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The Bull Market Has Started!

The bull market has started!

Best time to build a multi-year portfolio! – Bull Market in the Anvil! 

Markets got a huge booster when the finance ministry announced the tax cuts, in the market, we like to call it the “Nirmala Candle” – which was actually the two long body candles that we saw as a reaction post the announcement, but what followed was a quick retracem1ent of all those moves.

NIFTY Crosses tax cut highs but mid and small-caps still lags

Although all indices posted a resounding move post the announcement of the tax cuts, the move has fizzled out relatively swiftly. Moreover, there is some divergence between the indices where the NIFTY and Bank NIFTY have managed to break past the tax cut announcement highs but the small and midcap indexed are still lagging. In fact, most of the gains that were generated after the tax cut announcement have been retracted by the market and in terms of the smaller indices, it is currently at a point where stock prices have reverted back to the pre-tax cut levels, completely ignoring the effect of such a landmark move.

We are in a very comfortable position because stock prices are still very much near the pre-announcement phase while the benefits of the announcements are here to stay.

  % Rise Post announcement Max Drawdown from Announcement dates Current Position from Announcement dates
NIFTY Bank 14.30% -10.50% 2.9%
NIFTY 8.85% -5.19% 2.9%
NIFTY MIDCAP 100 9% -8.67% 0.25%
NIFTY SMALL100 7.36% -8.73% -4.41%


Its been a brutal 18 months for the markets but the underperformance is continuing. Currently, 70% of the NSE 500 constituents have underperformed the NSE500 index.  Also As of today, only 368 Stocks are trading above their 200DMA if u look back even post the 2008 fall we had 538 stocks that were trading above their 200DMA.

The market needs more catalysts but a bottom in Place!

We are getting booster shots from the government, the latest was in the form of a real estate support package, but the market is not moving immediately. There is still an overhang of the past 18 months where people have not really made money and secondly owing to the constant newsflow surrounding the slowdown nobody believes that the stock market is doing a good job of replicating the broader economy.

The intensity of negative commentary will reduce going ahead, because most of the negatives have already been factored in and we have some added benefit of a lower base of H2 of last year that will make things look better, constant government stimulus and relief packages and a good monsoon that should support the winter rabi crop which should positively impact rural incomes. Will all this be enough to arrest the economic slowdown? Maybe not but it has definitely given enough for the market to create a durable bottom and build a base to rise. We have spoken about our theory of the market cycle bottoming out before the economic cycle will in the past, and we believe its taking shape now.

Positive triggers have also slowly started coming, liquidity condition is in surplus after 5 straight rate cuts by the RBI, Q2 results were not as bad as expectations and FPI inflows that have improved market breadth.

2Q Results – No negative surprises, H2 can see earnings normalization

The recent 2Q results season was supposed to be a washout expectations were low and poor performance mostly has been factored in the stocks price declines, but post the tax cut announcement the earnings downgrades for most sectors were arrested as a sizable PAT beat was witnessed in most stocks and sectors(NIFTY PAT +8.3% YoY).  90% of the incremental PAT in NIFTY earnings has come from corporate banks, in the recent pasts these banks have got a big booster shot with the resolution of the Essar case, which should help earnings improve further. Although the economic demand and high-frequency indicators are not showing enough evidence to protract an earnings recovery, the scenario definitely looks less bleak compared to the past few quarters and this is a relief for the markets.

Our Invested universe at Plus Delta Portfolios also saw a +7% YoY increase in sales in Q2FY20.

FPI inflows have improved Market Breadth

Post the corporate tax cut and improved sentiments FPIS has managed to pour in their funds in the market and have pumped in more than 36000 crores in the past three months starting from Sep 19. In the current rise, 291 stocks have contributed to the rise form the NIFTY500, compared to just 147 stocks in the earlier rise, this shows that more stocks have contributed to the rise and the rally was more broad-based, a broadening of a rally gives more strength to the market and enables it to last longer.

SMALLCAP and MIDCAPS have finally started outperforming Large caps in October

Technical evidence suggests Long term Trends in the market are still steady!

Even though there is a lot of negatives around the long term trends that have remained intact and such quick reversals to the upside after reaction attempts only continue to prove the bullish credentials of the market.  The below shows the situation of the long term trend through the use of Pivot moving averages of different periods.  Note how the 4 moving averages have remained in bullish phase ever since 2009 reversal! This shows the extraordinary trend strength that the market has enjoyed and even the big dips of 2013 and 2016- big as they were- have been unable to dent the trend! This consistency asks us to retain bullish bias and use any evidence suggestive of uptrend revival to enter the market. From that angle, the recent upward spike in prices is yet another signal of upward intent and should be followed.

Monthly Nifty with 4 Pivot moving averages- all in positive phase since 2009! 

Midcaps and New listing space to show opportunities

If you drill down and analyze the stocks that have entered the market in the past 2-3 years you will get a robust list of at least 40-50 decent names that have strong fundamentals, good and clean management and have been displaying strong uptrends. This space of the market is relatively under-owned by institutions and under-researched, once these stocks get discovered by the market they will be lapped up institutions whos buying will take it higher. So gradually investors should roll out of defensives which are seeing over ownership and move into these pockets of “Newness” that is how we are calibrating our portfolios at Plus Delta and it has worked spectacularly well for us in the past 2 quarters as we have caught that 50-60 % trended moves in all these stocks where earnings and momentum both exist.

How far can the market go and how do we profit?

Summing up, it seems from the evidence viz. Price, Pattern, Time, Momentum, and Sentiment, that the market is now making a turn. Fundamental factors are getting in place and there appears to be a surfeit of them. Sentiment has started improving but needs to change for the better and that is typically news or event-driven. The earnings cycle seems to be reaching a bottom and we can look for better days ahead.  While traders may await such triggers to time their trades in the market, investors should now be looking for quality stocks to commence on a steady accumulation from current levels.

A two-year bull run can be anticipated ahead. We should be looking at an index of 15000+ by Dec 2021, this will not be a linear ride and there will be dips, in fact, we can expect a dip that may arise in the next couple of months as opportune investors will look to book profits during this rally.

This dip will be the best time for investors to add quality stocks and position themselves to profit, at Plus Delta Portfolios we are already positioning ourselves for this and have added some good quality stocks, we are constantly tracking the markets using our sophisticated technical models to pick out these stocks and will be ready to BUY them when the market dips and the prices are ripe. This is an excellent multiyear investment opportunity and we are confident of generating market-beating returns going ahead from here.


Aditya Iyer
Fund Manager – Plus Delta Portfolios

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