Nifty Chart Analysis 17, April 2020

Nifty has recovered from the lows of 7511 which we had seen on 23rd March, 2020 to 9291 as of 17th April, 2020. We have seen a good recovery of 1780 points. If we take a closer look at the candle stick pattern , we would be able to identify " Hanging man" formation . Noteworthy is Hangseng which opened around 2% gap up has not been able to sustain the levels and ended lower to its opening price of 24,457.83. 

Hanging man typically after a 6-14 candle pattern in the upward direction indicates the exhaustion setting in the markets. Most importantly we had opened gap up today and failed to sustain those levels. It also is a precursor to the formation of  an Evening Star . If  on 20th April, we open gap down, the Evening Star formation would be completed. 

With the Covid pandemic far from being over, the risk reward now favours shorts .

Candle stick time frame : 1 day- Nifty Spot 

Note: Always trade with Stop Loss

Penny Stocks

“Penny Stocks” does it ring a bell? It must be familiar by now if you have watched the movie “The Wolf of   Wall street” wherein the Leonardo makes windfall gain by selling penny stocks to his customers. So what exactly is a penny stock? Any stock which trades at a very low price, usually below Rs 10 or even stocks issued by a company which has a market capitalization of less than INR 100crore.  This term coined in the U. S was used for stocks below $5.

Nearly about 25 % and 10% of the stocks listed in Bombay stock Exchange and National Stock Exchange trade below Rs 10. Such stocks do attract a lot of investors with the prospect of making supernormal gains over a short period of time.  Penny stocks though risky, can become multi –baggers by rising from say 10 to 100 in less than a year, whereas a defensive stock like ITC (FMCG category) will find it difficult to appreciate 10 times from the current price of Rs 350. The risk-reward ratio is high in such companies as there is limited information about the functioning or the promoters of such companies. The price of these stocks is not relevant. One must look at the company’s potential and the quality of the management team.

So now, how we identify such stocks, is the quintessential question in your mind. You could use the following check list.

• Know why the stock became penny in the first place.
• Consider the stocks owned by a bigger parent group.
• Look for the companies with high promoter stake.
• Watch out for the debt of the company.
• The company should not have too many subsidiaries and must have a good sales growth and high institutional shareholding.

I would not be giving out the companies name in this blog which you can consider to invest. I would advise you to study companies in detail. You may consider investing in companies which are undervalued due to reasons not inherent to the company’s performance. Final advise, don’t buy penny stocks in haste, do proper screening and always try to buy at the least 4 to 5 stocks( as few might underperform)  to mitigate risk if there is any downslide.  

Investment avenues in India

In this second blog, let’s try to explore the various options available for a potential investor in India. Indians are compulsive savers. The gross domestic savings of Indians stood at 31.8% of GDP in the previous financial year. Indian financial scene presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his/her savings.

Banks are considered as the safest of all options wherein a person deposits money and earns interest on it. The two main areas of investment in banks are the savings bank account and fixed deposit schemes. However, with the banks offering little above 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. The value of the earnings further eroded by inflation.

Life insurance and Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. Another route to invest has been the fixed deposit schemes floated by companies. The safer a company is rated, the lesser the return offered by the company. Companies with good credibility have used this route to mobilize the funds for their operations.  

Real Estate is one of the most important assets in portfolio of investors. In addition to a residential house, the more affluent investors are likely to be interested in agricultural land, commercial rentable properties and farm houses. Our obsession to gold and other precious metals is unprecedented.

Stock markets provide an option to invest in a high risk, high return game. It’s particularly useful to investors with moderate to high risk appetite. While the average return of top 30 companies listed in Sensex has been close to 19 % in the past one year, much has been attributed to the prospectus of a stable government in the centre. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger their sacred money.

An average investor is largely risk averse and seeks to earn profit by taking minimum risk. The perceived risk also increases if the customer is not knowledgeable about the investment option. For those who are risk-averse, mutual funds seem to be the flavor of the current times.  Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly.

With changing times and investors becoming more knowledgeable , the investment avenues like mutual funds, stock market and others would eventually be seen adding more customers but the risk associated with the prospectus of earning higher return can not be ruled out. 

Stop Procrastinating ……Start Investing……

Before embarking on the investment program, we need to make sure that the other needs are adequately met. No serious investments should be started until a potential investor has adequate surplus income after covering his day to day expenses and any other obligations. The investor should also make sure that he/she has sufficient funds to take care of any unexpected financial emergencies.

Emergencies, job layoffs, and unforeseen expenses might happen anytime without any pre indication. An individual must ensure that he/she is in a position to take care of all these without having to sell his assets. It’s imperative for every person to have a cash reserve to help meet these occasions. In addition to providing a safety cushion, a cash reserve reduces the likelihood of being forced to sell investments at inopportune times to cover the unexpected expenses. It is usually recommended to have a cash reserve equal to 6 months’ living expenses. Calling it a ‘Cash Reserve’ need  not necessarily mean that the funds should be in cash; rather, the funds should be in investments you can easily convert to cash with little or no loss in its value at the time of redemption. Money market or short-term bond mutual funds and bank accounts are appropriate vehicles for the cash reserve. They do earn a decent interest till you need the funds.

Life insurance and medical insurance should also be a component of any sound financial plan. Life insurance protects our loved ones against financial hardship incase of any untimely death . This helps to provide cash to the insured family members which can be used to maintain their lifestyle, repayment of any debts, or to meet the future needs (eg, children’s education, marriage etc ).  So one of the preliminary step is to purchase adequate life insurance coverage.

Health insurance helps to pay the medical bills. Automobile or home insurance provides coverage in the cases of accidents and damage to vehicles or residencies.

Lack of insurance coverage can ruin the best- planned investment program.