Sell in May go away' came true; 376 stocks in BSE 500 index fell up to 67%

Foreign institutional investors pulled out more than Rs 8,000 crore from equity markets, and over Rs 17,000 crore from the India debt market which kept the pressure on the rupee.

  

The age-old saying ‘sell in May and go away’, which in fact was more relevant for US markets came true for Indian markets in 2018. The Nifty50 closed flat for the month of May but with a negative bias while three out of four stocks gave negative returns.

The Nifty50 slipped marginally to 10,736.15 on May 31 from 10,739.35 registered on April 30, although, the index managed to recover over 300 points from intraday low of 10,417.80 recorded on May 23.

As many as 376 stocks from the S&P BSE 500 index gave negative returns in the month of May which fell up to as much as 67 percent. Stocks which witnessed selling pressure include names like Vakrangee (down 67 percent), Manpasand Beverages (down 44 percent), HCC (down 36 percent), Jet Airways (down 35 percent), Avanti Feeds (down 34 percent) etc. among others.

Shareholders of Vakrangee and Manpasand might have more than just a price fall to worry about. Stocks of both companies witnessed tremendous selling pressure after auditors of both the companies resigned ahead of quarterly results.

On April 27, Price Waterhouse & Co resigned as auditor of Vakrangee Ltd, and on May 26, Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages Ltd.

HCC came under pressure after auditor of the company’s unit Lavasa Corp had said on Wednesday it has “significant doubts about the company’s ability to continue as a going concern”. The news came out in the first week of May.

What led to the fall, and way ahead?

Trade war concerns between US and China, political uncertainty in Karnataka, rising crude oil prices, falling rupee against the dollar, disappointing results especially from public sector banks as well as relentless selling by foreign institutional investors (FIIs).

Foreign institutional investors pulled out more than Rs 8,000 crore from equity markets, and over Rs 17,000 crore from the India debt market which kept the pressure on the rupee.

Well, as we enter June, there are plenty of headwinds for Indian markets. For starters, we have Reserve Bank of India (RBI) policy meet in this week, followed by US Fed meeting on June 12-13 will keep investors across the globe on the edge. A rate hike by the central bank seems to be factored in by the markets, suggest experts.

Markets were fairly volatile during last week on renewed trade war worries and continued FII selling despite Q4FY18 GDP growth coming in at 7.7 percent. Going ahead the focus of the market globally will be on Fed rate hikes, bond yields, oil prices, and trade war tensions.

June US Fed rate hike is already factored in by markets but it is important to watch out as to how many rate hikes are expected for CY18. Domestically, RBI policy and its outcome on rates is eyed closely due to the impact of higher fuel prices, expected an increase in MSP on inflation and improved growth prospects for the economy.

Technically:

On the weekly and monthly charts, Nifty made an indecisive pattern ‘Spinning Top’ was witnessed on the weekly charts whereas on the monthly charts it registered a Doji kind of formation. April was a strong month whereas in May we haven’t made any progress.

For the month of June, most experts feel that the index is likely to consolidate in a range rather than seeing any big moves on either side. On the upside 10,777, 10,929 remains a crucial resistance to watch out for and on the downside, support is placed at 10,417.

Going forward, our best case scenario for June still remains sideways to negative based on our long-term trend projections. As we have been pointing out that we are in a multi-month corrective phase from the highs of 11,171, it seems that the pullback rally from the lows of 9,951 culminated at recent highs of 10,929.

According to the Elliot wave parlance, the triangular structure will unfold in 5 legs and it seems that second leg culminated at the recent high of 10,929. If our reading is right then going forward we should breach recent lows of 10,417 and may extend the correction up to 10,320 to culminate the third leg.

MORE WILL UPDATE SOON!!

Big brokerages bet on these 10 wealth creating ideas for 20-50% return in a year

One does not need 100 stocks to generate wealth but can achieve the same with a handful of stocks. Legendary investor Warren Buffett once said, “Wide diversification is only required when investors do not understand what they are doing." Hence, investor focus should be on a handful of stocks rather than creating a portfolio which consist of over 50 stocks.

