Indian Equity markets path ahead, Deteriorating breadth a concern!

The below is English Transcript of the interview published in Economic Times of Navbharat Times by Ashish Kyal, CMT

Indian Equity markets have continued to rise after it formed an important low on the Union Budget held in February 2016. Sensex touched the low of 22494 on 29^th February 2016 post which the entire trend reversed sharply higher. We have seen a rise of nearly 30% in less than 7 months providing promising returns to investors. Sensex closed the previous week at 28800 levels. 

Midcap and Smallcap indices have been a strong outperformer in the entire uptrend. A few stocks have reached very expensive valuations and therefore stock selection is going to be very important both for traders and investors.

Deteriorating breadth: A concerning sign during this entire rally that started in early 2016 is that the Advance decline line has been moving lower. This simple indicator measures if there are more number of advancing stocks than declining. A falling line indicates that during the rise there have been lesser number of stocks that are moving higher and more number of stocks that are falling. During such times one should be cautious and invest only in those stocks that have lower Price to Earnings multiple and good growth potential.

Technical perspective: One of the basic methods that investors can use to understand the trend is to see the low of previous month. As long as prices do not break previous month’s low trend will remain positive. The low of prior month on Sensex is now near 27600. In the entire rise of 2016 we have not see a single negative monthly close. So investor can follow this simple method to stay in the trend.

Sector performance: Banking, Infra and Auto had been the strong sectors that helped Sensex touch 17 months high whereas defensive sectors like IT and Pharma had been the major laggards. From long term perspective we can expect Consumer discretionary, Automobile sector to outperform given the fact that increase in disposable income along with falling interest rates will result into consumer spending.

Outlook on Gold: Gold had shown strong rise in 2016 so far. Prices rose from near 25000 levels and moved towards 32000 few weeks back. Gold can continue to see stable rise for the rest of the year with important support coming near the zone of 30,000. As long as Gold manages to sustain above this level we can expect uptrend to continue. 

Week Ahead: Sensex can show some consolidation or range bound action in coming week within the zone of 29200 on upside and support near 28400 levels. Decisive break above the level of 29200 will take Indian markets towards new highs. Traders and investors should use proper stoploss levels and evaluate risk reward ratio before investing as volatility can increase going forward!