’ve done right. However the pure Nifty return does not include dividends.

The Nifty is simply something based on the Market Capitalization of the largest stocks (weighted by their “free float” – i.e. non-promoter – market capitalization). When stocks provide dividends, an investor in the stocks can receive and reinvest those dividends back. The Nifty does not reflect this – the cash flow is somehow “lost”.

An investor in the Nifty stocks in the same proportion as the Nifty will see a better return than by just looking at the Nifty itself. Dividend yields have been very low – 1-2% a year. However, over a 5 to 10 year period, the outperformance can be significant.

The NSE publishes a Total Return Index which is the Nifty including dividends reinvested. Using that data, we can see how much dividends have impacted your return.

A 10,000 rupee investment in 1999 – the first time the Total Returns Index was published – would have given you Rs. 49,710 if you looked purely at the Nifty. This is a near 5x multiple – or a 397% return – in about 14 years.

However, the same amount including dividends reinvested gives you Rs. 60,497. The difference is the dividends that came in. The total return in the same 14 years, including dividends, is 505%.


Nifty With and Without Dividends

(The squiggly bit must have been a data issue temporarily)

Dividends have added, in total, about 22% in 14 years, or about 1.5% a year. This isn’t much as the highest P/E stocks won’t pay you a great dividend yield.

Note: Why not? A high P/E means a high price to earnings – so a stock that has a 30 P/E is priced at Rs. 90 for a Rs. 3 net profit. Out of this Rs. 3, it will choose to retain Rs. 2 and pay out Rs. 1 as dividend – the yield on the price is about 1% (Rs. 1 dividend out of Rs. 90 price).

The Nifty’s average P/E has been around 16-18. However, in a low P/E time, dividend impacts will be high, if distribution of dividends remain more or less constant.

The Total Return – including dividends – is what you must use as a real benchmark for periods of more than 2 years. In fact, all index funds must use this as a benchmark – they are obviously going to buy underlying stocks, and will earn dividends that they, as a rule, have to reinvest.

It’s interesting to see how rolling returns have worked over years. That is, how the 5 year return has worked out considering reinvestments as well.

Nifty total returns index rolling returns

At this point, the 1 year return remains the most volatile and smoothens out as the rolling period increases. (All returns are annualized)

The three and five year returns remain sub-optimal – note: this is a politically correct usage of the term “crap return” – at below 8% which has been the risk free rate of return in this time. The 10 year return is at 21.4%, nearly the highest ever, mostly because the markets were at lows in 2003. (Everything depends on where you start and where you end – lies, damn lies, and statistics.)

And now, coming to a web site you know, is the ability to zoom in and track each of these numbers on a regular basis. More details as I learn something called “Rickshaw” and Javascript and things that make me seem prehistoric.

Low Volatility Shows Even When Looking at Weekly Moves of 4% or More

1 Comment » Written on April 11th, 2013 by
Categories: ChartOfTheDay, Nifty

Following up on my post about the lack of volatility in the last few years, I have now added another chart – of weekly moves of greater than 4%. The chart below shows instances of moves at the end of every week where the index has gone up or down by over 4% over the previous week’s close.

Big Weeks on the Nifty


Again, recent times seem to be anomalous. While you might attribute lower volatility to global markets or "Quantitative Easing”, I believe an it’s very dangerous to believe in things like “new normals”. This time it’s different are the worst four words ever; the more things change, the more they are the same.

Chart: Big Days on the Nifty, Zero in 2013!

3 comments Written on April 10th, 2013 by
Categories: ChartOfTheDay, Nifty

In the last few weeks the index has moved a lot. From the highs of 6000+ on the Nifty in Jan, it is now below 5,500, a drop of more than 10%. But are we really seeing volatility?

The answer is, really: No.

We may have moved a little in three months, but let’s look at the daily percentage move (today’s close versus yesterday’s close). I’ll make an arbitrary statement that a day in which the index moves 2% is a Big Day.

Let’s look at the concentration of such moves since the Nifty’s inception:



On the top graph you can see that in nearly all years other than 2005, we have seen big daily moves on the market. 2009 saw the crazy 17% day on election results day, and 2008 had some serious down days, but even other years have seen huge moves of over 4%.

The lower graph shows the total number of "Big” days. Again, what’s evident is that the numbers are dropping – in 2010 and 2012, we saw the lowest count of just 14 such days. And in 2013, as we finish the first 1/4th of the year, we have seen ZERO such days.