Wealth creation requires patience and research. Returns from the markets are never linear. Hence, portfolio diversification is a must to ensure profitability. Not every stock will emerge a multi-bagger, but chances are that if you placed your bets on the right stocks you will be a happy investor at the end of the year.

With India’s macroeconomic cues slipping, earnings nowhere near the double-digit mark and looming uncertainty around the 2019 general elections, it will not be easy for investors to make money. The best strategy would be to bet on stocks that have declared strong January-March earnings and growth momentum.

Bulk of the market returns in 2017 was largely led by expansion in the price-to-earnings ratio. However, experts said they are seeing signs of a revival in earnings growth, with growth expected to pick up meaningfully in FY19.

The long-term story for equities still remains intact, especially for those investing in a systematic manner. Going forward, market returns will be led by earnings growth rather than P/E expansion,” Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life Insurance, said.

He is positive on consumption, private financials, IT and metals sectors. “We prefer largecap equities to small/midcap ones, with current valuations at a significant premium in the latter segment.”

Here is a list of 10 buy ideas from different brokerages that can deliver 20-50 percent returns in the next one year:

Mahindra & Mahindra: Buy | Target raised to Rs 1,075 from Rs 960 earlier | LTP: Rs 895.60 | Return: 20%

CLSA maintains a buy rating on M&M post Q4 results but raised its 12-month target price to Rs 1,075 from Rs 960 earlier.

Domestic vehicle manufacturer Mahindra and Mahindra reported a 50 percent year-on-year rise in its net profit for the March quarter to Rs 1,155 crore on Tuesday.

M&M delivered a strong Q4 led by better-than-expected margins. The rural outlook improved on expectations of a normal monsoon and expectations of a big MSP hike.

New MPV launch in FY19 is likely to boost SUV segment volume. CLSA expects strong 18 percent EPS CAGR over next two years, and valuations still remain attractive.

Dish TV: Buy | Target: Rs 100 | LTP: Rs 74.45 | Return: 34%

CLSA maintains a buy rating on Dish TV with a target price of Rs 100. The direct-to-home operator reported a consolidated net profit at Rs 118.21 crore for the fourth quarter ended March 2018.

The company had posted a net loss of Rs 29.49 crore during the January-March quarter a year ago, Dish TV said in a BSE filing.

The management reiterated merger synergy of Rs 500 crore in FY19. CLSA sees 10 percent EBITDA CAGR over FY19-21. The ongoing open offer caps downside risk for the stocks, said the note.

Commenting on the outlook, Dish TV said that it expects the year to be positive as the company expects to outgrow the industry growth rate backed by the launch of new set-top-boxes that would be full HD compliant.

Prestige Estates: Outperform | Target: Rs 396 | LTP: Rs 260.95 | Return: 51%

Macquarie maintains an outperform rating on Prestige Estates with a 12-month target price of Rs 396. The realty firm reported 21 percent increase in its consolidated net profit at Rs 107.1 crore for the fourth quarter of last fiscal on higher sales. Its net profit stood at Rs 88.1 crore in the year-ago period.

The Q4 net profit was in-line with estimates. The pre-sales pick-up aided by new launches said the Macquarie note. The real estate major targets to launch at least one project in affordable housing.

Prestige Estates remains one of the preferred picks in real estate space, said the note.

Escorts: Buy | Target: Rs 1,150 | LTP: Rs 933.80 | Return: 23%

HSBC maintains a buy rating on Escorts post Q4 results with a 12-month target price of Rs 1,150. The growth momentum remains intact. Going forward, the margins are likely to improve across all businesses. Increasing captive financing is a key positive for future performance, said the note.

Bharat Petroleum Corporation: Buy | Target: Rs 568 | LTP: Rs 400.30 | Return: 42%

Motilal Oswal maintains a buy rating on BPCL post Q4 results with a 12-month target price of Rs 568. The EBITDA was above estimates led by core operating performance. The net profit benefitted by higher other income and lower tax rate.

