Indian Stock Market

More pain left ?

2008-06-23T03:03:00.000-07:00

Last time I wrote about the markets, we were in the middle of a pullback from the Jan lows and I was hoping to see some more technical bounce back. Well, we got a little bit of it (and thankfully it was good enough for me to square off my short Puts). But things turned for worst once again. And this time we broke all the previous support levels and now headed towards 4100 or even below.

Though I came out of Nifty Puts just in time, I had another short Put position which I am still holding. Most likely I will carry that forward in the next month or would once again sell 4100-4200 Puts. The premium is good right now and how much more can we go ? Well, though my heart tells me that we should be very close to the bottom, but my mind refuses to accept that. There is no good news in sight. Inflation, interest rates, Oil, global markets and political uncertainty, everything is striking at the same time, taking our markets down. Still, selling out-of-money puts might be a good strategy. For example, 4100 Puts at 150 can provide safety all the way upto 3950 on Nifty. Its been a long since we saw that level and I hope we stay above that.

Apart from that I don't think I would like to trade much in this market. I have some covered calls on Power Grid, but I don't think I would carry that forward in the next month. The stock seems quite resilient and have support around 80, but in the falling markets, I have seen stocks loosing another 20-30% quite effortlessly. They would surely bounce back and not before killing you completely.

Amazing Day!

2008-06-12T10:12:00.000-07:00

After a long time, I have some positions open on the long side. Though I am still not playing through Futures much, I have sold Puts last week which are already in the money. Any severe fall in the market can hit my trading positions as well as my portfolio.

The last week and early this week has been really bad, both for local as well as global equity markets. The oil is spiking, the data from the US is not encouraging and the inflation is threatening to spoil the party which started few years back. The global equity markets sold off and we sold off even more. And yesterday RBI increased the repo rate by 25 bps. Though 25 bps looks a small amount, what probably worried the analysts is the signal of higher interest rates that the RBI is sending. The news channels were talking about the possible free fall in the market today morning. To make the matters worst, the global markets sold yesterday night and I was prepared to see a big fall in our markets too.

But what a comeback! After opening gap down by almost 125 points on Nifty, market refused to go further down. For the first few minutes it successfully defended the 4400 levels and that was probably the first sign of resilience. That continued for next couple of hours. After the better than expected IIP numbers at noon, the markets slowly but steadily started moving up. The capital good, banking made a solid comeback and the market finally closed in green. Even the midcaps moved up and closed in green. There was surely bargain hunting and short covering towards the end.

In the last three days, this pattern is repeated. The markets go down at the opening, but then make a good comeback. I might be in minority right now, but if the global markets show some stability, I would expect a decent bounce in the market. Call it technical pull back or bargain buying. So I am holding my Puts for the time being.

Lack of Infomation

2008-04-23T20:58:00.000-07:00

Yesterday I was looking at the F&O contracts of S Kumar Nationwide. I was surprised to see that the next month options of S Kumar are priced similarly to the current month contracts which are expiring today. The option pricing was pretty strange because you would expect some 'time value' in the next month contracts, especially for the at-the-money calls and puts. In a moment of brain fade, I got too excited and wanted to buy a straddle because the option premia was very less and the stock is volatile. But then I remembered the mantra that there is no easy money in the market.

My first guess was that S Kumar is possibly thrown out of the F&O and all the contracts (current, near and far month) are expiring today. So I looked at NSE releases, circulars, annoucements, but did not find anything. I also looked at BSE site and used my friend Google News. But there was absoultely no mention anywhere of what's happening to S Kumar. Even sites like Moneycontrol.com had no mention of any corporate activity of the company.

Finally today morning I saw an article on moneycontrol that S Kumar is getting demerged into two companies and it would no longer trade in F&O starting tomorrow. So that explains the option pricing. But what frustrates me is the lack on information. NSE/BSE could have been very verbose about these announcements, especially NSE which runs most of the F&O business. And unless all the information is available in real-time to all the investors, its difficult to bring everybody at the level-field. In today's world, Information is the key to success!

Are we out of the woods ?

2008-04-22T03:10:00.000-07:00

The markets are slowly and steadily going up. Yesterday it crossed and closed above 5000 mark on Nifty for the first time since March. It's still 20% off from the peak of around 6100 we touched in January, but OTOH it's also 10% up from the recent lows of 4500. So you can look at it both ways. It's a glass half full and half empty.

So are we out of woods ? My guess is even if we are not, we should not fall too much from here. At least we should hold the lows we touched in January and retested in March. Does that mean we are going to rally hard from here on ? Again my guess is probably not. We might see a short term rally, but that may not take us to new highs soon because the global markets are still not very confident. They are not falling much, but there is a cautious approach from the investors as well as traders, both locally and globally. The oil and food prices are at all time high. Many of the essential commodities are facing huge pricing pressure, adding to the inflation concerns. That means the interest rate cut cycle in the US and worldwide may stall. That's certainly a bad news for global equity markets. Also, the fear of US falling into recession is still high and the flow of bad news from the financial markets has not stopped completely. These things will keep pulling the markets downwards from time to time until greater clarity emerges on these fronts.

