Sale season starts on D-Street, soon buy stocks at discount – Economic Times

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The domestic equity market opened amid positive sentiment on global cues, but sudden bouts of fear led to weakness by the close of the week. CDSL’s IPO was oversubscribed by a whopping 170 times, garnering Rs 64,000 crore. This kind of frenzy resembles peaking public sentiment seen during market tops.

When smart insiders-cum-promoters start selling shares in the open market, e.g. Ibulls Real Estate promoters sold shares to the tune of Rs 660 crore or for those matter promoters diluting stakes by coming out with QIP eg. JSW Steel intending to raise Rs 8,000 crore, it unequivocally suggests the markets are at lofty levels. It is time to sell when promoters are selling.
The ghost of farm loan waiver has attacked with full vengeance. Now Punjab and Karnataka governments have also jumped into the bandwagon to smoke out honest taxpayers’ money. This is a step backward and is against the interest of long-term economic growth of the country.

Events of the Week: The US government has introduced a new bill, replacing ObamaCare, by reducing the healthcare aid to poor, and at the same time reducing the tax on the super rich by 3.8 per cent, which was earlier imposed to finance the healthcare bill for the needy. This will change the landscape. If the bill is passed, Indian pharma companies will have a reduced pie in their fold and will have muted growth prospects under the new framework.

Technical Outlook: The Nifty50 has made a failed attempt to go higher. A Shooting Star formation near the previous top and subsequent weakness indicates the beginning of a correction. Both the Nifty50 and Nifty MidCap50 indices have made a double tops/lower top in the intermediate time frame, and an engulfing bear pattern in the near term, both of which point to weakness in the short term.

On a weekly chart, an Evening Star was formed, which signalled of end of the bullish moves since December 2016. Short-term traders should exit all their long positions and may initiate shorts below 9,530 on the Nifty50 while medium-term investors can keep trailing exits at 9,333 on the Nifty50 or may partially book profits.

Expectations for the Week
The excess froth created in the ongoing bull market since the last six months will now begin to correct. Shares of auto and auto ancillaries, real estate, cement, financial services and FMCG all are bound to correct in the near term. The pendulum had swung too far on the side of optimism and, therefore, the same should return to normal before any meaningful rally starts again.
The real market action can be gauged from the midcap and smallcap indices, which are showing distinct weakness compared with the frontline indices. A proper analysis of the midcap and smallcap indices indicate that it is time to book profit on a substantial part of the portfolio and sit on cash.

Ultra long-term investors may still continue to hold quality stocks. No new investment should be done at the current juncture. The Nifty50 closed the week at 9,574, down 0.14 per cent.

Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.