QUANT SYSTEM MARKET VIEW - 08.11.21

From the desk of Capt.D.Ganesh Raja

Dear Friends,

I hope you all had a wonderful Diwali and wish you a Happy Samvat New Year to you all. Equity markets have been on a roll since last year which I hope it has increased your wealth but there are quite a few disgruntled people who either missed the run or wating frustratingly for a correction. Also, many of my close friends and relatives have asked if they can take exposure in equity. Now is the time to take stock of the situation and form a view as to what one intends to do with their capital depending on the timeframe they are looking at.

There is plenty of discussion in various investor groups of experts and even views of seasoned investors. As far as I am concerned, I read as much as possible, listen to different viewpoints and in the end form my own view. Basically, we all are actually trading / investing our belief systems and not actually trading / investing the markets.

Ancient sages in this land have said. “Dhristi mein shristi hai”, which means you create what you see and think.

With this philosophical background let me try to see what is in store. For now, I will take a little longer time view because markets are at a critical junction. For this, I use macroeconomic indicators which I filter using my own methodology.

Capacity Utilization in India decreased to 60 percent in the second quarter of 2021 from 69.40 percent in the first quarter of 2021, source: Reserve Bank of India. This doesn’t seem to be a seasonal trend viewing past data and what concerns me is that it has fallen below the variance limit. This can have a direct impact on corporate profits in turn depressing earnings numbers further exacerbating PE multiples, which in turn can set off a correction.

Inflation expectation for September 2021 is placed at 10.9%, but using proprietary filters it seems that it is headed higher. Food inflation is continuously falling, which gives a comfort zone because it affects a totally different section of the society.

Central Government spending as percentage of GDP has been continuously increasing in the last few years and we are at 17.6% in 2020-21 fiscal year and the highest was 19.42% in 1986. This shows that there is room for this to expand but for now there is an indication that there will be moderation in near future. There has been a spike up in this indicator since 2019. The recent Government move of slashing excise duty on fuel, though lauded by many as a good move but may also be read as Government’s concern over higher fuel prices, especially with elections in near future in 5 states. To put it in light humour, there is something called “Good economics” and something else called “Pre election economics” and it need not be said which one wins. Also there seems to be indication of higher oil prices as per latest OPEC meet, which is not a great news as far domestic markets are concerned.

Retail loan growth has been smartly going up at a fast pace and the good part is, large part of it is coming from outside Tier-1 cities. India’s retail credit industry stood at $613 billion (Rs.44 lakh crores), as per June 2021 data. Large chunk of it is from home loans (Rs. 21 lakh crores) and loan against property, with business loans also growing smartly. If we are little concerned if the credit is reaching the neediest sectors, I don’t have the full study on it. RBI’s priority sector lending has directives towards lending to this sector but many a times it has fallen short of expectations. But Mudra loan scheme by the Government has disbursed 6.19 lakh crore in FY 2019-20, where even loans up to Rs. 50,000 have been given.

I believe that we need robust mechanisms to address the bottom of the pyramid, since future economic growth would hinge on that.

10 year Government security index is showing mixed trend as of now and nothing can be said with certainty.

India VIX is comfortably placed at 15 levels and for now stuck at a range. Some of the proprietary indicators are indicating to keep a sharp watch from here onwards for a possible breakout from this range.

Now having a look at the Nifty weekly chart, it seems to be very close to the long-term uptrend line, so technically it should bounce. Remember the rule “Trends are in force till reversed”. There are a series of negative news flows I am receiving in various forms, which is beyond the scope of this discussion, but as per charts there is no indication as of trend reversal yet. Going by daily charts, symmetrical pattern structure indicates that there might be a listless market activity of few hundred points till end November 2021. The system might trigger an exit in Nifty in the next couple of weeks or so, but unfortunately, I won’t be able to update you all because I would be travelling for a shipboard assignment for a couple of weeks.

Putting all the factors together al I can say that markets are not in value zone now and it would be prudent to be a bit cautious in India equities now and not build fresh long positions. This doesn’t mean that we can short the market. There can be stock specific actions but since they have to be monitored very closely, I will not be recommending them. If I find time in between the assignment I will try to give some trading recommendations for stocks.

GOLD: System gave a buy signal in Gold on on 22.10.21, at 47,797.0, with a stop loss at 47120.0. Continue to hold long position/

Target1 – 50685.0, Target 2 – 54541.0, Leverage 0.30x.

Minimum profit potential – 6%. Asset allocation profit potential – 1.8%.

Minor trend: Up, Intermediate trend – Neutral with upward bias, long term trend – Neutral with upward bias.

Note for reading this report:

Note1: The stop losses are on end of day basis

Note2: When trade recommendation is given around a certain price, it means that the trade may be taken the next trading day or if a price zone is given for taking a trade then trade has to be taken on the day price reaches within that zone.

Note3: A separate excel sheet is attached to view the performance of the recommendations, which also reduces the task of individually reporting the performance of each trade recommendation. Viewing the excel sheet “TRADE RECOMMENDATION LOG” will be self-explanatory. Also in this sheet Trade recommendations which are still active are marked.

When signals are triggered mid-week, that is updated in log sheet and covered in the weekend report, due to paucity of time.

EXISTING TRADE RECOMMENDATION OVERVIEW

Refer to “TRADE RECOMMENDATION LOG”

NEW TRADE RECOMMENDATION

NONE

TOTAL LEVERAGE OF ABOVE NEW TRADE RECOMMENDATIONS: NA

COMBINED PROFIT POTENTIAL FOR ABOVE TRADES: NA

TIME WINDOW OF TRADES: 7 DAYS TO 21 DAYS.

TOTAL LEVERAGE INCLUDING UNCLOSED POSITIONS AS PER PREVIOUS RECOMMENDATION: 1.85X

RETURNS TILL DATE SINCE 04.07.20 : 62.49% (AS OF MONDAY 08.11.21 CLOSING)

TRADE RECOMMENDATION LOG.pdf

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