Allocate 70% to equities in this fall; Top 5 wealth creating ideas for next 2-3 years

After a setback from Union Budget 2018, the domestic market has shifted focus into the global volatility which is turning cautious due to premium valuation, increase in interest rate and risk of de-globalisation.

   

In the short-term, the market may have a positive bias and during which the investors should consider shifting the portfolio into low beta, Vinod Nair, Head of Research at Geojit Financial Services.

India has gone into a double whammy under the domestic and global headwinds. After a setback from Union Budget 2018, the domestic market has shifted focus into the global volatility which is turning cautious due to premium valuation, increase in interest rate and risk of de-globalisation.

This trend may continue as valuation normalises and bond yield stabilise. For example, India’s government 10-years yield currently stands at 7.77, 49bps up in the last 2months.

Deposit and lending rates are increasing and trajectory of inflation continues to be on the higher side, which augurs further cut in valuation.

In the near-term, RBI is expected to provide additional liquidity to the bond market, which will provide some support to the market especial the financial sector.

The current effective Fed rate is 1.4 percent while the 10-years yield is 2.9 percent. If the US Fed rate is increased by 3times, the effective rate will be 2.15 percent by the end of Dec-2018, if the same spread is maintained the bond yield will increase to 3.65 percent.

The US bond yield has increased by 60bps in the last 3 month, bringing high volatility in the Indian market. Currently, the market is down by about 6 percent, if this situation continues in the global bond market, India will also be impacted.

 To churn your portfolio towards defensive sectors and reducing high beta stocks should be the key for retail investors. In the short-term, the market may have a positive bias and during which the investors should consider shifting the portfolio into low beta.

Profit booking on stocks with premium valuation and increasing in mutual funds debt are also advisable in the medium-term.

Given our moderate expectation on equity markets, we suggest starting with a holding of 40 percent for equity which can be increased to 70 percent over the long-term.

The focus should be more on Mutual Fund schemes predominantly with largecap exposure which investors can increase through diversified multicap funds.

Direct equity can be 10 to 15 percent of the total portfolio with a focus on defensive sectors. For the time being, high exposure is advised on mutual fund debt scheme at 60 percent with corporate accrual funds.

Top five wealth-creating ideas which investors can look at for the next 2-3 years.

HCL Technologies

We continue to remain positive on HCL on a consolidated basis driven by traction in deal wins and strength in Mode 2 & 3 services (focus on next-gen offerings).

Revenue contribution from Mode 2 & 3 services surpassed 25 percent of the total revenue and the management is eyeing to further increase the contribution from digital business to 40 percent over the next few years.

Deal wins remained strong in Q3FY18 with the company signing twenty transformational deals across services. The company’s strategy of augmenting its IP based partnerships with technology vendors to broaden its product offerings is expected to provide a tailwind to revenue growth going ahead. We factor revenue CAGR of 9 percent over FY17-20E.

Aarti Industries

AARTI Industries Ltd (ARTO) is a global leader in Benzene based derivative products. The company has a diversified product portfolio with end users in pharma, agrochemicals, specialty polymers, paints & pigments.

ARTO’s Q3 Revenue grew by 29 percent YoY, led by strong growth across business segments with Speciality chemical business grew by 23 percent YoY, home & personal care business 103 percent YoY and Pharma 35 percent YoY.

Recently, ARTO signed Rs10,000cr exclusive supply contract with a global chemical conglomerate for high-value speciality chemical intermediate over a period of 20 years with the commencement of supplies from the Year 2020.

Going forward, we believe that with strong off-take Pharma segment and stable growth from Specality chemicals segments, we factor revenue to grow 14 percent CAGR over FY18E- FY20E. Given healthy earnings outlook, we continue to have a positive rating on the stock.

Torrent Pharma

Torrent’s acquisition of branded formulations business of Unichem Laboratories will strengthen its presence in the domestic market with expansion in the chronic portfolio, improved market share and widening distribution networks.

Besides recovery in US business is expected to drive robust growth going ahead. Higher revenue growth from Europe is also another positive for the company. Given increased R&D spends for high margin/high-volume products and meaningful new launches for coming years.

Notably, the management has guided for 10-15 ANDA filings in FY18 and also indicated plans to submit 3-4 derma products by this fiscal end. We expect Torrent Pharma’s revenue and Adj. PAT to grow at a CAGR of 14 percent/9 percent over FY17-20E owing to increased contribution from the domestic, gradual pickup in US sales through quality filings and strong growth in Germany, Brazil and RoW.

