QUANT SYSTEM OVERVIEW - 28.07.24
- Capt D. Ganesh Raja
- Jul 28, 2024
- 10 min read
From the desk of Capt.D.Ganesh Raja
DISCLAIMER
Please be informed that the author of this blog by Capt Ganesh Raja Dhanuskodi (Hereinafter called Capt Ganesh) is not a SEBI registered Research Analyst or Financial Advisor. Capt Ganesh writes this blog to express his views based of more than two decades of experience in capital markets and based on the Quant system which he has invented and he does not do this for “consideration” as per SEBI regulations, which means he does not receive economic benefit through it. Readers of this blog must seek advice from registered Investment Advisors / Research Analysts before taking any trading or investment decisions.
Capt Ganesh has been investing and trading actively since 2001, building trading models since 2013 and has invented an AI based intraday trading system, which has a pending patent approval.
Hello Friends,
Union budget was presented on 23.07.24 and much has already been spoken about it, from industry veterans and media commentators in general. It has to be viewed in terms of long-term economic goals Government wants to achieve and being the first budget after re-election as a coalition Government, we have to seek clues from it and accordingly one can plan the financial decisions.
If India has to be a manufacturing powerhouse, right skilling is required and though these initiatives have been in place for a while, a new push being given with a slew of incentives.
It is in pursuit of “Visit Bharat”, so let us look at it in that context:
Agriculture initiatives :
1. Comprehensive review of the agriculture research setup to bring focus on raising productivity and developing climate resilient varieties. Also promoting self-sufficiency in oil seeds such as mustard, groundnut, sesame, soyabean and sunflower.
2. Release of new varieties 109 new high-yielding and climate resilient varieties of 32 field and horticulture crops will be released for cultivation by farmers.
3. Natural Farming : 1 crore farmers across the country will be initiated into natural farming, supported by certification and branding in next 2 years.
4. Digital Public Infrastructure (DPI) : DPI for coverage of farmers and their lands in 3 years. Digital crop survey in 400 districts. Issuance of Jan Samarth based Kisan Credit Cards .
Employment & Skilling
1. One-month wage to new entrants in all formal sectors in 3 instalments up to ₹15,000 . - Expected to benefit 210 lakh youth.
2. 1,000 Industrial Training Institutes will be upgraded in hub and spoke arrangements with outcome orientation. Course content & design aligned as per skill needs of industry.
Manufacturing & Services
1. Mudra Loan limit enhanced to ₹ 20 lakh from the current ₹ 10 lakh.
2. Credit Support to MSMEs during Stress Period.
3. Critical Minerals Mission for domestic production, recycling and overseas acquisition.
4. Scheme for providing internship opportunities in 500 top companies to 1 crore youth in 5 years. Allowance of ₹5,000 per month along with a one-time assistance of ₹6,000 through the CSR funds.
Housing Needs
1. PM Awas Yojana Urban 2.0 : Needs of 1 crore urban poor and middle-class families will be addressed with an investment of ₹10 lakh crore.
2. Enabling policies and regulations for efficient and transparent rental housing markets with enhanced availability will also be put in place.
Lot of focus has been given on energy security for the nation. Initiatives with private sector in Nuclear Energy, setting up Bharat Small Reactors, R&D of Bharat Small Modular Reactor and newer technologies for nuclear energy have been addressed.
Under PM Surya Ghar Muft Bijli Yojana, 1 crore households would obtain free electricity upto 300 units every month. 1.28 crore Registrations and 14 lakh applications so far for this scheme.
Auto PLI outlay has been increased almost 6 fold from Rs 604 Cr to Rs 3500 Cr. Also for a push for “Green Energy”, exemption of import duties on imports of Lithium, Cobalt and other rare minerals has been given.
Gold and silver duties have been slashed from 15% to 6%, which should boost demand and also benefit listed jewellery companies. Besides jewellery and electronics, silver is also used for lithium-ion battery and optical applications due to its higher transparency in thin films.
Infrastructure spending at 3.4% of GDP at Rs 11 trillion is quite significant. This has to be managed well meeting project schedules and no cost over runs. Commodity up cycle during the progression of the project, which has to be hedged well by infrastructure companies.
One of the dampeners in the budget as viewed by investing community is the change in short term capital gains. For determining whether the capital gains is short-term capital gains or long term capital gains, all listed securities (including units of listed business trust), the holding period is proposed to be 12 months and for all other assets, it shall be 24 months. The holding period for bonds, debentures, gold, etc. has been proposed to be reduced from 36 months to 24 months. For unlisted shares and immovable property it shall remain 24 months.