This is not to say that the world is getting less volatile. Usually, periods of low volatility precede some huge market movements.

Many traders have taken the recent periods of low volatility and low volume to believe that they could easily make money by trading straddles or strangles (option strategies that bet on the index not moving by more than a certain amount). This can again be temporary: look at the number of days in a year that the Nifty was more than 10% from a month back:


The recently period is an obvious anomaly. What has changed? Volumes are very low, and I have even asked if India has lost interest in stocks.  But that’s not really it – the volatility of individual stocks remains high. It could be because trading in options has become a primary driver of the market, and therefore option players regulate large moves to ensure sellers don’t lose too much. Again, that doesn’t make enough sense because options have always been big in western markets, and they haven’t also seen large volatility in 2008.

The answer, perhaps, is that this is a lull for stocks, and we are likely to see dramatic changes in volatility in the coming years. The “zeroes” in 2013 in the above charts strike me as particularly dangerous: We are likely to see a lot more volatility later this year, and probably in all coming years.

Nifty down 5.7% in Feb, Takes 2013 Down

Comments Off Written on March 7th, 2013 by
Categories: Nifty

Because of the budget posts, my monthly move post got delayed – to today. The Nifty had a negative month, down 5.7%, taking Year 2013 to the negative zone.

The damage was much more in the midcaps, which doesn’t reflect in the indexes. Another post on that, another day.


And here’s the bigger post about the Sensex as well.


Nifty P/E At 18.9, EPS Growth Dips to 12%

3 comments Written on February 21st, 2013 by
Categories: ChartOfTheDay, Nifty

The Nifty's reported Price to Earnings Ratio - revealed by the NSE every day - can be compared with the growth in actual underlying Earnings. Earnings growth, which was 16% year-on-year as recently as 31 Jan, has dipped to 11.86%, while the P/E (on a standalone basis) is still 18+.


The October quarter showed some good results (also due to a rejig in index stocks, replacing two weak ones by stronger earning stocks), taking earnings growth to >10%.

However, if you consider that you pay today's P/E for tomorrow's growth, then the P/E one year ago must have reflected today's growth - so was the P/E last year about 12? Let us phase shift the P/E one year back and see where we were.


The P/E last year this time was around 20, but it had risen sharply from the 16+levels in December 2011. In the last five years, the P/E has only accurately indicated growth twice - in 2009 (visible as 2010 above) and late 2011 (visible as last 2012 above).

Otherwise, we've just had exuberance (higher P/E, lower actual growth).

One problem with this analysis is that it does not use consolidated numbers even where those are revealed by stocks. I believe the picture is likely to be the same or similar, but a large acquisition (like Tata Steel or Tata Motors have done) might skew the EPS and P/E numbers substantially. I'll have to leave that for another day.

November Does 4.5%, Closes At 52 Week High

6 comments Written on December 2nd, 2012 by
Categories: ChartOfTheDay, Nifty

November 2012 saw a good run on the indexes, with both the Nifty and Sensex going up more than 4.5%.


This is way better than November last year, which was a hugely negative 9.3%. The Sensex has done well for itself too:


The last 10 years have been largely, very positive.


As you can see, the Nifty graph has been, for the most part, positive. In the last ten years, YTD till November has been positive for 8 years. Prior to that, the years were mixed bags.

And then, the 5 year snapshot shows you the move:


(Click for larger picture)

We are just 7% off the all time high and are at a new high since April 2011.

December has generally been rosy but that rule was broken last year. What happens this year? Do we hit new highs in 2012 or look forward to them in 2013? I'm not wagering a guess - the trend is up, and I'm all long and loving it.

Has India Lost Interest In Stocks?

9 comments Written on November 11th, 2012 by
Categories: Nifty

The volumes on the stock exchanges don't seem to impress, although we are at near term highs on the Nifty.


Notice how the volumes have been around 10,000 cr. per day or less, in much of 2012 (except Jan/Feb and then in Sep/Oct).

The number of securities traded today are around 40% more than in 2007, and yet, we trade lesser overall volume. Meaning, the quantities traded per security are far lesser on average. (And indeed, the numbers seem to show concentration in a few top stocks now)

The Nifty, on the other hand hasn't gone great guns in five years. We are at a near-break-even return over five years, a time period that seemed like "long term" in 2007.

