Nifty Futures analysis for 9-10-2017

‘Valuations are not too stretched: William O’Neil & Co’

Though valuations near a seven-year high and sagging economic growth are taking the shine off Indian equities, to William O’Neil & Co, the $2-trillion stock market is still the place to be. “If I were a foreign portfolio investor with a growth mandate, I’d certainly be working here, I’m not worried about valuations and I don’t think they are too stretched,” he added. “We see a good number, a few dozen really good growth stories over here that are worthy of investment,” President Steven Birch said. “Great growth stocks carry high multiples for a reason,”

The above excerpt is taken from the Market Watch, page 10, of the leading financial newspaper, Businessline, Chennai edition dated October 7, 2017. Most of the investor community agrees with him. There is a reason to as most of the market participants are sailing in the same boat which Mr. Steven Birch wants to sail now. Buy on dip is the mantra for now.

But I now disagree with the bulls in the market for the reasons which are difficult for me to ignore. The high P/E ratio of 25.75 in Nifty 50, 27.5 in Bank Nifty, 30 in Nifty 500, 40+ in Infra nifty and so on. The only exception to these is Nifty IT at 17 and Nifty commodity at 18.5. The dividend yield in most of the cases is below 1%.

The unabated selling by FII’S to the tune of approx Rs.39966 crores in last two months and the continuation of the same in the current month is a cause of concern which many of bulls will not agree as it is fully absorbed by DII’s.

The Dollar – Rupee chart signals a further weakening of rupee which is not a good news for our stock market.

There is a marked increase in the number of IPO’s in a very high premium hitting the market now. This phenomenon generally happens when the stock market may have or about to top. Just look at the top of 2008-09 and see the number of issues along with the premium which hit at that time. I will try to bring a report on that in some time. Although there are many IPO’S which merits attention one of which caught my eyes are “Dixon Technologies Limited”, which was overwhelmingly oversubscribed and that too at a very rich valuation of Rs.1766/- per share. It raised Rs.600 crores from the market. Now just look at the utilization of fund from the proceeds it received. Approximately 20 crores are been used for setting of a new LED TV factory in Trichy, another 10 crores approx for its Dehradun facility, 20 crores approx for repaying debt and the balance 8 crores approx for others.This total comes out to be 60 crores.So what happens to rest of Rs.540 crore? It was utilized to help the Promoters, the key employees, and the Private Investment arm of a reputed Broking and investment company to make a  windfall profit just by selling their collective share of approx 48% to the investors which would have never happened in normal times. This is a classic case of the investor psychology at the top of the bull market which at one hand makes Promoters happy but on the other hand might have an adverse effect on the investors’ wealth. What actually pans out of this situation only time can tell!

There are many more points to defend my views but at the moment I would like to rest my case.

NIFTY FUTURE-60 MIN 091017
Nifty Futures 60 min chart

 

Now for the day traders, Buy Nifty future above 10004 with a stop loss of 9969 for a target of 10070 and sell it below 9968 with a stop loss of 10001.5 for a target of 9928.

For positional trades, Sell it below 9900 with a stop loss of 10018 for a target price range of 9525-9550 region for now. I do not recommend any buy call on it at this stage.

For further trades or queries,                                                                                                     write back @ vinayagrawal1411@gmail.com

The author(s), or a member of their household, of this report, does not hold a financial interest in the securities of this company. The author(s) has followed “blackout periods” that prohibit analysts from trading securities of the companies they follow for 30 days before and 5 days after they issue a research report about the company, and prohibits analysts from trading against their most recent recommendations—subject to exceptions for unanticipated significant changes in the personal financial circumstances of the beneficial owner of a research analyst account. The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. The author(s) does not act as a market maker/promoter/beneficiary in the subject company’s securities. The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness.

Author: Vinay Agrawal

VINAY AGRAWAL is SEBI registered Research Analyst. (Reg no INH000004501) with an excellent grip on technicals analysis, fundamentals and equity derivatives. Vinay Agrawal is a Technical Analyst. He has a vast experience of 26 years in the financial markets. He is the director of Blue chips corporate services Pvt Ltd, which is engaged in stock broking. Disclaimer: Investment are subject to market risk. No representations shall be entered that the predictions made by us herein will be profitable or otherwise. Readers using this information are solely responsible for their actions. The information is based on our personal assessment/judgement and we shall not be liable for any losses and damage.

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