28 August 2014

HISTORY WILL REPEAT ITSELF ; NIFTY FORTH COMING STRATEGY

The English translation of the Hindi word “Dubara” is “again”. The first thing that comes in a Technical Analyst’s mind when he thinks about the word “Dubara” is a stock market cycle. A cycle is a chain of events that repeats over time. The outcome might not be the same each time but the characteristics are quite similar.
Cycle frequencies can both be short and long, it can last from minutes until thousands of years. Understanding long term cycles in stock market helps you determine the overall market trend and similarly short term cycles helps you determine your timing in the entry and exit points in the stock market. Text Book examples of stock market cycles widely respected and followed are “US Presidential Cycle” and “Dow 18 Year cycle”
We are going through one such Short term cycle which is the “India’s Election Cycle”. As per this cycle, Nifty has the tendency to rally few weeks before major elections results are out and then post results it goes either for time wise consolidation or price wise consolidation for 12/13 weeks.

The last two major elections conducted by the election commission were the 2013 Assembly elections conducted in November and December 2013 and the general elections conducted in April and May 2014. The results for the same were announced on 28th Dec 2013 and 16th May 2014 respectively. The Outcome for both the General and Assembly elections were big setback for the Congress and a Victory for BJP. While the BJP retained Madhya Pradesh and Chattisgarh, It snatched Rajasthan from Congress in the assembly contest. In Delhi BJP was the single largest Party. In General elections, BJP won 282 seats thus winning by a simple majority, a remarkable feat in an era dominated by coalition politics. Congress just managed to win 44 seats.
In the Indian Political Space, Congress is seen as “Centre-Left” and dominates this space whereas BJP dominates the “Centre-Right” space.  A centre-right party shows more faith in markets, prefers small government, dislikes welfarism and is comfortable with business. The Recent rally in the market is needless to say propelled by the resurgent BJP.
If this is the case then why did we see the markets topping out immediately on the day elections were announced?
This could be because of the Dow Theory which is the Bible of Technical Analysis. As per this theory markets discount everything. The basic premise of Dow Theory suggests that all information - past, current and even future - is discounted into the markets and reflected in the prices of stocks and indexes.
That information includes everything from the emotions of investors to inflation and interest-rate data, along with pending earnings announcements to be made by companies after the close. Based on this tenet, the only information excluded is that which is knowledgeable, such as a massive earthquake. But even then the risks of such an event are priced into the market.
The Election commission is likely to conduct polls in Maharashtra, Haryana and Jharkhand in October and the results for the same would be announced in November. Although the exact dates of Polling and then the announcement of results is yet to be announced, this could be the most likely scenario considering the end of the tenure of current assemblies in these states. The EC will also conduct elections in Jammu & Kashmir which could happen just after the elections of the above states. Alternatively it could also conduct elections along with Maharashtra, Haryana and Jharkhand keeping in mind the security situation of the state. We believe Nifty is likely to be driven next few weeks by the political commentary and news arising from this states. In the top- down approach to investing in the stock markets, politics tops the list and its importance cannot be understated. It is in this backdrop that we thought it important to release a separate special “Political Report” on the above subject...
MAHARASHTRA
~ The Maharashtra state assembly election, 2014 will be held in late 2014, to select the 288 members of the Maharashtra Legislative Assembly, which ends its term on 7 December 2014.
~ The main battle would be between UPA led by INC along with alliance partner NCP and NDA led by BJP, SS, RPI (A) and other regional parties.
~ The current government is led by Congress and NCP.
~ In the recently conducted Lok Sabha elections, NDA won 42 out of the 48 Lok Sabha Seats which is 87.5% of the seats. It was leading in more than 230 assembly segments. A Lok Sabha constituency is divided into various Assembly constituencies. If identical voting pattern takes place NDA would easily won more than 230 seats in assembly.
~ Some of the factors that is against the ruling Democratic front led by congress is 15 years anti-incumbency, misgovernance, serious corruption allegations, farmer suicides, arrogance of top leaders.
~ Factors favoring NDA includes Direct Support, Indirect support, electoral alliance or tactical support by regional parties like MNS, Swabhimani Paksha, RSP and RPI (A). Recent switch-over of major leaders from NCP-Congress to NDA folds. Association of Voters with ruling party at the centre for benefits to the state. All this factors were not with NDA in previous assembly elections conducted in 2009.
~ Based on the above we believe Maharashtra would be an easy walkover for NDA and it could win more than 200 seats. 
HARYANA
~ The Haryana Legislative Assembly election, 2014 will be held in late 2014, to select the 90 members of the Haryana Legislative Assembly, which ends its term on October 27, 2014.
~ It is likely to be a Muti-party contest with Om Prakash Choutala Led “Indian National Lok Dal”, INC led by Bhupinder Singh Hooda, BJP and Haryana Janhit Congress- BL. BJP and Harayana Janhit Congress could tie-up. BJP-HJC had tied up in 2014 General Elections.
~ The current government is led by Bhupinder Singh Hooda led Congress.
~ In the recently conducted Lok Sabha elections, BJP won 7 out of the 10 Lok Sabha Seats with 35% vote share. In a multi party contest with 3-4 major parties contesting, a 35% vote share is very significant. With Alliance partner HJC(BL) vote share of 6%, the vote share of NDA was 41%. In the Lok Sabha elections, BJP alone was leading in more than 53 seats.
~ However General elections are different from state elections. A voter can vote differently for State elections and General Elections. Things are not going to be that easy for BJP in Haryana. Leading in 53 assembly segments does not mean, they are likely to win 53 seats in coming elections. INLD is the main opposition party in Harayana with 31 seats. BJP just has 4 members in the current assembly.
~ Some of the factors that is against the ruling congress government is 2 full terms of anti-incumbency and land scams. In the previous assembly Congress had 40 members out of 90 and it was governing with external support.
~ With AAP deciding not to contest Haryana Polls and anti-congress and anti – Hooda mood in the state, we feel, in such a scenario the Major natural beneficiaries would be INLD and BJP.
~ Based on the above observations, We believe Congress could be big loser in Harayana with less than 15 seats. Incase BJP-HJC contest together, they will get more than 45 seats and form government on their own. In the event of BJP fighting it alone we believe BJP would get more than 40 seats but would need external support to run the government which could be available from independents or poll-poll pact with HJC. Either ways we will be seeing a BJP CM and BJP government in the state.
JHARKHAND
~ The Jharkhand Legislative Assembly election, 2014 will be held in late 2014, to select the 82 members of the Jharkhand Legislative Assembly, which ends its term on first week on January 2015.
~ The BJP is on a good wicket in Jharkhand. By winning 12 of the 14 Parliamentary constituencies, the party registered the best performance ever in the State in the last Lok Sabha election. Shibu Soren’s JMM which is sharing power with Congress in the State won 2 seats, while Congress came a cropper. With a vote share of a whopping 40 per cent, the BJP is now the number 1 party in Jharkhand.
~ Even after adding the vote share of next 4 parties Namely Congress, JMM, AJSU and JVM the vote share was not close to BJP’s vote share of 40%.
 ~ Some of the factors that is favoring BJP is Recent switchover of major leaders from smaller parties to BJP. Association of Voters with ruling party at the centre for benefits to the state.  The Voters are able to see development activities in the neighboring state of Chattisgarh where BJP is in government since long.
~ Based on the above observations, We believe Congress and JMM could be big loser in Jharkhand with less than 15 seats each incase they contest together like Lok Sabha elections. Incase JMM and Congress decide to contest separately they will get seats in single digits. There is no strong regional Satrap like Nitish Kumar and Lalu Prasad Yadav who can tie-up  to stop BJP’s rise in Jharkhand like they did in recent Bihar- By polls.
~ Since it’s 15 years of formation Jharkhand has seen 9 governments and 5 chief ministers. The possibility of a BJP government this time with simple majority is very much likely this time.