Idea Cellular

Idea’s focus on the Vodafone merger and accelerating synergistic benefits both in terms of operating cost and capex is expected to achieve a higher level of efficiency going ahead.

The merger process is likely to be completed by H1CY18, we expect synergies to start accruing from FY20E leading to an expansion in EBITDA margin to 28.4 percent in FY20E.

Importantly, the company’s fund-raising will provide Idea with much-needed liquidity to boost network and protect its revenue and market share. Moreover, Idea’s plan to monetise its tower assets will strengthen its balance sheet.

Tata Global Beverages

Tata Global Beverages (TGB), an integrated natural beverage company derives ~70 percent of revenue from branded tea business and ~60 percent of the revenue comes from markets outside India.

TGB has put in place a new strategy to drive growth and profitability including exiting from loss-making geographies. Under the core business rejuvenation, TGB will expand its product offerings in premium and non-black categories and enhanced its focus on green and herbal tea categories (higher margins).

It is also planning to foray in large tea consuming Asian markets such as Singapore, Malaysia, and China. To renew Nourishco (JV), TGB launched several new products/variants under Tata Gluco Plus and Himalayan water brands.

We expect TGB to gain market share across geographies led by its innovative premium product offerings and expect revenue/PAT to grow at ~6 percent/23 percent CAGR over FY17-20E.

MORE WILL UPDATE SOON!!

Heads up! FIIs create fresh short in index futures of over $145 mn

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

   

Indian markets remained under pressure and did not witness any major pullback despite a recovery seen in the global markets. The Nifty50 ended the week with another 2.4 percent loss at 10,225. It is the lowest weekly closing since the first week of December 2017.

While banking remained a major laggard, auto and metal stocks also succumbed to the pressure while long liquidation was observed across sectors.

Only because of the pullback among select heavyweights like Reliance Industries, HDFC and L&T and the Nifty50 was able to end above 10,200 this week while most index stocks closed in the red.

The market breadth has remained weak throughout the week. Despite a recovery of almost 100 points on Thursday, a negative breadth clearly suggested prevailing scepticism in the market. Thus, selling pressure may continue at higher levels in the coming sessions.

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

Till these levels are not taken out, any major recovery seems unlikely.

As fresh shorts are not evident in data, any change of bias in the Nifty may be seen only if fresh long additions were observed or Call writers start unwinding their positions.

At the same time, sudden depreciation in the rupee also weighed on equities as it moved above 65 against the US dollar once again.

 

Bank Nifty: 24000 remains crucial for the coming week

Volatility remained extremely high for banking stocks because for the third week in a row there was no respite for PSU banks. The index corrected sharply and moved towards 24,000.

However, on the weekly expiry day, the index witnessed a sharp bounce on the back of short covering and moved towards 24,500. However, once again towards the end of the week, it turned negative and ended well below 24,500.

As implied volatilities (IVs) remained high, huge volatility was seen in OTM options. Call option premium rose nearly 70 percent on the weekly expiry day whereas in the absence of any follow-up buying, premiums got eroded significantly and fresh writing positions were seen forming in 24600 and 24700 Call, which is likely to keep the index move in check.

However, on the Put side, major open interest concentration was seen in 24000 strike, which is likely to be a support in the coming week. A close below these levels would open the gates for more downside.

The current price ratio, Bank Nifty/Nifty remained intact near 2.38. As the index has a major hurdle near 24,700, we feel that unless the index moves and closes above these levels, the ratio is likely to consolidate near the same levels. Eventually, it is likely to slide towards 2.35 levels.

Price recovery in EMs not supported by FII inflows

Adverse news flows globally and domestically kept the strong recovery in risk assets in check. On the global front, there was news of tariff plans from US administration and a populist vote in Italy.

On the domestic front, the PNB led fiasco kept the Indian market's recovery in check. MSCI World and MSCI EM Equity Indices recovered almost 2 percent each (outperforming the Nifty).

The recovery in emerging markets (Ems) was not backed by fresh FII inflows into EMs. Outflows amounting to around USD 200 million each were seen from Indonesia, South Korea, Thailand, Taiwan, and Brazil.