Stabilisation of Kochi expansion is likely to expand Kochi refinery GRMs. Sharp correction seen in the oil & gas space due to rise in crude oil prices offers an attractive opportunity to add.

Larsen & Toubro: Buy | Target: Rs 1,730 | LTP: Rs 1365.20 | Return: 27%

CLSA maintains a buy rating on L&T post Q4 results with a target price of Rs 1,730. The Q4 results were a beat on guidance as well as on inflow and margins. The Hydrocarbon business is going to be the emerging star and fast-growing business going forward.

L&T has a credible strategy to improve both growth and its return on equity. The stock is a good proxy for domestic capex.

NTPC: Buy | Target: Rs 200 | LTP: Rs 165.30 | Return: 21%

CLSA maintains a buy rating on NTPC post Q4 results with a target price of Rs 200. The March quarter results were in line with estimates, but profit figure remains muted by higher cost.

Capacity additions are clearly on track. CLSA expects a marked pick-up in profit growth due to focused efforts to secure coal.

Capacite Infraprojects: Buy | Target: Rs 340 | LTP: Rs 282.80 | Return: 20%

Angel Broking initiates a buy call on Capacite Infraprojects with a target price of Rs 340. The company has a large order book with marquee client base which provides revenue visibility.

The company has a focused approach which leads to a strengthening of its position. Increased floor space ratio (FSI) to trigger construction work in Mumbai region. Expanding presence in cities with a high growth potential given revenue visibility.

Tech Mahindra: Buy | Target: Rs 880 | LTP: Rs 686.40 | Return: 28%

Goldman Sachs maintains a buy rating on Tech Mahindra post Q4 results but raised its 12-month target price to Rs 880 from Rs 824 earlier.

The Q4 results were above expectations on continued margin beat. The entire topline growth was led by enterprise business in Q4. Going forward, 5G remains a key structural growth opportunity for Tech Mahindra, said the report.

Bank of Baroda: Buy | Target: Rs 180 | LTP: Rs 138.70 | Return: 30%

Edelweiss maintains a buy rating of Bank of Baroda post Q4 results with a target price of Rs 180. The public sector lender posted a net loss of Rs 3,102.34 crore in the March quarter, missing estimates due to a jump in provisions for bad loans.

Provisions for non-performing assets for the quarter rose by 190 percent YoY to Rs 7,052.53 crore in Q4. The March quarter was marred by higher slippages, said the Edelweiss note.

However, the loan growth remains strong with better rated corporate and retail segments. The brokerage firm expects quality growth to gain traction in near future.

MORE WILL UPDATE SOON!!

Bears likely to take control of Nifty on breach of 10,417; Hero, RIL, HCL Tech top buys

The best case scenario for June still remains sideways to negative based on long-term trend projections, and a breach of recent lows of 10,417 may extend the correction up to 10,320.

  

 On the weekly and monthly charts, Nifty made an indecisive pattern ‘Spinning Top’ was witnessed on the weekly charts whereas on the monthly charts it registered a Doji kind of formation. April was a strong month whereas in May we haven’t made any progress.

Going forward, our best case scenario for June still remains sideways to negative based on our long-term trend projections. As we have been pointing out that we are in a multi-month corrective phase from the highs of 11,171, it seems that the pullback rally from the lows of 9,951 culminated at recent highs of 10,929.

We are presuming that inside this consolidation phase, Nifty50 may evolve itself into a triangular formation with lower tops but with higher bottoms.

According to the Elliot wave parlance, the triangular structure will unfold in 5 legs and it seems that second leg culminated at the recent high of 10,929.

If our reading is right then going forward we should breach recent lows of 10,417 and may extend the correction up to 10,320 to culminate the third leg. This may take a couple of weeks and hence the month of June may remain sideways to negative.