JAMMU AND KASHMIR

~ The Jammu & Kashmir Legislative Assembly election, 2014 will be held in late 2014, to select the 87 members of the Jammu and Kashmir Assembly, which ends its term on mid January 2015.
~ The 4 major parties of the State are PDP, National Conference, BJP and Congress.   
~ In the recently conducted Lok Sabha elections, BJP won 3 out of 6 Lok Sabha seats with a vote share of 32.4% while PDP won the rest Lok Sabha seats.
~ The Lok Sabha Constituency of Anantnag, Baramullah and Srinagar has 46 assembly segment seats out of 87. Whereas Jammu, Udhampur and Ladakh has 41 Seats amongst them. Due to Polaristaion of Votes and heightened atmosphere BJP will sweep assembly constituencies in Jammu, Udhampur  and Ladakh whereas PDP will sweep the Assembly seats in Anantnag, Baramullah and Srinagar. BJP is certain to win more than 30 seats whereas PDP will win more than 35 seats.
~ BJP’s vote share was less than 2% in the Kashmir region in recently conducted Lok Sabha Polls. Since BJP has zero presence in 46 seats of the Kashmir region out of 87 seats in J&K, it is unlikely to win any seats from there and even if we assume it scores 100% in remaining 41 seats in Ladakh, Udhampur and Jammu region it will still not be able to get a simple majority. Due to ideological differences and polarization of votes, BJP further will not find any external support from any elected member. In such a scenario BJP forming a government in Jammu & Kashmir looks unlikely.
~ BJP would have to be content with the post of Leader of opposition.
~Only PDP could be in position to form a Government with external support from like minded parties.
TRADING STRATEGY

BJP Could repeat its stellar performance like Dec 2013 Assembly elections and win this round of elections by 3-1. Based on our study of technical Analysis especially Cycles and political knowledge, We believe Nifty could perform well in next couple of months and scale levels of 8700-8900. As per Down Theory and Cycle Analysis, we believe this positive outcome will again get factored in the Nifty, and Nifty could propel to new highs even before the results are announced. The trading strategy therefore would be to create longs in Nifty at every dips with a stop-loss of 7500 for Targets of 8700 and 8900 ....... 

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