Hawkish tones emanating from US Federal Reserve and ECB’s hawkish ECB assessment of quantitative easing (despite the populist Italy move) has partly kept EMs up move in check.

In the Indian equity segment, FIIs had continuously sold in February. The trend at the start of March is not very encouraging yet.

In the last five sessions, as per the Sebi data, their buying aggregated to a paltry sum of USD 16 million. They created fresh short in index futures segment amounting to over USD 145 million.

Portfolio hedging was also strong as they bought index options worth over USD 450 million.

On the watchlist will be Donald Trump’s tariff plans and stability in the risk sentiment for risk assets. Unless these variables stabilise, EMs are unlikely to see any meaningful inflows from FIIs.

MORE WILL UPDATE SOON!!

Betting on tech theme? Top 4 stocks which investors could add in their portfolio

The association of Indian IT companies are expecting a strong growth in the fiscal year 2019 as most of the companies are able to adapt to the new age digital technologies and are also strengthening in the automation segments which could make the space as one of the strong sectors for the year 2018.

  

India IT sector has emerged as an outperforming sector in the recent correction. The S&P BSE IT index rose nearly 10 percent compared to 1 percent fall seen in the S&P BSE Sensex so far in the year 2018.

Most experts are turning favourable towards the India IT sector in the near-term as they see the pain in the sector is priced in and with expectations of some more rupee depreciations, the sector is likely to hog some limelight.

The association of Indian IT companies are expecting a strong growth in the fiscal year 2019 as most of the companies are able to adapt to the new age digital technologies and are also strengthening in the automation segments which could make the space as one of the strong sectors for the year 2018.

"Even the tailwind of weakness in rupee against the dollar over last few weeks is also likely to add to their top line numbers. Hence select largecap and midcap IT stocks have much more potential to outperform in the coming quarters.

The calendar year 2018 is likely to be better than 2017 which could drive re-rating. However, the magnitude of acceleration will determine stock returns from here, suggest experts.

A 2-3 percent higher growth in FY2019 is already baked into the stock prices. The path to the higher acceleration of 4-5 percent can lead to further upsides, Kotak Institutional Equities said in a note.

“It is easier to predict the direction of growth than the magnitude of acceleration in our view. We prefer Infosys and Tech Mahindra as expectations embedded in the current valuations are low,” it said.

Kotak Institutional Equities has an ADD rating on Infosys, L&T Infotech, Mindtree and Tech Mahindra.

 

Indian IT companies expressed hopes of a better FY2019 led by – (1) a better macro environment across key goes, especially North America, (2) better deal flow for some, (3) pipeline of projects and deals and (4) increasing digital deal sizes, companies said on the sidelines of a conference organised by Kotak.

Companies did not quantify the magnitude of improvement although they were optimistic across verticals except in banking and retail where commentary differed.

Nearly all IT companies indicated that simplification and digital transformation of the core will drive up digital deal sizes. “Companies expressed confidence of maintaining margins in a guided band (TCS and Infosys) or improving it (Wipro in the medium term and Tech Mahindra in FY2019),” said the Kotak note.

The note further added that confidence in margin performance emanates from the pricing environment that has not thrown any unexpected surprises, benefits of automation and deriving leverage from investments already made in digital services.

Key takeaways from individual companies from Kotak Institutional Equities annual conference:

Infosys:

Infosys believes that increase in interest rates in the US, tax cuts that can potentially prop spending and a strong macro environment bode well for growth in FY2019. A positive macro can translate into better growth in FY2019 although the company believes it is too early to quantify the magnitude.

Traditional levers such as utilization are maxed out. The onsite mix can reduce and help margins. In addition, L1 and L2 automation can be adopted across a wider range of offerings.

Finally, the share of new services (10 percent of overall revenues) that are in an investment phase, can start contributing to margins after they achieve a particular scale. KIE view is that margins will move in a narrow band in the foreseeable future.

Tech Mahindra:

FY2018 has seen the rationalization of clients and unprofitable portfolio of business leading to impact on growth rates; communication practice will see negligible growth or even decline. Without this rationalization, FY2018 telecom revenue growth would have ranged 5-6 percent.

None of the large clients had a renegotiation in rates/pricing setting the platform for a return to growth in FY2019. Without factoring upside from 5G, mid-single digit revenue growth is possible in communications in FY2019.

