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And history repeats itself Overall RATE RATE (0.00)

In early march, we had highlighted historical behavior of the stock market. We had also highlighted how important it is to track reaction of markets to the events occurring at periodic intervals. Events trigger the momentum in equity markets. Moreover, one such major event that India is tracking currently is ‘election 2014’. We had briefed you in our last article (given below again for your reference) on how the markets move up or down in line with consensus on future results from an anticipated event.


As per our back testing on markets, they have shown a positive tendency to events such as elections 2014. As per our expectations, markets have moved up considerably post poll outcome1. Further, they are looking strong enough to deliver above average returns in next 6 to 12 months.


During our article dated March '14, the NSE Nifty 50 had recorded a close of 6221 with moderate trail P/E levels of ~17.5. As of today, Nifty is trading above 7200 with trail P/E levels of around 20. The P/E level is almost up by 2.5 point from the lows of Mar ’14, but it is still quoting at moderate levels just around 20.


Markets have moved up positively, as indicated by us in last one month. NSE Nifty 50 index delivered 16.6% absolute returns in less than 3 month, marking a remarkable performance by equities. Nifty 50 has given average average returns of 0.3% in the last three month on a daily basis. Echoing the same performance, mutual funds have also delivered above average returns and even some top funds beating Nifty returns in the last three months by handsome margine.


The positive momentum could be due to anticipation of an event, which is expected to deliver a positive environment. However, other factors that have also started supporting this momentum such as lower inflation, strong global markets, and expected downward movement in interest rates cannot be kept on the sidelines.


Nifty Daily Returns since our article on investment advise as on March '14





Date Nifty Close Change % Turnover (Rs. Cr)
03-Mar-14 6221   5040
04-Mar-14 6298 1.2 5550
05-Mar-14 6329 0.5 5755
06-Mar-14 6401 1.1 5845
07-Mar-14 6527 2.0 11368
10-Mar-14 6537 0.2 9993
11-Mar-14 6512 (0.4) 8269
12-Mar-14 6517 0.1 6177
13-Mar-14 6493 (0.4) 8356
14-Mar-14 6504 0.2 7115
18-Mar-14 6517 0.2 7269
19-Mar-14 6524 0.1 7666
20-Mar-14 6483 (0.6) 6281
21-Mar-14 6493 0.2 8842
22-Mar-14 6495 0.0 374
24-Mar-14 6584 1.4 6634
25-Mar-14 6590 0.1 6476
26-Mar-14 6601 0.2 7046
27-Mar-14 6642 0.6 12924
28-Mar-14 6696 0.8 6863
31-Mar-14 6704 0.1 7743
01-Apr-14 6721 0.3 7174
02-Apr-14 6753 0.5 8008
03-Apr-14 6736 (0.2) 7739
04-Apr-14 6694 (0.6) 6677
07-Apr-14 6695 0.0 6707
09-Apr-14 6796 1.5 8893
10-Apr-14 6796 0.0 9080
11-Apr-14 6776 (0.3) 7463
15-Apr-14 6733 (0.6) 7100
16-Apr-14 6675 (0.9) 6169
17-Apr-14 6779 1.6 6953
21-Apr-14 6818 0.6 5712
22-Apr-14 6815 (0.0) 5637
23-Apr-14 6841 0.4 9247
25-Apr-14 6783 (0.8) 8021
28-Apr-14 6761 (0.3) 6297
29-Apr-14 6715 (0.7) 5459
30-Apr-14 6696 (0.3) 7067
02-May-14 6695 (0.0) 5030
05-May-14 6699 0.1 4881
06-May-14 6715 0.2 4169
07-May-14 6653 (0.9) 6513
08-May-14 6660 0.1 5413
09-May-14 6859 3.0 8027
12-May-14 7014 2.3 8475
13-May-14 7109 1.3 10573
14-May-14 7109 0.0 9396
15-May-14 7123 0.2 8948
16-May-14 7203 1.1 21057
19-May-14 7264 0.8 15229
20-May-14 7276 0.2 11140
21-May-14 7253 (0.3) 9544
Average Change per day (%) 0.3  
Gain over March '14 (%) 16.6  
Avg Turnover over Mar '14 7724 89.4


Despite the positive momentum, market (Nifty 50 index) is quoting at moderate trail P/E levels of 19, which creates ample scope for above average returns in coming months.


