11-year data suggests bears control D-Street in September; can bulls defy odds?

The Sensex was down 11 per cent in September 2008, 5.4 per cent in 2018 and dropped by 2.1 per cent in the same month in 2011, data from AceEquity shows.

Indian markets remained in a bear grip in August and the trend is unlikely to shift towards the bulls with no big triggers expected in September, say experts.

The month of September is off to a muted start, with both the Sensex and the Nifty trading below crucial support levels. The Sensex broke below 37,000 and the Nifty 11,000.

Anecdotal evidence suggests that the index has given flat to negative returns in September in six of the last 11 years. The index saw a drop of more than 11 percent in September 2008, followed by 2018 when it slipped 5.4 percent, and in 2011 it dropped by 2.1 percent, data from AceEquity shows.

Apart from two tall towers witnessed in 2009 and 2010, the gains in September in the 11-year period have not been that inspiring.

The index rallied 10.2 percent in 2010, followed by 10.13 percent in 2009 and 7.9 percent three years later.

Benchmark indices are trading marginally in the green this time but the midcap and smallcap space is technically trading in a bear grip.

The rollover data for September series was not inspiring either. The Nifty Future rollover stood at 68 percent compared to a 3-month average of 75 percent.

“The rollover data is disappointing at present as the Nifty and the Nifty Bank both have the rollover data below 6-month average i.e. 66 percent and 68 percent. Usually, such data is followed by a consolidation.

“Hence, the pressure may remain with the Nifty in September and the index could move in the range of 11,400-10,800. Long rollovers were seen in Nalco, Colpal, Torrent Pharma and Ujjivan. On the short side, weakness was seen in Mannapuram, MFSL, NTPC, and L&T.”

In terms of macro cues India’s GDP is at a six-year low, auto companies suffered a double-digit falls in August sales, core sector output, too, has slowed down, the currency is weak, and on the global front, trade war between the US and China has kept investors on the edge.

Analysts are not advising investors to go and sell but maintain some cash that can be used to get into quality stocks on declines. But, there are other fundamental factors such as stimulus measures from the government, trade talks and macro dat that investors should keep an eye on.

“Key event to be watched out will be the policy meeting outcome on the stress in the realty sector and any other such events for the revival in the domestic economy. Till date, although the monsoon in totality is normal, there are still patches of below-normal monsoon in most of the agrarian areas of the country,” Sumeet Bagadia, Executive Director, Choice Broking, told Moneycontrol.

“So, the progress of monsoon is important and will be keenly tracked. Apart from this any political development on Kashmir will have an impact on the market. Internationally, the development related to Sino-US trade war, Brexit and Hong Kong protest can bring some negativity in the market.”

Institutional flows

Institutional activity picked up in September. Anecdotal evidence suggests that foreign institutional investors (FIIs) were net buyers in Indian markets in September in six of the last 11 years.

FIIs poured in nearly Rs 30,000 crore in September 2010, followed by Rs 20,769 crore in 2012, and about Rs 20,000 in 2009 .

On the other hand, mutual funds were also net buyers for six of the 11 years. They poured over Rs 17,000 crore in 2017, followed by over Rs 9,000 crore in 2015, and about Rs 8,000 crore in 2018, data shows.

What should investors do?

Indian markets are trading at attractive levels when compared to long-term averages and investors are advised to invest in companies with high growth potential on dips.

Markets have reacted to the weak auto sales data, lower than expected GDP growth number indicating that the slowdown is more pronounced, thus demanding policy measures on both monetary and fiscal sides.

“The recent measures taken by the ministry of finance would help mitigate the risk but more is expected to reverse the trend. Markets are already building in expectations of a rate cut over rest of the financial year with lumpy (around 30-40 bps) expected in October 2019 policy meeting.

Sliding Chinese Yuan was a big concern for emerging markets, he said. “Given the all negative news flow, one should take a contrarian call by investing in sound companies with growth potential which is now available at relatively attractive valuations in a staggered manner as Warren Buffet has time and again emphasized ‘to be greedy when the world around you is fearful' ,” he said.

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