Tech Mahindra believes that capex cycle and investments in IT are closely linked. Investments in 5G capex would spur IT spending, per the management.

L&T Infotech:

L&T Infotech’s management has guided for mid-teen growth in FY2018E and is optimistic about continued momentum in FY2019E led by (1) market share gains in top accounts, (2) solid deal wins in the recent past (one USD 100 million+, four USD30-100 million and five USD10-30 million deals), (3) an improving deal pipeline, and (4) addition of new logos—82 new logos added in the past 12 months and 3 of the top 10 deal wins are from new logos.

Growth in FY2019 will be powered by top-20 accounts as well as new logos. From a vertical standpoint, BFS, media and hi-tech and retail CPG verticals will growth faster than the company.

On the services front, analytics, enterprise integration, and mobility, ES and IMS will drive growth. The management expects the growth momentum to continue in CBDT project.

Mindtree:

Mindtree is seeing healthy demand across RTB (run-the-business) and digital portfolios. On RTB front, TCV growth is healthy, pricing is stable and large projects have stabilised after ramp-up.

On the digital front, Mindtree is witnessing benefits of an increase in average deal sizes. The management indicated the deal pipeline is improving and Mindtree’s deal win rate has improved to 34 percent from 22 percent (deals won out of the total deals tracked by Mindtree internally).

It is winning more deals through the advisory channel. Improving deal wins rate should reflect on TCVs in the coming quarters.

Mindtree has retained its sequential revenue growth guidance in dollar terms in Q4FY18 to be broadly similar to Q2 (3 percent) and Q3 (3.9 percent). The management expects EBITDA margin to be flat sequentially at about 15.1 percent.

MORE WILL UPDATE SOON!!

Stuck with huge portfolio losses? Use ‘Options’ in a falling market

Buying Puts is a simple strategy where an At the Money put is bought on the Index like Nifty with a notional value of the portfolio adjusted for portfolio’s beta.

  

Options being a non-linear instrument can help investors/traders in multiple ways and here are some of the simple strategies to be deployed in a falling market.

Want to protect your portfolio from downside?

One of the ways investor’s uses options is for Hedging. Market corrections are fierce and steep and to protect the downside investors are at times willing to buy protection with a premium outflow i.e. at a cost.

Long Puts

Buying Puts is a simple strategy where an At the Money put is bought on the Index like Nifty with a notional value of the portfolio adjusted for portfolio’s beta.

This is a fairly expensive strategy but the protection is open for an unlimited downside and for the time period of protection the investor doesn’t need to bother much about any steep correction.

Buying Spreads

Deploying spreads like a Bear Put Spread, Bear Call Spread, etc. may be a better choice if the hedging is intended only up to a given level. For example Mr. A wants to protect his portfolio for any downside up to 9700 on Nifty where he’s confident of the Index reviving.

In this case, Mr. A doesn’t need to pay the premium of unlimited downside by buying a simple put and can reduce the premium outflow by deploying a spread which will cost lower than a long put. The trade-off is an open risk below the lower strike of the spread.

Don’t want to sell or hedge the portfolio but want to generate some returns to compensate the fall?

Hedging comes with a cost and no matter the portfolio falls or not, you are certain to spend the cost of hedging out from your pocket. This is not so lucrative to few investors and instead, they choose to generate some additional returns on the portfolio to compensate the downtrend.

To achieve this, covered calls can be deployed on stocks in the portfolio. Calls of stocks held in portfolio are sold with strikes at key resistance levels. This generates some returns with very limited risk.

If the stock moves up, the investor gets some returns in the stock till the strike plus the premium received and as he’s already holding the stock it can be delivered against the sold call.

In an event where the stock doesn’t move up, there is an additional return in the portfolio of premium received from the sold call option.

Traders expecting an immediate correction

For traders expecting an immediate correction and wants to benefit from that, Long put can be a simple strategy to deploy. Predicting a market downside and using options to trade is more rewarding than predicting an upside.

Volatility increases in the case of a fierce down-trend and long options are positive volatility which means that put options will increase in value due to the market correction and will additionally increase due to the rising volatility, making it more lucrative and naturally rewarding to trade corrections.

Traders expecting a gradual downside

A slow and gradual downside comes with a lot of Theta decay in the bought single options for eg. Long Puts. Hence, the idea is to reduce some of the theta decay by selling another option.

