Sensex, Nifty charts (May 31, 2019): consolidating near lifetime highs

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During May 2019, FIIs were net sellers of equity till Fri. May 17, but net buyers from Mon. May 20 onwards. Their total net selling exceeded Rs 21.3 Billion. DIIs were net buyers of equity till Fri. May 17, but net sellers from Mon. May 20 onwards. Their total net buying was worth Rs 53.2 Billion, as per provisional figures.

During FY2018-19, Foreign Direct Investment (FDI) in India declined for the first time in 6 years – from a record US $44.85 Billion in FY2017-18 to $44.37 Billion (1.1% lower). In FY2012-13, FDI had contracted 36% to US $22.42 Billion from $35.12 Billion in FY2011-12.

As per the Central Statistics Office (CSO), India’s GDP growth slipped to a 5 yr low of 5.8% during Jan-Mar ’19 (Q4). During FY2018-19, GDP growth fell to 6.8% from 7.2% in FY2017-18.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex consolidated sideways with a slight upward bias during the first four trading days of the week, before rising to test its May 23 top on Fri. May 31.

The index fell short by just two points – touching an intra-day high of 40122 – and then formed a ‘reversal day’ bar (higher high, lower close) that can trigger some consolidation or correction.

Sensex is trading well above its three rising EMAs in a bull market. It gained about 280 points (0.7%) on a weekly closing basis. Further upside may be limited, as the market has not fully discounted the poor GDP number.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC is about to cross below its 10 day MA inside overbought zone. RSI has re-entered overbought zone after two months. Slow stochastic has re-entered its overbought zone after briefly falling from it

India’s economic growth is sliding down. An expected interest rate cut by RBI in June is unlikely to restore ‘animal spirits’ of India Inc. The NBFC debt mess, and its resultant effect on the performances of private banks and mutual funds, will further impede growth.

The new Finance Minister can’t be expected to pull rabbits out of her hat. Investors should be prepared for a likely correction and then a gradual rally. Money making will not be easy in FY 2019-20.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty tested its previous week’s lifetime intra-week high but stopped just 2 points short. The index gained 79 points (0.7%) on a weekly closing basis, and is trading well above its rising weekly EMAs in a bull market.

Weekly technical indicators are looking bullish and overbought. MACD and Slow stochastic have re-entered their respective overbought zones.  ROC is moving sideways below its overbought zone. RSI is moving sideways inside its overbought zone. 

All four indicators are showing negative divergences by failing to touch new highs with the index. Some more correction or consolidation is possible. 

Nifty’s TTM P/E has moved up to 29.49, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, hinting at some index consolidation.

Bottomline? Sensex and Nifty charts are consolidating near lifetime highs, as bulls are still celebrating NDA’s election victory. A deteriorating economy will not help improve earnings growth of India Inc. Book partial profits, and stay invested with trailing stop-losses. Use dips to add to existing holdings.

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