The rate for short-term capital gain is proposed to be increased to 20% from the present rate of 15%. The rate of long-term capital gains under provisions of various sections is proposed to be kept at 12.5% in respect of all category of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust under section 112A and for other assets it was 20% with indexation. This is the grouse of investing community, but in my view for majority of the investing community, especially in middle- and low-income groups, it will not have a major impact and probably domestic indices have shrugged it off.
On macroeconomic front, cost of food in India increased 9.36% year-on-year in June 2024, the biggest rise so far this year, following an 8.7% gain in the previous month. Prices of vegetables soared 29.32%.
Monsoon season is in progress. The southwest monsoon has covered the entire country as of 2nd July, six days ahead of schedule.
Despite the progress, total monsoon rainfall for the June-September season so far remains 5% below normal, with June experiencing an 11% rainfall deficit, the highest in five years. I haven’t got the latest figures and hoping the rainfall is close to long term average. A deficient monsoon could add further add stress to inflation figures and we don’t this hit us at an inopportune moment with an oil price hike in international markets.
Oil prices were up slightly on Friday on stronger-than-expected U.S. economic data that raised investor expectations for increasing crude oil demand from the world’s largest energy consumer.
But concerns about soft economic conditions in Asia’s biggest economies, China and Japan, capped gains.
In the second quarter, the U.S. economy grew at a faster-than-expected annualized rate of 2.8% as consumers spent more and businesses increased investments, Commerce Department data showed. Economists polled by Reuters had predicted U.S. gross domestic product would grow by 2.0% over the period.
At the same time, inflation pressures eased, which kept intact expectations that the Federal Reserve would move forward with a September interest rate cut. Lower interest rates tend to boost economic activity, which can spur oil demand. US consumer inflation expectations for the year ahead declined for a second consecutive month to 3% in June 2024 from 3.2% in May, led by a broad-based decline in price prospects.
Existing home sales in the US fell by 5.4% from the previous month to a seasonally adjusted annualized rate of 3.89 million units in June of 2024, the sharpest monthly decline since 2022, to the fewest amount of sales since the start of the year. It was the fourth consecutive monthly decline in existing home sales as the median sales price climbed to a record high of $426,900. In the meantime, unsold housing inventory rose by 3.1% from the previous month to 1.32 million, or the equivalent of 4.1 months' supply at the current monthly sales pace.
Would the above figures prompt the Fed to cut rates is very difficult thing to predict. US is heading for elections and it is highly unlikely that they would like to rock the boat, so a good guess is that rates would be left untouched, which augurs well for the domestic equity markets.
Now let us look at China, the world’s biggest crude importer. It surprised markets for a second time this week by conducting an unscheduled lending operation on Thursday at steeply lower rates, suggesting authorities are trying to provide heavier monetary stimulus to prop up the economy.
China surprised markets by cutting major short and long-term interest rates on Monday, its first such broad move since August last year, signalling intent to boost growth in the world's second-largest economy just days after a Communist Party leadership meeting.
The cuts to the central bank's key short-term policy rate, its market operations rates and benchmark bank lending rates came after China reported weaker-than-expected second-quarter economic data last week.
China's industrial capacity utilization rate increased to 74.9% in Q2 2024, up from 74.5% a year earlier. The rise was driven by higher utilization in mining (76.0% vs 74.8%) and manufacturing (75.2% vs 74.8%). Utilization in electricity, heat, gas, and water remained unchanged at 71.4%.
New Home Sales in China increased to 41270 CNY Hundred Million in June from 31163 CNY Hundred Million in May of 2024. New Home Sales in China averaged 30971.90 CNY Hundred Million from 1999 until 2024, reaching an all time high of 162730.00 CNY Hundred Million in December of 2021 and a record low of 78.19 CNY Hundred Million in February of 1999.
One has to view the figures in a graphical manner and would see a gradual declining trend.
Labour Costs in China decreased to 63.60 points in June from 65.80 points in May of 2024. Labour Costs in China averaged 82.23 points from 2011 until 2024, reaching an all-time high of 97.40 points in September of 2011 and a record low of 57.10 points in April of 2020.
I do not have the tools to correlate the figures but a cursory glance would reveal a correlation between these figures. Also, if we view it in the light of erstwhile Evergrande crisis, the possibility of pick-up in-home sales seems remote.
This situation in China might prompt them to be aggressive and promote exports, which if allowed indiscriminately could affect domestic industries, especially the ones where large demand is shaping up e.g. steel . I am sure industry bodies and Government working in tandem are vigilant, but as investors before taking a bet on a particular sector . these factors have to be weighed in, so that one is not caught napping.
