Last 10 years data for Sensex suggests that August belong to bears; Time to book profits?

The Bulls have maintained their grip on D-Street in the previous month as the S&P BSE Sensex rose a little over 5 percent in the month of July but with August setting in, will the trend tilt towards bears.

History suggests that the index has given flat to negative returns in six out of last 10 years. The S&P BSE Sensex recorded a cut of nearly 9 percent in the year 2011, followed by 2015 when it slipped 6.7 percent, and in the year 2013, it dropped by 3.6 percent.

The gains have not been that inspiring as compared to cuts which market saw in the last 10 years. The index rallied by 4.5 percent in the year 2014 followed by the year 2007 in which it rose by 2.5 percent, and in the year 2016, it gained 1.6 percent.

The Indian market has already rallied by about 22 percent so far in the year 2017 with the Sensex touching a record high of 32,672.66 in the month of July. The index is on track to hit fresh record highs, but some bit of consolidation cannot be ruled out.

The Nifty50 too witnessed a record high of 10,114 last month and is on track to hit 10,350, according to some technical experts. There are no signs of panic right now in the market which could possibly lead to a big correction and thus investors should trade long with strict stop losses.

Analysts are not advising investors to go and sell but they can maintain some cash which could further be used to get into quality stocks on declines.

“In the last 10 years the index bears took control of D-Street in 3 out of 10 years and in the rest index was down marginally in red. With results season flowing, I would consider Nifty to trade between 9700-10500 levels,” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.

“We are trading at all-time highs and a 200-300 point correction would not dent the bull rally. A healthy correction is always welcome. I would not recommend investors to go ahead and sell at this point in time,” he said.

Prabhakar further added that investors can buy quality stocks if a correction comes. They can look to reduce holding on stocks with weak fundamental stocks. We are in the mega bull market and if we generate too much cash we would miss the returns, he explains.

The Nifty50 surpassed an important landmark of moving beyond 10000 last month. The Nifty has risen at 18 percent CAGR since 2003 when it was last seen near 1,000 levels. This shows that Indian markets are in a structural long term bull markets, suggest experts.

Most analysts’ expect Nifty to remain buoyant in the extreme short term on the back of short covering. The maximum Call open interest now stands at 10,500 and maximum Put OI is seen at 10,000 which suggest that August expiry likely to happen within this range.

“The August series of derivatives is likely to be the most interesting as many weak players will be forced to cover their shorts, while many others will choose to book profits on their long positions which are already reached their targets,” Devarsh Vakil, Head Advisory - Private Client Group, HDFC Securities told Moneycontrol.

“For medium term when we survey global markets we detect some signs of complacency. Volatility has collapsed across markets. There seems to be tremendous faith that central banks like US Fed, European central bank and Bank of Japan,” he said.

Vakil further added that our short term target in Nifty is 10,300. Traders are advised to keep 9,900 in Nifty as the stop loss for the short term or leveraged trading long positions.