This view will be negated if Nifty 50 manages a close above 10,929 levels as we adjust our charts to the next best alternative scenario available with us which is new highs.

Rollover figures for this month are relatively less which may point towards caution but as explained above Nifty may trade in a range.

In the case of 10,929 is decisively breached on the upside, we can expect new highs by the end of June/ July but that is not our preferred view as of now.

Besides, next week we have a monetary policy event which may keep markets volatile. Trading for the next week is going to be lacklustre.

Investors will be better off taking a cautious stance as this time it looks inevitable for the Reserve Bank of India (RBI) to go for a rate hike.

See, purely based on technicals, this index is surprisingly looking stronger when compared to Nifty50. We are very bullish on its outlook. It seems like the index is going to hit new life-time highs very soon. We have bigger targets on this index close to 30,000 by the end of FY19.

Undoubtedly it is something to worry about. Now, it is clear that a section of this bull market appears to be in a bear market of its own as certain stocks are consistently making new 52-week lows and some even trading at life-time lows.

This is the reason why we are continuously seeing negative advance-decline ratio which is something to bother about.

 Chart patterns on mid and small cap indices are almost similar and bearishly poised. The Midcap 100 index corrected 16 percent from its life-time high of 21,840 whereas the Smallcap 100 is down by 21 percent from its lifetime high of 9,656.

In April, indices witnessed a pullback rally, but resumed their down move after that and are now exactly staring at March lows which are equivalent to 9,950 on the Nifty50.

Interestingly, in May both these indices almost tested March lows but managed to attract some buying interest which resulted in a bounced back.

But, after that, they failed to hold on to these gains and are again staring at those lows. A breach of which may create panic selling among these scrips.

Hence, retail guys are advised to stay away from them as they get tempted to buy by seeing value erosion of 30-40-50 percent from their respective tops.

Technically, correction can be sharp in these scrips if these indices breach and settle below their respective March lows. If at all buying has to be done from this space one need to be very selective and understand not only present fundamentals but also future growth prospects.

A: Here is a list of top three stocks which could give up to 3-10 percent return:

Hero MotoCorp: Buy| Target: Rs 3,749| Stop loss: Rs 3,500| LTP: Rs 3,623.75| Return 3%

After retracing 50 percent of its rally from the recent lows of Rs 3,445 this counter appears to have resumed its up move after hitting a low of Rs 3,528.

The momentum in this counter shall pick up once it manages a close above Rs 3,624 paving way for a swift up move towards Rs 3,700 levels.

Hence, positional traders are advised to buy into this counter for a target of Rs 3,749. A stoploss suggested for the trade is below Rs 3,500.

Reliance Industries: Buy| Target: Rs 970| Stop loss: Rs 900| LTP: Rs 929.20| Return 5%

Albeit this counter has underperformed in the recent past, it appears to have formed a decent base around Rs 900 levels from the cushion of which it is bounced back.

On resumption of the up move, it can make an attempt to test the gap down area of Rs 974 – 976 registered on 16th of May. Hence, positional traders are advised to buy into this counter for a target of Rs 970 and a stop loss below Rs 900.

HCL Technologies: Buy| Target: Rs 997| Stop loss: Rs 885| LTP: 906.40| Return 10%

This counter appears to be in a consolidation mode, around Rs 900 levels after the recent correction from the highs of Rs 1,108 registered in April.

As bottom appears to be in place around Rs 887 sooner than later it should resume its up move as the entire sector is looking positive. A minimum target of Rs 997 is possible, which is 50 percent retracement of its entire fall from the top of Rs 1,108 to Rs 887.

As risk-reward ratios are favorable, positional traders should make use of this opportunity to go long on the stock with a stop below Rs 885 for an initial target of Rs 997.

MORE WILL UPDATE SOON!!

FIIs create fresh shorts over $117 mn in index futures segment ahead of RBI meet

10,600 strikes saw highest incremental option addition in the last 15 sessions along with 10,500 Put strike indicating limited downsides from current levels.