A drop in volumes is more or less expected when the index falls to lows. But it's rare to see new near term highs (we are at a 52 week high near 5700 on the Nifty) with dipping volumes. This indicates stagnation. While we could stagnate for months here, there is a larger move likely. I hope it will be to the upside and "climb a wall of fear", but it doesn't look like fear when prices are high and volumes aren't quite so.

it's a little disheartening for the bullish story that volumes are simply not picking up. India's GDP has doubled (in nominal terms) since 2007. The stock market volumes are lower in absolute number of crores traded (a nominal amount, so we compare apples to apples).

It is further likely that retail investors have been exiting while institutions and algorithms take a larger percentage of the total trade. (I don't have stats, but broker numbers seem to indicate that) That means the total number of investors has dwindled as well.

Effectively, India has lost interest in stock markets, it seems. Five years ago, I co-wrote a business plan that predicted India's average stock market turnover daily would be Rs. 50,000 cr. (at a growth of 16% from the values then). Of course, we would have recalibrated, but it gives me an idea of how different those times were.

The Indexes fall 1.5% in October, First Fall Since May

1 Comment » Written on November 1st, 2012 by
Categories: Nifty, Sensex

Time for the monthly update. The indexes fell for the first time since May. October is the worst month of the year, historically speaking (but this is skewed by the huge fall in 2008). The Nifty was down 1.5%, but most of the fall was in the last few days (in fact, the Nifty closed around 5700 on futures expiry on 25 Oct)


And the Sensex:



20 DMA Custom Indicator Not Yet OverBought

2 comments Written on October 5th, 2012 by
Categories: Nifty

I use an indicator to figure out if the market is overbought or oversold. This simply takes the number of Nifty stocks above their 20 Day Moving Averages (DMAs) and subtracts from it the number of stocks below their 20 DMAs. Further, we smoothen it with a 5 day average. This figure will oscillate from +50 to -50. And typically it gives you a good leading indication of a move.


While the Nifty has zoomed up, we have the indicator not going to absolute extremes (above 35 and below -35 are extremes)

The trading strategy I use is to go long when the indicator goes above 30 and then reverses below. Yet, this only has a 60-70% chance of success, and you have to use a close stop loss (in fact, the 2009 election timeframe gave a false short call!). So you have to use it with care and control losses - I use options and the last year or so have generated about 6-7 calls with reasonable success.

Remember that this move wasn't recognized by the indicator - it didn't go to -30 before the upmove. So while I made money on a short trade from 5400 to about 5280, I didn't get a long signal at all! Disclosure: Long on specific stocks, not on index.

The current state of the indicator means two things - there is distribution (that is, the largest caps are not moving as much and thus aren't chopping through their DMAs) which, in conjunction with the fact that there is huge accumulation in the trading midcaps, I foresee a bad ending for this move within two months. In fact the number of stocks above their 20 DMAs is just 42 (and 8 below). Two days ago, the score was 44-6.

The other thing is that we have broken a long trading range and the indicator doesn't seem to work very well during big breakouts. It's a mean reversion trading strategy and very short term; and obviously a trend indicator does better during breakouts. So going short now may not even pay off. Just saying, because this stuff isn't designed to be simple or easy - you have to take calculated risks, and understand these are risks.

Also, this post is purely for education, not investment purposes etc. Don't follow any of this unless you're willing to lose money in the markets.

Nifty P/E and EPS Charts Show The Slowdown

5 comments Written on October 3rd, 2012 by
Categories: ChartOfTheDay, Nifty

Going by just standalone earnings - which I agree is misleading but it's what has daily released data - we see that the Nifty EPS growth has slowed to 7.34%, as the Earnings per share has slid to 297. Last year, at the same time, we were at 276.


Indeed, look at the Earnings Growth (which might actually mimic the earnings growth number at a consolidated level) and the P/E ratio released by the NSE:


What it seems like is that the P/E is remained above 15 since 2009, and the EPS growth has hardly ever crossed 15% in the same time frame. I wonder if consolidated earnings have grown that much.

The next earnings season, for Q2 2012-13, will be out soon. Let's see if the slowdown is behind us or we're still continuing to slide.