In these situations, buying a spread may be more beneficial than buying a single put option. This can be achieved by deploying one of the few strategies like Bear Put Spread, Bear Call Spread, Put Ratio Back-spread, Ratio Spreads, etc.

MORE WILL UPDATE SOON!!

Rising interest rates & volatile stocks: Asset allocation to hold key in perfect storm

Here are a few interesting reads that will help you put your money matters in order in the volatile times.

  

After State Bank of India, the banker to the nation raised interest rates on bank fixed deposits, other banks are expected to follow. While the interest rates are expected to go up, investors are worried about the ongoing correction in stocks.  Experts ask them to stick to their asset allocation strategy and do not rush into selling off their investments or even going overboard with stock purchases.

If you are contemplating an investment in equity mutual funds and wondering if you should go for large cap fund or mid cap fund, here is a way out.  The experts point out that large caps are relatively attractively valued as compared with the mid-caps. Though the mid-caps are expected to deliver better returns, large caps stand to weather the storm better.

As we move towards the last fortnight of the financial year FY2017-2018, it is time to look at the pending works. If you have not filed your income tax returns for the previous year yet, do it now. Here are the tips to file your income tax returns.

If you have missed investing in tax saving funds or ELSS earlier this financial year, and you are looking to invest in tax saving funds with an intention to cut down income tax, here are a few things you must know.

Though most corporate entities showered the women with multiple benefits and discount offers on the Women’s Day. But that should not lead to a one day act. Women must take charge of their finances. Here is how they can draw their financial planning road map.

As we are closer to the current financial year, you may be considering a higher contribution towards voluntary provident fund. But do hold that thought for a moment. Here is a better option.

If you are a millennial and wondering what you should be doing with your money so that you can remain ahead of others, here are a few simple tips.

You should stick your asset allocation and keep investing as per your financial goals. While you work hard to earn to fund your financial goals. Do not forget to buy adequate amount of life insurance. In case of eventuality, the life insurance proceeds will ensure that the family’s financial goals are not compromised due to breadwinner’s absence. Here is how to utilise the proceeds received under a life insurance claim settlement.

MORE WILL UPDATE SOON!!

RBI may hike repo rate by 0.25% in 2018: Report

The Reserve Bank is likely to increase its key rates by 0.25 percent this year as inflation is expected to be at a higher range due to wide fiscal deficit and high prices of oil and farm produce

  

The Reserve Bank is likely to increase its key rates by 0.25 percent this year as inflation is expected to be at a higher range due to wide fiscal deficit and high prices of oil and farm produce, a report said today.

The headline consumer price inflation (CPI) will not breach the 6 percent mark which is the upper end of the target band for RBI, but a moderation towards the 4 percent target is also "unlikely", Care Ratings said in a report.

The main concerns today are on both the demand and supply sides," it said, elaborating that higher fiscal deficit is the main issue on the demand side, while the proposed higher MSP (minimum support price) of farm products, oil prices and house rent allowance are potential supply side threats.

A 0.25 percent hike in repo rate is expected during 2018. The key repo rate at which it lends to the system stands at 6 percent currently.

It can be noted that the RBI shifted its policy stance to neutral last year, after being in the accommodative phase for over two years. After rising to 5.21 percent in December, inflation cooled-down to 5.07 percent for January.

The RBI expects inflation to go up to between 5.1-5.6 percent in the first half of the next fiscal or the April-September period, before cooling down.

In its report, Care Ratings said that the picture on inflation will be clear only after the monsoon rains.

The agency said the market will not be spooked if the hike in policy rate comes in as it already seems to have factored it in.

The RBI had left the key rates unchanged in its last policy announcement in February, but cited risks on inflation which had led many to term it as a hawkish policy document.

MORE WILL UPDATE SOON!!

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Top 20 FII heavy stocks which rose up to 200% in 2017 saw up to 60% cut in 2018

Foreign institutional investors (FIIs) net investments in the month of February stood at Rs negative 12,000 crore largely on account of weak global cues and US bond yields rose to record highs which prompted global fund managers to shift some funds to bonds from equities.

   

Indian market which was hitting record highs just in the first month of the year 2018 came under selling pressure soon after the Budget was announced and weak global cues too played a spoilsport.

Foreign institutional investors (FIIs) which remained net buyers of Indian equities to the tune of $8 billion in the year 2017 but have now turned net sellers in the month of February.