The Nifty staged a strong recovery in the May expiry week on the back of closure of short positions particularly backed by the banking heavyweights.

The ongoing trend of selective participation by few heavyweights continued while market breadth remained negative in four of the last five sessions.

The volatility has so far remained subdued in the recent period despite intermediate declines seen in the previous weeks which indicates towards increasing buying interest at lower levels that can lead to more consolidation in the June series.

Looking at the option concentration for the June series, the major Put base is placed at 10,200 strike due to Leap options.

However, 10,600 strikes saw highest incremental option addition in the last 15 sessions along with 10,500 Put strike indicating limited downsides from current levels.

At the same time, no immediate major Call option base has still been formed till now. The highest Call base is still placed at 11000 strikes.

The Nifty futures open interest at inception was marginally lower compared to the last series amid continued subdued roll spread. At the same time, Bank Nifty open interest stayed on the higher side.

Current open interest in the Bank Nifty is the highest seen at the time of inception in the last one year. Fresh highs in the banking index can be seen if Bank Nifty is able to sustain above 27,000.

Among stocks, cement and technology saw relatively low rollover while FMCG and banking saw high rollover of positions indicating the ongoing positive bias in these stocks will continue.

  

Bank Nifty: Short covering trend may magnify

The index ended the May series on an optimistic note with aggressive short covering seen on the May series F&O expiry day where the index witnessed a sharp up move and closed well above 27,000 levels.

Private sector banks were the leaders where Kotak Mahindra Bank and HDFC Bank rose nearly 4 percent each along with the participation from the PSU pack.

The Bank Nifty started the June series with the highest number of shares in open interest compared to the past few months whereas the discount in the index has widened indicating rollover of short positions.

Unless we see the aggressive closure of these short positions, the upside in the index is likely to continue as short traders will look to exit in the fall.

As the index moved above 26,500, Call writers shifted their positions to 27,000 and 27,200 strikes whereas Put positions have also shifted higher to 26,500 and 26,600 strikes indicating major supports.

Volatility is likely to be higher, ahead of the RBI’s monetary policy that is lined up next week. In the absence of any negativity, the index is well placed to move towards 27,200.

The current price ratio of Bank Nifty/Nifty has moved to 2.49 from 2.45 levels. We feel the current leg of outperformance is likely to continue on the back of the short covering trend in private sector banks.

EM equities continue to trade near support zone

The weakness continued in emerging market (EM) equities as select EM currencies like Mexican Peso, Brazilian Real, Argentine Peso & South African rand continued to trade weak (propelled by sticky dollar index reading of 94).

The risk environment continued to remain fluid as the decline in EM equity and bond continued. The MSCI EM Index fell over 1.5 percent during the week but this weakness was also seen in MSCI World Index, which also declined by a similar magnitude.

Italy’s fractured mandate that gave anti-EU parties a chance to form the government was the key reason for the decline. US trade spat with China, Europe and Nafta further elevated the worries.

Till now, FII outflows have continued from most EMs. Outflows were seen from Taiwan ($592 million) Thailand ($472 million), Malaysia ($262 million), & Brazil ($210 million) while Korea was the outlier seeing inflows of over $381 million.

In the Indian markets, FIIs’ bearish bias continued. During the week, they created fresh shorts totalling over $117 million in index futures segment.

In the cash segment also, FIIs sold over $383 million. However, DII inflows of over $400 million ensured declines in the Nifty were limited.

Cool-off in rates, not only contained the dollar surge but also helped equities to consolidate without much of a decline. Italy’s political stand out, US trade tensions and the upcoming data from the US including the non-farm payroll (due today) will set the course for the risk assets.

Key variables that could support fresh FII allocation into EMs will include (a) stability in EM forex space (b) Dollar Index starts declining (c) US 10-year yields staying below 3 percent and (d) MSCI EM Index reverting from the current support zone.

MORE WILL UPDATE SOON!!