Nifty Snapshot: Markets at a 52 Week High

3 comments Written on September 30th, 2012 by
Categories: Nifty

At the close of 5703, the Nifty's at a 52 week closing high. A few notes will follow this chart:


(Click for a larger image)

What this tells me:

  • We have broken out of a 1 year range, but to be honest the larger resistance is that 6300 figure in the distance.
  • We are back to high valuations (>18 P/E) which might reflect easy money and the hope that government has gotten its act together.
  • As you can see, this "down" cycle didn't see the P/E go too low, nowhere near the 12 levels that one would consider a great time to buy. It could mean that we're reaching a new paradigm (where the 12 P/E simply doesn't happen) or that the low is ahead of us. I think it's the latter.
  • The Daily Moving Averages or DMAs are way away. We've gone up very fast in a month, the 200 DMA and 50DMA are both way below the current index number. And we've had a golden cross (50 crossing upwards of the 200). Finally both DMAs are pointing upwards. These are signs of bullishness but remember that the DMA is a lagging indicator, not a current one.

Sep 2012 Does An 8% Rally

2 comments Written on September 30th, 2012 by
Categories: ChartOfTheDay, Nifty

September has been a fantastic month, returning 8.5% on the Nifty, only second to the great 12.4% return in January this year. This comes on the back of "unlimited" QE3 by the US Fed, massive easing by the ECB and the waking up of the Indian Government yelling "FDI! Diesel! Anything!".


The Standard Deviation of the returns is way too high to produce an estimate of how returns will work out for the rest of the year, but here's how the Nifty has done till September in earlier years.


Since 2005, the returns of the Nifty till September have either been +15% or -15% or more (in absolute terms). The end-of-year return tends to - in most costs - mimic both the direction and the scale of the return till September. But there's no reason for this - we have seen totally criminal Octobers (2008 saw a 26% drop in October) and awesome Decembers (2003).

The Sensex, with the longer history, has a comparative chart, with a 7% return in Sep 2012.


The Bikini Statistics of Market Volume

2 comments Written on September 27th, 2012 by
Categories: Nifty

I often get reminded of this quote (I don't know the source):

Statistics are like Bikinis. What they reveal is suggestive; but what they conceal is vital.

When I watched TV yesterday at 2:30, the announcer was frantically announcing how volumes were "already 170,000 cr." and there was still an hour of trading to go.

Now 170,000 cr. is a lot of money - nearly one coal scam per day. So where is this obscene amount of money flowing?

I saw some thing like this:

BSE Cash: Rs. 3,000 cr.

NSE Cash: Rs. 11,000 cr.

NSE F&O: Rs. 155,000 cr. (around)

What,in F&O takes up that much volume? So today, I went to the NSE Live Market page. Remember, today's expiry day and you get a LOT of Volume.


What they tell you on TV is the "Notional" turnover figure. For options, this is "Strike price" multiplied by number of options.

Effectively, if you buy a Nifty 5700 CE for Rs. 0.5 paise, a contract will cost you Rs. 25 (50 Nifty is the contract size). Yet, you would be taking a notional turnover of Rs. 285,000.

You paid Rs. 25, and you got a notional turnover of Rs. 2.85 lakhs!

So the 204,000 crores traded in the picture above is actually just Rs. 1087 cr. of real money. Statistics, bikinis and all that.

And then, the amounts aren't so big. See the 17,279 cr. traded in equities today? Five years ago, on Sep 27, 2007, the equity traded amount was Rs. 20,797 cr. We are still 15% lesser today.

And on that day, Index Futures were 20,000 cr. while stock futures traded more than 54,000 cr. Our "record" volumes are 15-20% of what they were five years ago. We've shrunk as a market, while India's GDP has nearly doubled in the meantime.

The talking heads on TV will tell you about how the market is "buoyant" but it really is a low volume move. You have to take statistics with a pinch of salt, especially when they are accompanied with superlatives.

Nifty Monthly Chart – A Relaxed 0.6% August

Comments Off Written on September 7th, 2012 by
Categories: Nifty

It's been a while since I wrote, and my apologies for that. I'm making up by posting my regular monthlies first.

The Nifty went up 0.6% in August, where the average has been greater than 1%. But this masks the fact that just a few days prior to expiry, the Nifty was at 5400, a near 3% up on the previous month.


The Sensex, which has fewer stocks and a more concentrated portfolio, did marginally better at 1.1%.


Let's see how September goes. There's Global news (Fed/Euro Central Bank), Defaulters (Indian for the most part) and then, the RBI mid-term decision. Inflation data around the 15th. Gold has nearly hit 32,000, and silver's nearing previous highs as well.