They poured in over Rs14000 crore in the month of January 2018 but turned net sellers in February as they pulled out over Rs12000 crore, SEBI data showed.

Plenty of stocks in which FIIs hold double-digit stake corrected up to 60 percent in the first two months of the year 2018.

It is not clear if FIIs were selling their stake but anecdotal evidence suggest that as many 46 stocks which more than doubled investors’ wealth in 2017 saw the correction of up to 60 percent in the year 2018.

Stocks like Vakrangee which rose 208 percent in the year 2017 saw a deep cut of 57 percent so far in the year 2018, followed by Jaiprakash Associates which rallied 222 percent, plunged 43 percent in a matter of just 2 months, and Forbes & Company rose 151 percent, saw a cut of 33 percent.

Other stocks which saw a double-digit cut include names like Unitech, followed by PC Jeweller, Future Consumer, Motilal Oswal, Jindal Stainless, Time Technoplast, Elpro International, Aegis Logistics, Adani Transmission, TVS Motor Company, DLF, Tata Global Beverages etc. among others, according to data from AceEquity.

  

Foreign institutional investors (FIIs) net investments in the month of February stood at Rs negative 12,000 crore largely on account of weak global cues and US bond yields rose to record highs which prompted global fund managers to shift some funds to bonds from equities.

The selling is likely to continue in the future as well, suggest experts. But, on a yearly basis, FIIs investment towards Indian equity markets should turn positive.

I think the selling will continue in the foreseeable future; we might see a rebalancing in FII portfolios allocating additional funds to developed markets as the emerging markets have gotten quite expensive.

With rising interest rates, fixed income is bound to yield a higher return adding further impetus for FIIs to invest in developed markets, the implementation of long-term capital gain tax will not help garner investments either.

Cues from global market suggest that flows from foreign investors will be less than what we saw in the year 2017 largely on account of what US Federal Reserve will do with respect to interest rates and rising bond yields.

US Fed has indicated an increase in rates for 2018, the direction of which will be set in meeting on 21st March. Increase in rates is definitely a negative event for foreign liquidity.

At the same time, it is also determined by country fundamentals, which are improving. Therefore, FII flow might not be completely negative for 2018.

MORE WILL UPDATE SOON!!

Use pullback rallies to exit longs; 4 stocks which could give up to 9% return

We expect a near-term bounce in the index; however, such bounce will not lead to a significant trend reversal and any up move towards 10400-10480 levels can be used to exit from trading long positions.

   

The Nifty resumed its downtrend after a broad consolidation and eventually took out the swing low of 10,276.30 in Tuesday’s session. This triggered further pessimism and the index nosedived sharply towards its next crucial support of 200-DMA which is seen around 10,130-10,140 zone.

In Thursday’s session, short covering was seen in banking and selected heavyweight stocks near the crucial support level of 200-DMA that helped Nifty to close above 10,200 levels.

The hourly momentum oscillators are trading well inside the oversold territory and are indicating towards a further pullback on the higher side.

We expect a near-term bounce in the index; however, such bounce will not lead to a significant trend reversal and any up move towards 10,400-10,480 levels can be used to exit from trading long positions.

At this juncture, 10,130 which coincides with the 200-DMA will act as an immediate support level for the index and if it trades below this level will drag index lower towards its weekly swing low of 10,033.35 which is a crucial support.

On the other side, 10,276 which was earlier acting as a strong support has reversed its role and is likely to act as an immediate hurdle above which the strong resistance is placed near 10,360.

Here is a list of top 4 stocks which could give up to 9% return in the next 15-21 sessions:

Reliance Industries Ltd: Sell around 920 – 925| Target 840| Stop Loss 960| Timeframe 15 to 21 sessions| 8%

On the weekly charts, the stock has formed a classical head and shoulder formation and is currently the right shoulder which is in the process of making.

The neckline of this pattern is pegged near 871 and any decisive move below 871 will eventually confirm the breakdown from said pattern. The weekly RSI (14) indicates the possible range shift.

The weekly Bollinger Band has compressed significantly hence volatility is likely to increase in the coming trading session. Therefore, we advocate traders to build a short position in this stock in a range of Rs920 to 925 with a price target of Rs840 and a stop loss placed above Rs960.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Hindalco Industries Ltd: Sell around 225 – 230| Target 205| Stop loss 238| Timeframe 15 to 21 trading sessions| Return 8%

Looking at the weekly chart, the stock confirmed its breakdown from the Double Top pattern as the neckline of the said pattern was placed near 232.

