Surprised! Ya most of the market players surprised by the rally in the global markets including ours. There are various reasons like FED's 1 trillion $ plan, some economic indicators showing positive sign, back in home inflation in line with market expectations, oversold markets leading to cheap bargaining, net buying from FIIs & as usual DIIs like mutual funds & LIC & etc. Whatever may be the reason, as in TECHNICAL ANALYSIS we popularly say "WHAT IS MORE IMPORTANT THAN WHY" market has given the around 20% returns as compared to march first week 8000 odd levels to 10000+ levels.
Now there lot of discussion going on in Dalal street whether this is bear market rally or start of the bull trend. Anyway I am not going to discuss that as I myself naive in this as compared to all those experts. But what I am proposing to traders & investors here is be cautious! As most of the traders/investors lost lot of their money in this crash over the 15 months, everybody will be looking to make some profit at least as and when situation permits. And in addition to that if it is bear market rally then it is going to crash if not now, after another 10% rally as historically bear market rallies have crashed after reaching the range of 30%-40%. So as I frequently say in this kind of bear market there is always "1 STEP PULL BACK WHENEVER 2 STEPS PUSHED AHEAD"
And one more popular discussion is whether markets bottomed out or not? If you see the below graph, you can see that markets have bottomed in the range of 8000-8300 levels. But question is whether is this a intermediate bottom or markets are going test the new level? But I dont think markets test the new lows! Again I may be wrong, since in this kind market nothing can be ruled out as present upside is happening, in the same way downside is also quite possible. If you observe the CIRCLE in the graph, 50 DMA is still below the 100DMA, so you cant conclude this rally is sustainable in the medium term. And there are strong supply regions in 10500 & 11000 odd levels. So traders should be careful while taking long/short positions. Capitalize on the situation & book the profits whenever your intermediate targets are achieved!
NIFTY SHIFTS TO FREE FLOAT
From June 26th Nifty is shifting to free float market methodology to calculate the index. This is the good method of calculating the index as number free float shares differ from total shares of a company. As you might be knowing free float share means number of shares traded in the secondary market in day today trading may be less/more as compared total share which include free float, promoters holdings, government holding & etc.
Presently Nifty is calculated based on full market capitalization which may not depicting the exact trend in the market movements. But this new from the board will be more pragmatic since it is going to be more weighed on daily traded shares.
If you see the below table in which NTPC & ONGC will be major losers as their free floats are around 20% 60% of their total market capitalization respectively. Being Public Sectors Majors government holds the majority of the stake in these companies. While on the gaining side almost all companies are private companies like L&T, ICICI Bank, HDFC & ITC. Since as compared to their full market capitalization to free float market capitalization more number of shares leading to increase their weightage in the index as shown in the below table.
This change will impact more as Nifty is the most traded index it alter all portfolio combination..
Inflation @ 0.27% Vs 0.44%
Indian headline inflation measured by WPI [Wholesale Price Index] fell near zero level of 0.27% for the week ended March 14 as compared to its previous week's 0.44%.
For the week ended on March 14th the WPI index increased by 0.1 basis to reach 227.7 basis points, but because of high base of 226.4 of previous year inflation is heading southward. Last year for the same week means, March 7 2008 to March 14 2008 WPI increased by 0.7 basis points due to which present year increase of 0.1 basis point is not contributing in increasing the WPI headline inflation.
Where as if you see the CPI [Consumer Price Index] numbers couple of them are still in double digits. For example Pulses and cereals, the two most commonly consumed items, are at 9.97% and 10.12%, respectively. The inflation rate for sugar is at 20.97 per cent. But for these numbers there is agricultural reasons like periodic cycles in agricultural outputs. For example in case Sugarcane, there will be bumper crop for 2 consecutive years & next year it will very low crop like that every crop has its cycle of yields. And in addition to that thanks to "OUR WELL DEVELOPED PDS [PUBLIC DISTRIBUTION SYSTEMS]" which contribute to higher inflation particularly in scarce time due to hoarding by agents.
So what is the solution to minimize this "BASE EFFECT", because all our "MONETARY POLICIES" will be dependent on Inflation numbers measured by WPI. Since base effect is going trouble us next year also since this year we will face negative inflation for the for the couple of months April & May and most probably for June also due to high base of 10%-13% of inflation last year in these months. And in addition to that if this DISINFLATION LEADS TO DEFLATION PRAGMATICALLY due to job losses/salary cuts & other forms of economic problems negative inflation may extend also. And this is going increase inflation substantially in next year as it is in negative this year.
So government should think of adopting to CPI that too with the SEASONAL ADJUSTMENTS so that all the changes are adjusted in inflation numbers. So all the policies taken on these numbers will lead accurate results.
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