Weekly Market Recap:
It was a quite volatile week for the market. First two days market appeared to have lost some of their zest, amid host of unfavorable factors ranging from spike in crude oil prices, poor macro- economic data, lesser-than- expected earnings from some of the blue-chip companies, and most importantly to work off short-term overbought and extended conditions. However, in last two days market bounced off support and made a strong recovery after global credit rating agency Moody’s upgraded India’s sovereign rating for the first time in nearly 14 years by one notch to Baa2 from Baa3.
In the week gone by BSE Sensex closed at 33342.8 up by 28.24 points, similarly NSE Nifty closed at 10283.6 down by 38.15 points compared to previous week. While, Banknifty outperformed both benchmark indices Nifty and Sensex and closed at 25728.4 up by 229.4 points.
Current Outlook:
First, let me put on my views on fundamentals of the market which is overdue since last week. Most significant ratio for any particular company and benchmark indices is PE ratio, which indicates whether the stock or indices is undervalued (if PE<14), fairly-valued (14<PE>18) or over-valued (if PE>22).On Friday, after adjusting this quarter earnings the benchmark indices Nifty50 closed at PE of 26.14 which is highly expensive on traditional scaling above 22 and demands correction, however, Nifty is continued to be in over-bought zone since 11-January 2017 when Nifty crossed the mark of 8300 level, that time PE was at 22.42.
Why I am writing this is because as I mentioned, technicians have an edge over solely fundamentals followers because they ignored biggest force in the market i.e momentum and trend. Technically, both momentum and trend became stronger when Nifty crossed above 8300 level which is contrarian to the fundamental analysis. One more important factor within fundamental analysis is growth Vs value stock, for example Maruti and Eicher motors are enjoying the premium or high valuations for more than 3-4 years, although both have strong fundamentals as long as they are delivering high cash flows on QoQ, attribute to demographic advantage India has. But these are called growth stocks not a value pick, however smart money or big money have been chasing these stocks, because they focus on high velocity decision or “speed matters in business” for them. On the other hand, there are many big companies (like M&M and Bajaj-auto) within auto space which are still available at low valuation or fairly valued, we may called them value pick but when they start to move on is a question mark only the chart will tell. In bull market, eventually, money from high growth stock tends to move on towards value stocks as the competition intensified, growth stocks tends to fail in deliver same growth rate due to high expectation, Conversely value stock begun to pick up because of low expectations.
I am not prognosticating that you sell Maruti or Eicher and buy M&M or Bajaj-Auto. I am only suggesting that you polish up your technical skills along with fundamentals that will eventually take you in good trade.
Conclusion:
Certainly, high valuation draws my attention to be prepared for my exit strategy or selling discipline with the expectation that it will snap back eventually but I am not anticipating any weakness unless technical’s are strong. As an individual investor, my core competency has to be to understand “what” (technical) is happening in the markets (charts). To try and grasp the “why” (fundamentals) and how those changes will impact the stock’s price is far beyond my bandwidth. Hence, an Earnings-centric fundamentals blended with technical analysis is the best approach to protect your capital and multiply the return.
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Invest well; Invest with discipline. Be a Savvy investor..!!
Pankaj