NIFTY broke 10k; but stay calm.

Understandably, these are difficult times. The NIFTY dropped under its 200 day moving average, a key trend indicator that institutions watch and which could trigger redemptions.

On Friday’s close the NIFTY settled just two points under the psychological barrier of 10k.

Redemptions by institutions – when they come – will drag the NIFTY further, followed by a freeze in domestic SIPs. This is where your worse case scenarios play out and urge you to be the first out the door before the roof comes crashing down.

My knowledge of technical analysis is basic and on TradingView you will see people calling out bearish patterns such as Heads and Shoulders and Rising Wedges.

Volatility is high and momentum indicators show the NIFTY is oversold. I know at least one Technical wizard who is buying based on this logic. But let’s remember that this (oversold with high volatility) was the same scenario in September 2008 and the worse might yet be to come.

What’s my position? I haven’t sold a single share in the past four weeks.

This too shall pass

2018 is not expected to be as good an year for returns as 2017. It will no longer be throwing darts at a board and winning the lottery. People who rushed into the market in Q3 2017 are understandably frustrated and the frustration might increase with extended time-corrections as stock prices refuse to rise, consolidating in an environment of high volatility.

But I am not flustered. 2018 is special but it is still not 2008.

A Global Trade War is not a systemic risk event like the 2008 Credit Crisis. It will be priced in like Brexit, Greece, Trump’s election or other geopolitical events. Life will carry on. This current correction seems to be pricing in the double-whammy of tightening liquidity and a looming trade war between the world’s economic powers.

The Indian markets look to the US for leadership and were expected to correct in line. On the domestic front we have had compounding problems – a conservative Budget and a Long Term Capital Gains tax on equities. Besides this 2018 is an election year and uncertainties will keep the market moody.

The timing of all these events have unfortunately converged. But how many of these ill-timed events will prove to be short-term aberrations and not fundamental triggers for a crash? Perhaps all of them.

Like I said 2018 is special, but it is not 2008.

  • US unemployment is at historic lows, macros are looking strong
  • On the domestic front, Indian macros are looking good as well
  • Private capex cycle in India is yet to kick in and show in earnings – so we are far from the theme having played out
  • Stocks with leverage and poor fundamentals have got hammered, so it is far from a secular correction – indicating there is still buying pressure for good stocks
  • Public sector banks cannot trade at 0.5 book – not with re-capitalization plans. A lot of selling seems news driven. Oligopolies are not priced this way
  • China has slowed but not shut down
  • Yield curve was flattening but is expected to steepen again – it is far from inverted
  • The odds of a controlled liquidity tightening leading to a systemic credit crisis are very low in the face of an order of higher regulatory and central bank oversight since 2008

So, stay stoic or take a long vacation.


This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion. I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. No BUY/SELL/HOLD advice is offered on this blog, in any form whatsoever. Views expressed are my own and not of my employer. Stock Markets are very risky and can cause a permanent loss of capital. You should seek professional advice.

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