Along with its Double Top breakout, the stock also broke below its 200-DMA which supports the hypothesis. On the daily chart, the stock closed below the upward sloping trend line drawn from the bottom of around 63.

Hence, we expect this stock to see further correction in the near term. We recommend traders to go short in a range of 225 to 230 with a price target of 205 and a stop loss placed below 238.

HUL: Sell around 1293 – 1300| Target 1225| Stop loss 1330| Timeframe 15 to 21 trading session| Return 5%

Looking at the daily chart, the stock broke the upward sloping trend line joining from the bottom of 1057. Also, the stock broke the higher top higher bottom sequence which doesn’t bode well in the near term.

The stock is trading well below the 89-EMA. Thus, we recommend traders to build a short position in a range of 1293 – 1300 levels with a downside price target of 1225 and a stop loss placed below 1330.

Cholamandalam Investment & Finance Company: Buy around 1415 – 1400| Target 1550| Stop loss 1360| Timeframe 15 to 21 trading session| Return 9%

Looking at the daily chart, the stock is trending in a rising channel formation and recently the stock precisely tested the lower band of the channel pattern and rebound sharply.

Also, Thursday’s low of 1392 coincided with the 50% of its previous daily swing low. Hence, we recommend traders to buy this stock in a range of 1415 – 1400 with a price target of 1550 and a stop loss placed below 1360.

MORE WILL UPDATE SOON!!

Thinking where to invest? These 3 sectors could hog limelight in 2018

Longer term metrics on the economy and earnings growth continue to remain positive.

   

We continue to expect elevated volatility levels in the equity markets and hence advise investors to look at equity allocations from a medium to long-term investment horizon.

Market sentiment is currently negative globally. Equity markets faced stiff headwinds largely from global factors this month. Local factors including the unearthing of the PNB frauds have also added to this negativity.

In our opinion, all of this is short-term in nature. Longer term metrics on the economy and earnings growth continue to remain positive.

Company results for Q3 FY 18 have seen significant improvement across sectors the highlight being a recovery in the consumer businesses and housing sector, both partly helped by the low demonetization base.

Consensus NIFTY earnings also did not see any negative commentaries, highlighting that there is confidence in a likely step-up in growth going forward. Improving GDP growth and back to back strong IIP numbers point to a revival in manufacturing.

We continue to expect elevated volatility levels in the equity markets and hence advise investors to look at equity allocations from a medium to long-term investment horizon. Systematic investments into equity products could also help investors ride out short-term volatility.

 The US hiking rates do raise costs of borrowing across the world since the US Dollar is the world’s reserve currency. Re-pricing of equity risk premia is likely to play its part in keeping markets volatile in the short term.

Fundamentally, India is looking at a trio of positive factors, Strong GDP growth, Revival of corporate profits and stable inflation.

If US 10-Years G-Sec trends and stays above 3 percent which very likely given higher inflationary pressures in next 12 months, the carry trade would likely unwind as the cost of money increases.

This would definitely have some indirect pressure/volatility on the Indian markets as FIIs re-allocate assets.

As a philosophy, we have consciously stayed away from PSU stocks especially PSU banks. Our philosophy consciously targets companies with strong earnings growth and sustainable business models.

These qualities in our opinion are key ingredients for long-term wealth creation. PSU banks currently do not offer these attributes and hence it’s not the core part of the portfolio.

The recent budget announcements relating to rural, agriculture and healthcare are positive for growth in general and for these specific sectors of the economy.

We continue to believe in:

a) Rural consumption story that is expected to play out over the next few quarters. We believe that rural centric policies are likely to be undertaken in the run-up to the 2019 general elections, which will bode well for rural spending for the next 12 to 18 months.

b) private banks are looking attractive

c) NBFCs who have strong ALM practices, Auto/ Auto ancillaries & the consumption basket. Many companies in this sectors also offer opportunities to play the rural themes.

Volatility is a friend of the long-term investor. While equity markets are volatile in the short run, they tend to follow earnings performance in the long run.

The Indian economy as highlighted above is the fastest growing large economy in the world. With the revival in the Indian corporate sector, the long-term potential of equities continues to look attractive.

