Sensex weekly update in Economic Times section of NavBharat Times

Weekly Outlook on Sensex by Ashish Kyal, CMT of Waves Strategy Advisors in Economic Times section of Navbharat Times. 

Sensex Movement:

Sensex continued to move higher over past few weeks and has managed to achieve the mark above 22500 levels from the lows of 20000 seen in early February 2014. The strong performance came from PSU Banks and interest sensitive sectors. The major trend as of now remains positive as long as 22000 level is protected.

Relative Performance:

The relative performance shows that since February 2014 Bank Nifty & Realty index has strongly outperformed. PSU banks like SBI, PNB, Bank of Baroda has given very strong returns. During the same period IT, Pharma and FMCG were laggards and underperformed Nifty and Sensex. The rally this time is led by high beta stocks and sectors which shows increase in risk appetite and is a positive indication.

Result season: Technology companies have underperformed and the eye will be on Infosys results to be declared today. On 13^th March Infosys shares fell by nearly 9% as company expected poor growth in January – March quarter. It will be important to see IT major results today along with future growth forecast which will set the tone for other IT companies. Better than expected result and guidance might help IT index to recover from the worse performing sector over past few months.

Impact of IIP data: Index of Industrial production data was declared on Friday evening after equity markets closed. The data was disappointing and came at -1.9 % against consensus estimates of 0.9. This data is for the past performance and markets try to discount the future. So we think this might have some negative impact but only for short period of time and then the major trend which is currently up should resume. WPI and Inflation data to be declared will also result into short term volatility on markets. It will be important to see if markets can rally on back of negative news which will indicate strong positive sentiments.

Decline in Gold and Silver imports: Gold and Silver imports declined by nearly 40% in 2013 – 14. This can be contributed by the steps taken by Government by ways of import duty but also to the underperformance of Gold over past many months when the prices have constantly fallen. During this period, the commodity futures volume has fallen by 40% and Volumes on Gold futures also fell by nearly 25%. This clearly indicates lack of interest by market participants in Gold that has given strong returns until 2013 for a decade. It seems Indian love for Gold is on a decline.

In a nutshell, this week will be very crucial due to start of Election voting, result season along with Inflation data and impact of Global market. Sensex has very important support of 22200 levels on downside. Any move above 22800 amidst all the events will resume the uptrend strongly and index will again touch new life time highs. Trade cautiously during this period of events!

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Trading the news? Why India GDP growth rate is lagging stock market?

By Waves Strategy Advisors, For more details on various research visit www.wavesstrategy.com

The following excerpt is picked up from “The Financial Waves” monthly update that shows 14 different charts in order to explain the movement from domestic markets including Sensex, Reliance Industries, Banks, BSE Smallcap index and everyone is pointing towards one direction.

Later we have shown analysis on India GDP growth and world markets like DJIA along with Gold in 6 different currencies. This 20 page report is comprehensive and measures the trend of each of the above asset class.

Why we always say that Macro Economic data is a lagging indicator and stocks markets are leading?

Figure 8: India GDP annual growth rate vs. Sensex

Equity markets are constantly discounting the future whereas the Economic data like GDP, PMI numbers, inflation data, IIP are all lagging indicators. These data show what has happened in the economy over the past whereas stock market is constantly thriving and discounting what is expected in future.

Following are the very recent news:

“The classic example is recent Quarterly GDP numbers announced last Friday which was even below the mean expected levels. The Indian economy grew at its slowest pace in four years at 4.4% in the first quarter (Q1, or April-June) of the current fiscal year 2013-14, compared with 4.8% during the preceding quarter (January-March) of the last fiscal, belying hopes of the economy having bottomed out.

The latest PMI reading comes close on the heels of the bleak official figure on Friday that showed that the country's economic growth in the April-June quarter has slid to 4.4 per cent, the lowest in past several years.”

However, Indian equity market had a Gap up opening on Monday’s trading session and continued the uptrend throughout the day finally closing higher by almost 1.5%.

Figure 8 shows India annual GDP growth rate vs. Sensex. We can clearly see that ……. detailed explanation of the above chart is given in the published report.

There is a causality displacement in thinking of many who keeps thinking why did stock market rallied even if the data has been below expectations. The newswire and media also interprets the data with incorrect causal effect.

A negative close on Sensex would have resulted in the following headlines in leading newspaper: “Indian economy still in troubled waters and markets reacted lower on poor GDP and PMI data.”

However, as markets closed positive the headlines in tomorrow’s paper should read something like this “Markets are already discounting the worse” or “Easing geopolitical worries helped market close positive”

In short, we expect the worse of macro Economic data during the formation of a major bottom that will start the multi-year of bull market. Also it will be a surprise if not shock to many of the people who use economic data for future forecasting of stock markets!!!

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Useful for: Trading news, GDP forecast chart, What is India GDP growth rate?

Related to: Sensex, News, PMI, GDP, India GDP growth rate, Quarterly GDP numbers, IIP