Thus, we can conclude that as per our early March article, history has repeated itself with a combination of an anticipated event-based trigger and the build-up of positive economic environment leading to positive momentum, which is expected to continue, backed by descent fundamentals. As advised earlier, investors could continue to hold above average allocation to equities and gain from the positive economic environment, as history continues to repeat itself.


Happy Investing

Manish Tawde
Product Research & Financial Planning




--------- Our previous article for the reference -----------


Will history repeat itself?

Events trigger the momentum in equity markets. Any big event such as budget or RBI policy could make or break the stock market. You may gain or lose on your investments post such events. One such upcoming event is the Elections 2014.


Equity markets work on expectations and it could turn out to be positive or negative. Markets try to position themselves as per the general consensus and at times, much before an actual event. They try to achieve valuations in relation to future expectations. Currently, the expectation is built on the formation of a new government in India and whether it will be a stable government.


Coalition governments in the last few years have proved to be unstable. It has been long since we have seen a government with a comfortable majority, without any post election tie-ups. The Indian equity markets still depend largely on FIIs and for this reason; stability of a government is one of the most important factors.


Therefore, it is crucial that India gets a stable government and one with a full majority. Unfortunately, the country is divided on regional levels with no clear choice of a single party. For example, people in the North and the West have similar opinions, owing to the fact that Hindi is a common language there and is understood very well. However, regional languages are prevalent in the South and the East and so the people have preference to regional parties. These regional parties give support to the government, but at times, they withdraw their support, which poses a threat to a stable government at the national level.


In this time though, there is hope that we will have a government with a full majority. This positive expectation in the election outcome has boosted the markets, which have registered all-time highs. As we write this article, the Nifty is trading well above its all-time high. Although this is a pre-election rally, it is also well supported by strong global markets and overall positive sentiments on the economy compared with the previous year.


On the valuations front, most of the market participants feel that markets are moderately valued. With slightly better results in the last quarter, the NSE Nifty trail P/E is still trading between 18 – 19 levels. These could be considered as moderate levels for investments with enough room to move up in case of positive news flow and further improvement in the economy.


Historically, the rally in equity markets is seen during election time in anticipation of a stable government, which is not impossible for India to achieve this time around. Considering descent valuation of equity markets with stable consumption, strong global markets, and expectations of a stable government, we could expect the markets to deliver above average returns compared with other traditional investment products.


We hope that history would repeat itself to deliver better returns pre and post election, if the expectations are met. Investors may have a 70% – 80% allocation to good quality equities to gain from moving markets.


Follow our ideal Equity SIP Portfolio as per your risk profile or talk to our experts to make your investment portfolio more effective.


Happy investing!!!

Manish Tawde
Product Research & Financial Planning


Written by : blog admin

Fresh rebalancing of sectors on cards Overall RATE RATE (0.00)

Market outlook for August


July was another eventful month with the major event of the maiden Union budget being the focus of attention as post the landslide victory of the NDA Gov, expectations were running high. Besides the corporate results were a mixed pack and some sectors like capital goods and banks which had run up quite a bit showed some sharp profit-taking. The FMCG pack was the surprise element which threw up some positive surprises and cues of where money could flow in the near term. IT was again a mixed pack though preference was seen at lower levels keeping an eye on the gradual weakening of the rupee.


The month of August begins with some global tremors with the ongoing Gaza crisis not showing any signs of abating. Besides some negative news of default from Argentina spooked global markets.


Another major cause of concern was the poor rainfall seen in the month of June which however was largely made up in the month of July. However, by and large worries will remain as the stubborn inflation refuses to ease which could pave the way for some much expected rate cut from RBI which incidentally is meeting on Aug 5 to review the credit policy though largely expectations are that it will be status quo.


The last 3 months May – July has been highly eventful with the Lok Sabha elections followed by the Union Budget and also the corporate results providing exciting times in the stock market. For the current month broadly some rebalancing could be expected taking cues from the recent results announced. Broadly Nifty could see some range bound trading of 7500-7750.

Written By

Equity Research Desk



Written by : blog admin

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