Systematic investments offer a prudent yet simple mechanism for investors to ride the volatility. SIP’s help ride the downturns without investors facing the risks associated with timing the markets.

Asset allocation is critical to building a sustainable long-term portfolio. However, investors who do not understand financial planning should take professional advice rather than invest in an ad-hoc manner.

Investment advisors take a holistic approach to investing based on the risk profile and the investor`s goals keeping in mind the market environment. Each asset class offers its own set of merits and demerits and should not be ignored while building a financial plan.

Rising interest scenario is generally good for bank NIMs as loans get re-priced immediately with an increase in MCLR while deposit re-pricing happens with a lag.

Banks enjoy pricing power as demand for credit improves and hence are able to pass on any increase in the cost of funds. Also, rising interest rate scenario is backed by an increase in CAPEX - as of now brownfield CAPEX is happening while greenfield CAPEX is yet to pick up.

The minutes of the February MPC meeting reinstated the cautious approach as inflation uncertainty has increased.

Amid this increased uncertainty, possible closure of output gap with improved growth also appears to worry a few members. While the tone RBI policy earlier last month was neutral, the hawkish tones of the MPC minutes suggest a possible increase in interest rates in the H2 FY19.

MORE WILL UPDATE SOON!!

Should you bet on large-cap or mid-cap stock for better returns in current market?

Investors should adopt an asset allocation approach towards equities, with exposures across all categories.

  

Given the current market backdrop, investing needs to be done judiciously. Investors participating in equity markets are advised to adopt cautious approach during these challenging environment. Equity trend amid high volatility around mid-cap funds while large-cap, on the other hand, can be considered as less risky. However, the past trends show only slight variance between the returns generated by large-caps over mid-cap. Hence, a million dollar question arises – which equity savings category can be considered as less risk and provide high returns future earnings for investors? However, one cannot select a specific category of funds that offer exposure to equities while minimizing the risk element, but doing proper asset allocation can help them to do so.

Investors in the current market conditions can consider equity investments whether be it a large-cap or a mid-cap that aims to generate income by investing in bluechip companies or emerging companies to get higher returns. However, while looking at capital appreciation through moderate exposure in equity, one can also go for hybrid equity funds option too.

The equity saving funds endeavours to wrap three benefits together – income opportunity, the growth potential of equity and tax efficiency.

2017 was a fantastic year for Indian equities, particularly mid and small cap equities. Sensex delivered 27.5% in 2017, against 46% for BSE Midcap, and 58% for BSE Small Cap. The current trend of outperformance of mid and small caps over large caps has been continuing since 2013. One flip side of this trend is that we are seeing many investors falling into the behavioural trap of believing that this outperformance trend will continue forever, and they are allocating their money exclusively to mid and small caps. Looking at history, we can safely say that there is no indication that mid and small caps will always outperform large caps in the long run. In fact, since 2003 over seven-year investing periods, we see that mid and small caps outperform large caps in less than half of the observed cases.

Why large-cap?

In normalcy, the companies stocks with a market cap of Rs 20000 crore or more comes under the ambit of large-cap stocks.

Large caps and mid and small caps vary slightly in their attributes. In the large caps, since these are larger firms there is a relatively higher degree of revenue and profit certainty.

Large caps are less volatile than mid and small caps. Mid and small cap firms can offer elongated periods of high growth, but to access this high growth, these firms also take an inordinate amount of operational risks. In many cases, these operational risks do not pay off, and earnings suffer. With high earnings fluctuations, we also observe more volatile valuations and stock prices..

Why mid-cap?

In normalcy, the companies stock with a market cap of Rs 5000 to Rs 20000 crore comes under the ambit of mid-cap stocks. and the companies stocks with a market cap of Rs 1000 to Rs 5000 crore comes under the ambit of small-cap stocks.

Himanshu said that one of the benefits of midcaps stocks is that these firms are typically under-researched, and there is some alpha to be discovered from the quality stock selection. With SEBI’s reclassification mandate where fund managers will have to build the majority of their mid-cap exposure from a universe of 150 stocks, this stock selection alpha may get slightly constrained.

Looking at these reasons, we suggest investors adopt an asset allocation approach towards equities, with exposures across all capitalizations. Given the attractive relative valuations between large caps to mid and small caps, we prefer slightly overweight large caps at this stage relative to mid and small caps.

MORE WILL UPDATE SOON!!