Weekly Market Summary
What we got on the first trading day of this week was a positive start with a gap-up on Nifty and Sensex, and next two days we saw a pull-back of 1.2 per cent, and on Thursday, future and options expiry day, we saw a sudden and sharp surge on indices just an hour before the closing bell, especially in banknifty caused by sharp surge in three private banks including HDFC bank, Kotak bank and Indusind bank on the back drop of FII’s window open in HDFC bank. Finally, on Friday we saw a minor pull-back despite having a strong GDP data from government that reported 7.7 per cent growth for January-March period.
Market likes positive surprises, so on Friday, market rewarded selected auto companies like Maruti and Bajaj-Auto, post May month auto sales figures.
On a weekly basis, the 30-share pack Sensex gained .87 per cent or 302.89 points to end at 35227.26, and 50-share pack Nifty added .86 per cent or 91.05 points to end at 10696.20, while Banknifty outperform the market with a gain of 419.25 points or 1.6 per cent.
Current Outlook
Now earning season is behind us, so I would like to combine fundamentals and technical both into my analysis. Let’s talk about fundamental first; Earning and PE ratios are what smart Investor uses for it forecasts, after discounting the recent quarter earning I have not found veritable improvement in earnings which could bring down the now historically high Nifty PE ratio to an average level, Nifty PE after Friday closing is at 27.09, on January 23, 2018 it touched a high of 27.81. Although few stocks have declared good set of earnings which deserve such a high valuation, but certainly not all. However, that doesn’t mean Nifty PE cannot go up further in the anticipation of improvement in earnings going forward, provided the strong upward momentum still exist.
Technically, we can measure daily market breadth by using the AD percent indicators for the NSE stocks. AD percent = (Advances – Declines)/ Total Issues. This shows net advances as a percentage of total issues and we can compare these values across indexes. I use +60% to signal a bullish breadth thrust and -60% to signal a bearish breadth thrust. Since last one month I found this percent close to -50% persistently even on day when Indices closed higher significantly. Moreover, more stocks are making new lows than highs that indicate internal weakness in the market.
On positive side we have low reading on volatility index (VIX) at 13.57 that suggest complacency at current valuations. And among value, growth and momentum, last two are only in favor of few index stocks but not to broader market.
Hence, it turns out my market forecast is among the most pessimistic on street.
Conclusion
The market has been trending up while it is not a vigorous move; the market shows reluctance to decline and a very modest tendency to advance. Still, I expect market may resolve downward. Simply because I am emphasizing more on market breadth which is prominent indicator to me in gauging the overall health of the market. Hence, I would like to stay on my stance unless I found veritable improvement in market breadth.
I welcome any feedback you may have about the content of this article.
Keep Analyzing..!! Be a Savvy Investor..!!
Pankaj