Towards Greater Uniformity
EXPECT the most unexpected in the markets.
Despite decision to ban badla, the Sensex has been inching upward perplexing a majority of investors.
More than the upward movement of the Sensex, it is the improving breadth of the market which indicates that bulls are trying to regain control.
One reason for the improving breadth of the market is the shift in focus from A group stocks to B1 and B2 category scrips.
A large number of scrips from these categories have seen sharp rise in volumes during the last fortnight.
The reason for the shift in focus is simple.
While A group stocks will move into rolling mode from July 2, B1 and B2 category scrips will go into rolling mode only early next year.
This will provide enough opportunity for marketmakers to keep small investors' interest alive in the market till then.
It is the interest of small investors which keeps the market alive and kicking.
Also, FIIs are pleased with the trading system moving closer to international methods such as options and futures.
They have pumped in more than Rs 10,500 crore during this calendar.
In fact, consequent to Sebi's decision banning badla, FIIs alone have pumped in Rs 676 crore during the last 10 trading sessions.
This flow of fresh funds and general feeling in the market that nothing bad is in store, have brought back the feel good factor.
Over the next few years, there will be a fundamental change in the market structure.
By March, the caste system in the market, ie, classification of scrips into different categories A, B1 and B2 will come to an end.
Currently, A group stocks enjoy an edge over other category stocks in the form of liquidity and carry forward facility.
Come July 2 and this will come to an end.
It will make investors look at all scrips in like fashion.
This is likely to lead to an upward re-rating of a large number fundamentally good scrips which are currently neglected by marketmen just because these belong to the B1 and B2 categories.
Therefore, it is now time to take a closer look at fundamentally sound scrips belonging to the B1 and B2 categories as a large number of winners are likely to emerge from among these categories.
Adding to the bullish mood of the market is the announcement by the meteorological department that monsoons are set to be normal yet again.
Even drought hit states -- Rajasthan, Gujarat and Madhya Pradesh -- are expected to receive normal rainfall.
Historically, after a spell of drought, whenever normal monsoons have returned, the market have always recovered sharply.
During the drought of 1987, the Sensex was moving in the range of 530 and 390 and was in the firm grip of bears.
In 1988, as soon as first indications of a normal monsoon reached the market, the Sensex moved upward very sharply and touched a high of 720 in the same year.
With the arrival of normal monsoons in the three drought hit states, rural demand from these states is expected to increase.
This is likely to bear a positive impact on sectors like tractors, pesticides and two-wheelers which draw a large part of their demand from rural India.
Improved rural demand should help see a rise even in FMCG major HLL's topline growth.
Technically, the most important signal likely to emerge will be on the weekly moving average convergence divergence charts.
Currently, it is placed in the negative territory.
The average and trigger lines are converging towards each other and are very close to give a buy signal.
If a confirmed buy signal emerges from this chart, (most often it is a whip-saw), it would be after a gap of five years when the MACD chart will show a strong positive divergence coupled with a buy signal.
A similar trend appears on the monthly stochastic chart too.
It is currently in the sell mode and is placed in equilibrium territory.
But the average and trigger lines have started converging.
Though, these are still far apart, if a buy signal appears on this chart too, that would confirm a strong bullish mood as it would also be seen after positive divergence.
The 14-month William%R has given a buy signal as it moves upward from the oversold territory.
However, it has not yet shown any positive divergence.
While the rolling settlement might make an individual scrip more volatile, its impact on the Sensex in terms of volatility is unlikely to be very strong.
Despite decision to ban badla, the Sensex has been inching upward perplexing a majority of investors.
More than the upward movement of the Sensex, it is the improving breadth of the market which indicates that bulls are trying to regain control.
One reason for the improving breadth of the market is the shift in focus from A group stocks to B1 and B2 category scrips.
A large number of scrips from these categories have seen sharp rise in volumes during the last fortnight.
The reason for the shift in focus is simple.
While A group stocks will move into rolling mode from July 2, B1 and B2 category scrips will go into rolling mode only early next year.
This will provide enough opportunity for marketmakers to keep small investors' interest alive in the market till then.
It is the interest of small investors which keeps the market alive and kicking.
Also, FIIs are pleased with the trading system moving closer to international methods such as options and futures.
They have pumped in more than Rs 10,500 crore during this calendar.
In fact, consequent to Sebi's decision banning badla, FIIs alone have pumped in Rs 676 crore during the last 10 trading sessions.
This flow of fresh funds and general feeling in the market that nothing bad is in store, have brought back the feel good factor.
Over the next few years, there will be a fundamental change in the market structure.
By March, the caste system in the market, ie, classification of scrips into different categories A, B1 and B2 will come to an end.
Currently, A group stocks enjoy an edge over other category stocks in the form of liquidity and carry forward facility.
Come July 2 and this will come to an end.
It will make investors look at all scrips in like fashion.
This is likely to lead to an upward re-rating of a large number fundamentally good scrips which are currently neglected by marketmen just because these belong to the B1 and B2 categories.
Therefore, it is now time to take a closer look at fundamentally sound scrips belonging to the B1 and B2 categories as a large number of winners are likely to emerge from among these categories.
Adding to the bullish mood of the market is the announcement by the meteorological department that monsoons are set to be normal yet again.
Even drought hit states -- Rajasthan, Gujarat and Madhya Pradesh -- are expected to receive normal rainfall.
Historically, after a spell of drought, whenever normal monsoons have returned, the market have always recovered sharply.
During the drought of 1987, the Sensex was moving in the range of 530 and 390 and was in the firm grip of bears.
In 1988, as soon as first indications of a normal monsoon reached the market, the Sensex moved upward very sharply and touched a high of 720 in the same year.
With the arrival of normal monsoons in the three drought hit states, rural demand from these states is expected to increase.
This is likely to bear a positive impact on sectors like tractors, pesticides and two-wheelers which draw a large part of their demand from rural India.
Improved rural demand should help see a rise even in FMCG major HLL's topline growth.
Technically, the most important signal likely to emerge will be on the weekly moving average convergence divergence charts.
Currently, it is placed in the negative territory.
The average and trigger lines are converging towards each other and are very close to give a buy signal.
If a confirmed buy signal emerges from this chart, (most often it is a whip-saw), it would be after a gap of five years when the MACD chart will show a strong positive divergence coupled with a buy signal.
A similar trend appears on the monthly stochastic chart too.
It is currently in the sell mode and is placed in equilibrium territory.
But the average and trigger lines have started converging.
Though, these are still far apart, if a buy signal appears on this chart too, that would confirm a strong bullish mood as it would also be seen after positive divergence.
The 14-month William%R has given a buy signal as it moves upward from the oversold territory.
However, it has not yet shown any positive divergence.
While the rolling settlement might make an individual scrip more volatile, its impact on the Sensex in terms of volatility is unlikely to be very strong.
Source...