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A Look at India’s Stock Market via NIFTY

Published on November 29, 2010

A Look at India’s Stock Market via NIFTY

November 29, 2010

India’s NIFTY (S&P CNX NIFTY- .NSEI), different from India’s famous Sensex is an index of India 50 blue chip corporation. It covers 23 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. The S&P CNX Nifty stocks represent about 60% of the total market capitalization of the National Stock Exchange (NSE).

Nifty (.NSEI) hit a 52wk high on Nov 5th and what followed was a quick and steep correction of almost 10% in a matter of almost 2 weeks. The correction was fast and furious without any pause, as corruption news were surfacing one after another. On one hand, one might conclude that it is the news that’s driving markets lower but on the other hand, markets were overbought too fueled by QE2 money/anticipation that easy money will find its way into India. Whatever the reason maybe, NIFTY stopped in a classic text book way right at 38.2 fib retracement of a 35% rally that started from Feb low at 4,675 to ~6340.

Where is it headed now? If we use these retracements as guiding light, we might expect NIFTY to bounce upto 5,940 (or lower) or so before any meaning downleg starts. 5,700 needs to be defended. If not, NIFTY might soon visit 5,500 that needs to be absolutely defended or else we might see another sharp down leg.

That’s technicals, an easy part! The difficulty in trading any emerging market carries three major risks for retail traders- 1) Political stability and 2) The Foreign Funds Flow and 3) Unavailability of reliable data. While funds flow can still be anticipated, political stability/ corruption is hard to anticipate especially while choose single companies. In the past 3-4 weeks numerous scandals (Money Matters, LIC Housing, 2G spectrum to name a few) have emerged causing markets and related equities to tumble sharply. So before you take a position, make sure there is always this “unknown” that might be detrimental to your portfolio growth. Keep that margin of safety.

That’s where Options (F&O/ derivatives, as known in India) come to rescue retail investors. Trade markets with Iron Condors, Calendars, Diagonals, Butterflies, Credit/debit vertical spreads and many more via creating several what if scenarios. You’ll have an edge even over big fund managers who can’t get-in and out of markets quickly.

From a long term perspective, India growth story will continue for sometime and easy money will still find its way exposing markets to sharp rallies and/or pull backs. Here are some ETFs that you may want to look at INP, EPI, PIN, IFN in case you want to trade India.

By the way, if you know of good financial blogs that covers Indian markets, pls share those via comments section.

Trade the “unknowns” carefully,
Profitable Trading, OP

3 Comments

  • […] Year in November, I covered India’s NIFTY (Click here to read) Where is it headed now? If we use these retracements as guiding light, we might expect NIFTY to […]

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