Foreign Direct Investment in India increased by 7891 USD and the trend seems to be sideways for now.
Foreign exchange reserves held by the Reserve Bank of India surged to an equivalent of $670.9 billion as of July 19th to reach another record high. The elevated levels were owed to the robust influx of foreign exchange into the Indian economy, as strong growth and the long-awaited inclusion of Indian assets to JPMorgan’s key emerging market debt index supported foreign investment. This was reflected by the Sensex reaching record highs and the yield on the 10-year G-Sec remaining near the 7% threshold. Additionally, weakness in the yuan, yen, and the won drove the RBI to prioritize the competitiveness of Indian exports and limited intervention through foreign currency selling from the central bank, propping up its reserves.
Source: Reserve Bank of India
Looking at the USD-INR chart and applying proprietary indicators, it seems some minor weakness might be seen in the rupee in the intermediate timeframe.
The 10 year GS index is cruising along and there is no sign of reversal. Stock market indices to follow suit in continuing with strong uptrend going forward and as I had said earlier, we might enter a stage of sharp run up in prices. Holistically viewing markets, they move from being undervalued, to right value and then overvalued. Many experts, brokerages and fund managers have been seeing “Froth” in markets for quite a while. This also holds for global markets, where there have been bold predictions of crash and I believe whoever predicts would be swaying the view of some select set of followers.
The CASA (current account and saving account) ratio, which measures the share of low-cost CASA deposits, declined year-on-year by 40-730 basis points (bps) for banks reporting their Q4 FY24 earnings. This decline occurred amid sustained high deposit rates due to tight liquidity conditions and robust demand for credit, particularly in retail and unsecured loans. Source : Economic Times.
In one of my previous blogs I had written about retail investors inflow into equity mutual funds and SIPs. So does this latest drop in CASA deposits indicate the flow of retail money into markets? Are investors who have traditionally not invested in equities and waiting in sidelines and those have been waiting for a healthy correction, losing their patience and entering into equities ? We don’t know as of now.
I keep saying, the litmus test of everything is one’s trading or investment account. Has one walked the talk or not ? Anyone’s words are worthless unless it can translate into action and if it can translate into action or inaction then that will speak for itself.
I will give a simple example. Sometime ago, the person who was doing my house interiors work asked me to suggest a stock to invest and based on my research and Quant parameters, suggested a Action Construction Equipment. I had also included this in Mock Portfolio sometime ago. He quickly dropped out of it after 20% gains, whereas I am still holding it . Free advice is just that, even after one receives it, their mind will play games and they will not be able to extract the full potential of any stock or asset class.
From here onwards, I have decided to obtain my Investment Advisor License and would be devoting time for it, in addition to shipping related ventures.
India VIX: Last close – 12.25. After surge in the months of April – May it has fallen back to these levels and further downtrend can be seen, which can result in very strong rallies. The structure formation and Quant indicators seem to suggest that it might languish at lower levels for some more time.
NIFTY: Last close – 24834.25. Strong uptrend is seen in Nifty, however there is no fresh buy signal in Nifty. The system buy trigger on 24.11.23 still remains valid, translating into absolute profit of 26.10%.
GOLD : Last close – 68160.00. We witnessed one of the biggest drop in Gold prices in the past week . Gold prices fell in futures trade on Wednesday, hit by weak demand at the spot market and lacklustre trend in overseas markets.In the global markets, gold fell on account of the dollar's rise against its global peers. A strong dollar means gold price will depreciate as the commodity becomes dearer in other currencies, causing a fall in its demand. Is this the end of Gold rally?In spite of the sharp drop there is no system exit yet and might come a little later . Probably the long term rally in Gold might take a pause and consolidate before resuming uptrend again. We will see that later . Meanwhile we will watch Gold closely. This fall in Gold could also be interpreted as “risk on” mode is on globally. Due to fall in Gold prices Mock Portfolio returns dropped sharply last week to 160.94%.
There are no system triggers for MOCK PORTFOLIO for now and would update after completing the research and running all the indicators.
RETURNS TILL DATE SINCE 04.07.20 : 160.94.% (AS OF TUESDAY 26.07.24 CLOSING)
LEVERAGE FOR EXISTING MOCK PORTFOLIO TRIGGERS: 1.65
SYSTEM EXIT DELEVERAGE: NIL
LEVERAGE FOR NEW MOCK PORTFOLIO TRIGGERS: NA
TOTAL LEVERAGE: 1.65
ASSET ALLOCATION PROFIT POTENTIAL FOR NEW PORTFOLIO TRIGGERS : NA
TIME PERIOD OF TRADES RECOMMENDED : 15 DAYS TO 3 MONTHS.
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