Locally too we are still under pressure from the inflation front. The good news is that the earnings season so far has been relatively good. Even though there are no big positive surprises, there are very few negative surprises too. So overall it has been mildly positive earning season. The valuations have come to a level where many of the large and mid-cap stocks are looking not to expensive. They may in fact look very cheap compared to their peak valuations few months back. (Though past is hardly a indication of what future would look like. So lets not get overly enthusiastic about the stock prices).

My guess is all these factors would keep pulling the market in both the directions. So in near term, we might get stuck in a range of 400-500 points on Nifty. But I would be surprised if the market moves very far very quick in any one directions (well markets keep surprising you from time to time, but that does not mean one should not have a view on the market :-))

So how am I trading this market ? I have sold some out of money calls and some out of money puts with a view that the market would continue to trade in a range. Since the volatility is bit high, the options are priced on higher side and it makes more sense to sell than buy. Hopefully the volatility would subside and Nifty won't break out of the range in the next month. If things go as pwe my view, based on my current positions, I should make profit if Nifty stays between 4700 and 5300 at the end of the next F&O expiry i.e. May end.

Where are markets headed ?

2008-04-08T22:23:00.000-07:00

I read this article on Rediff today. I think the author has very wisely captured the current market state, but has missed out quite a few issues that are haunting our markets right now.

I think rising inflation is a big concern. We could see that the prices of many essential commodities were growing since last few months, but very recently that has started reflecting in the official WPI inflation figures. The interest rate cut which was almost factored into the stock prices few months back, suddenly took a U-turn. Bankers are now talking about possible interest rate hikes and/or other monetary measures by RBI to curb inflation. The government would want to control the inflation at whatever cost, even if that means further GDP slowdown. The case of high onion prices causing a defeat is still very fresh in politician's minds.

Another factor which I think is important is stagnancy or mild slowdown in the housing market, We have seen what it can lead to in the US and may be people are wondering if the same can happen to the India. Though I am not so worried because the Indian real estate consumers are not over leverage. But still the fancy of doubling your money in 2-3 years can create havoc in the real estate too.

So the falling stock prices, falling housing prices, high interest rates and rising inflation is taking hit on the consumer confidence. They are not as exuberant as they were few months back when it was all green everywhere. But we all still believe in the long term story and these excessive downside aberrations would get corrected just like the upside aberrations got corrected in the last few months.

Fear and Grid

2008-04-08T08:51:00.000-07:00

Fear and grid are the two factors which play into the short term volatility of any market, but its much more prominent in the stock markets because these are most widely followed and liquid markets. We have seen plenty of evidence of this in the last few months.

When the market starts moving up, most of the investors and traders are unwilling to believe that that the market has really started moving up. The fall in the prices and the lows that the stocks had touched continue to haunt the players and the stock which is still 50% off its peak, but just 10% up from its recent bottom looks expensive to the market participants. The smart money starts moving into the market and that keeps the stock prices floating. Slowly and steadily more people are attracted towards the market and they start believing that the market has bottomed out. This brings more money into the market and prices move up again. Soon the the analysts which were bearish turn bullish, the targets are revised upwards and those who did not buy at the lows feel left out and start buying at higher prices. Even those who bought at the lows and made good money, want to repeat that and make more money. All this gets the market into upward momentum. The shear power of GRID moves the market to unseen, unrealistic and unsustainable levels. But with each higher level, the next higher target is predicted.
And one day the smart money starts pulling out and market sees its first meaningful correction.

Even though the markets correct and environment changes, the GRID is still in control. People who were left out, buy at the first correction, assuming that prices will quickly go back to their highs. But the markets correct further. When there is significant correction, the bullish mood turns bearish. Those who had bought at lower levels want to protect their profits whereas those bought at the higher levels want to limit their losses. This puts downward pressure on the markets and they start correcting more. Soon FEAR grips the market players and they start selling whatever they have as if there is no tomorrow. This continues till the FEAR subsides and sanity returns to the market.

Crazy markets, aren't they ?

Stock Markets

2008-04-07T10:08:00.000-07:00

I got attracted to the Indian Stock Markets couple of years back. It has been amazing learning experience for me. Well, I would have been happier if I had made fortune in the capital market or at least have not lost real money. But nevertheless the lessons I learned are worthy writing down. So that's why this blog.

Another reason I wanted to write on this is to remind myself of the mistakes I did. So hopefully not just those who read this, but I can also benefit from my past experiences.