Nifty Snapshot: Upper band of P/E, Death Cross

1 Comment » Written on July 16th, 2012 by
Categories: Nifty

Looking at the Nifty over the last five years shows you where we are today, relatively speaking. The current day P/E (trailing twelve months) is at 17.2, which you might think is low, but consider this:

The EPS of Nifty on 13 Jul 2007 (five years ago): 208.25

The EPS of Nifty on 13 Jul 2012: 303.91

Growth rate: 7.9% per year.

Consider also that our P/E has been above 12 for the most part. Markets have absolutely no idea about growth, and even in the face of reality, will stay ridiculously overvalued if they want to. (Let's also temper this conclusion with the fact that trailing P/E is standalone, and consolidated P/E is a bit lower)  At the same time, valuations will stay ridiculously low on the other side of the spectrum as well, if that ever happens.


(Click for larger pic)

Negatives: The Nifty has stayed below the Feb highs of 5600, and the 50 DMA recently crossed below the 200 DMA (the "death cross").

Positives: Price still above both 50 and 200 DMAs, and it has also shown a specific "higher low" - from the December 2011 lows of 4500 or whereabouts, the Nifty made a subsequent low of 4835 in May.

My personal trading system shows a negative short-term bias, and the entry point is only if the markets close down tomorrow (Monday).

Is The Market Looking To Rally?

2 comments Written on May 21st, 2012 by
Categories: Nifty, Technicals

With this month having seen a big fall, and markets looking very haggard, are looking to see a big rally? I use an indicator - the net number of stocks above the moving averages (Net = Number above minus number below).


In the short term, the Nifty looks oversold, with the indicator looks like it's turning up but beware that the recovery may be very short term. The last time we were this out of whack the index did move up sharply but resumed the downtrend to end even further down.

(The graph accounts for Nifty changes - so prior to April 2012, when Reliance Power and RCOM were part of the Nifty, it uses their 20 DMA and prices, and after that, their replacements - BANKBARODA and ASIANPAINT)

In the longer term - looking at the 50 and 200 DMA, there is no real recovery evident:


This is not even oversold territory, to be honest, except for the 50 DMA curve that looks like it's going towards the negative 40s again.

Still, a bounce may just happen, since global macro news has been so bad. We haven't heard any news of another quantitative easing, and "unconditional" support for the Euro, and unlimited money being thrown at a problem created by too much money. Oh, don't bother with judgements - if the market says go long, you should just go long.

(Like in Facebook's case, it's not yet telling you so)

I've been long a strangle (4800-4900) and I would like to trade long using calls, perhaps for June instead of May. But it's highly risky at this time, since I don't see many other signals that seem to be moving long.

The First Four Months: 13.5%

1 Comment » Written on May 4th, 2012 by
Categories: ChartOfTheDay, MonthlyMoves, Nifty

With a marginally negative return in April, the markets have still managed to keep a double digit return for 2012, with a 13.5% return YTD.


And the Sensex:


In a random stat: we've had two consecutive months of less than 2% moves in the whole month. 2% is a randomly taken number of course, but the bare minimum I expect the index to move, in a month, is 2%. The last time we had such a situation was Jul-Aug 2010, and in September the index moved 11%. Prior to that was Jun-Jul 2006, and Aug 2006 saw a +8% move, and then Feb-Mar-Apr 2004 when in May (after elections) the Index fell 17%. I believe that we'll see some serious moves in the next two months; just don't know when and which direction.

Nifty Stuck Between 50 and 200 DMA

1 Comment » Written on May 3rd, 2012 by
Categories: Nifty

It's been a while since I've done a snapshot, but the Nifty seems to be coiling in between the two big DMAs. (Daily Moving Averages)


Even as the Nifty EPS increases to 291 (standalone), we notice that the market seems to have lost all the momentum it had in the near 24% rise in 2012.

The 50 DMA line has started to dip, while the 200 DMA line is still flat or sloping downwards. After a golden cross (50 crosses over the 200DMA) which happened in late Feb, we have consolidated around the 5100-5300 area. A death cross (50 goes below the 200) is at least 3 months away unless we see a huge dip right now,. Remember though that the consolidation might actually indicate an upmove, not a downmove.

It's quite strange that we remain this high even with all the stuff waiting to hit us, from bank NPAs to a slowing economy to a depreciating rupee to a rising fiscal or current account deficit. The market doesn't to care.