Wednesday, February 6, 2013

Market Outlook: An interview with Ashish Kyal, CMT

Current market is not investor's market but a trader's market: Ashish Kyal
In an interview with Varsha Inamdar of MyirisAshish KyalCMT, director, Waves Strategy Advisors, said that “Indian equity markets are in a very important topping process. Most of the heavy weights have either completed their up move or are going to do so very soon.”
Excerpt from interview Myiris had with Ashish Kyal:
1. How do you see technical outlook on the market?
We use Elliott wave analysis as an important technical tool to forecast the markets and it is suggesting that Indian equity markets are in a very important topping process. Most of the heavy weights have either completed their up move or are going to do so very soon. We expect a top near 6,110 is quite significant and the reversal on the same day of monetary cut itself suggests weakness in the underlying. The overall breadth has also deteriorated significantly over past few weeks.
A stealth bear market has already started with Midcap and Smallcap indices already falling below their important support levels. In short, we expect Nifty to make a top near 6,120 levels which will not be taken out atleast for next 5 to 6 months or probably for the year.
2. Do you see any investment opportunities at present levels?
We do not see current market as investor's market but a trader's market. Investments should be avoided at least in 2013.
3. Technically which sectors look attractive at current levels?
Our view is that when a systematic downtrend starts in the market then even the strongest of the stocks or sectors starts moving sideways if not down. So creating long positions at current levels shall be avoided. However, defensive sectors like FMCG or Pharma can outperform the market during the downtrend but stock selection has to be extremely prudent. Within FMCG - ITC.Dabur looks positive and in Pharma sector - Sun pharma can be a good bet.
4. How do you see corporate earnings for third quarter?
Challenging macro-economic environment for banks/consumer discretionary sectors: Slowing economic growth, slow pick up in credit and loan delinquency, we expect the banking sector results to remain under pressure in 3QFY13. The global environment is still in fragile state and the demand from outside India has not picked up significantly. We expect corporate earnings to be mixed bag with a few companies delivering above expectations results and a few might give poor performance.

5. How do you see the global economic and market outlook?
Global economy does not look to be completely out of the woods. US is still facing issues of high unemployment rate and the fiscal cliff issue is yet to be addressed which is simply being delayed. US has to start increasing the Taxes and cut government spending and reduce other benefits sooner or later. Quantitative easing has still not resulted into economic growth as expected. All this suggests negative outlook for US and other developed economies on long term basis.
However over short term there is too much liquidity pumped into the economy which has led to increase in prices of equity and commodity markets. In short, we expect equity markets to be positive over short term but long term investments should be completely avoided. 
6. Which technical indicators investors should use to screen stocks?
We use Elliott wave to identify the major trends in liquid stocks and indices. Apart from advanced technical concepts some very basic technical tools like channels and simple indicators like Relative Strength Index (RSI), Moving Averages can be used to identify the overall trend of the stock. A very simple way is to see if the stock is in an uptrend or downtrend is to see if prices are moving in an upward channel or a downward channel over the period of 6 to 8 months. Other way to screen stocks can also be investing in those that are making new yearly highs since momentum will be highest in those stocks.
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