»Fast Profits Daily by Equitymaster

On This Day - 25 JUNE 2021
Don't Short the Market Now

Vijay Bhambwani, Editor, Fast Profits Daily

I've made videos on the market's cyclicality in the past. The time is right to revisit this topic.

I believe, the cyclicality of the market brings about a certain level of predictability from time to time.

The quarter end periods are just such time.

In this video, I'll tell you why I believe the market is likely to stay bullish till the end of June.

And why going short would be a bad idea.

Watch the video and let me know what you think.

Hi, this is Vijay Bhambwani. I hope you're enjoying trading the markets and you have learned how to navigate through the ups and downs of the markets and also through these videos, over the last two years, I've been sharing ideas with you about how the market can actually be somewhat predictable.

I'm not saying it's absolutely predictable because the market is as mysterious as ever and after 36 years of trading the market, some still learning new aspects of the market, the market still takes me by surprise and of course, that's the beauty and the nature of the market as such.

But even though I have recorded this aspect of the cyclicality of the market, coming as it does at the end of June, I think an update on this aspect of the market would be in order for all my viewers of the Fast Profits Daily.

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You see the markets have a predictability which we call cycles, and the cycles can go from the year of the decade or the year of the election cycle, down to the hour of the day, the trading day. So it could be hour of the day, the day of the week, the week of the month, the month of the year, the year in the cycle.

So there are very lose correlations between time of the calendar month, calendar year or even the hour of the day, and how the prices can move. It's not in lockstep. It's not laser precise, but it does give you a sense and sensibility of what to expect along lose kind of a variable threshold.

So marrying price and time together is a very critical aspect. Do remember to be able to calculate, yield or return on investment, you need to see what happened at various price points at various timelines. So a 10% yield means 10% return over a period of a year so time, and price are both important.

Now, as I have said in the past, this is June end. It is the first quarter of the financial year of an Indian income tax year. Our year begins from 1st April and ends on 31st March. To that extent, 30th June marks the first calendar quarter of the financial year, and there are some very predictable moves that we can expect in the end of this quarter.

The largest player in the financial markets now are the mutual funds. To give you a handle on how big the mutual fund industry is, I've assimilated some figures from the Association of Mutual Funds AMFI website and it says the AUM or the assets under management of the Indian mutual fund industry is Rs 3,305,000 crores as on 31st of May 2021.

Now that is how big the Indian mutual fund industry is. It was Rs 731,000 crores on 31st May 2011. So see how it's grown, over 4.5 times in 10 years. Barely five years ago, which is 31st May 2016, it was Rs 1,382,000 crore. So it means it's grown almost two times in the last five years.

Now there are some other milestones that we need to look at for obvious reasons. For example, the first time we reach the AUM assets under management figure of Rs 2,000,000 crores was in August 2017 and then we hit Rs 3,000,000 crores in assets under management in November 2020.

That's right. Now this was the time of the wave one based covid lockdowns all over the world when the retail segment was pouring money into the market. So that is the first time the Indian mutual fund industry, reached Rs 3,000,000 crores and I have been making videos as to how Robin Hood guys, the Reddit traders and the Indian retail investors are pushing the markets higher, how the retail segment now holds more than six times exposure of net long in the futures segment in stock futures, which is a video have just made a week ago.

In addition to the amount that the mutual fund industry is holding, they are now boasting of 10 crore portfolios, which means 10 crore accounts as in May 2021. Now, this mutual fund industry is governed by Securities and Exchange Board of India, which is SEBI and at the end of every calendar quarter, they announce their net asset values or NAVs.

As per the regulations, these NAVs are to be advertised in one local newspaper and one national newspaper so as to let all the investors know as to what their money is doing and how much returns the money is earning.

It is very obvious than the better the fund industry is doing, the more money it will attract. Do remember how when the Indian stock market went into an absolute bull phase after 2016, the assets under management like I told you, went from 1,382,000 crore in May 2016 to Rs 2,000,000 crores in August 2017 to 3,000,000 crore in November 2020.

Why am I telling you these dates? Because these are days during which the market was in a clear up trend. Now, whether you want to use it as a cause and effect theory, whether it is the inflow of this money which is resulting in the market going up or it is because the market is going up, that people are throwing more money into the mutual funds, is something that we will debate on another day.

But the undeniable fact is that if the mutual fund industry wants more and more assets under management, they must declare higher NAVs, which means they must continue to support the markets towards the end of every calendar quarter, which happens to be end of June as I record this video. The same thing will occur in the end of September, end of December, and end of March.

Now, these are cycles when there is a predictability to the markets. Which is why you must not be aggressive in shorting the markets towards the calendar quarter end, or you will learn some fairly bitter lessons.

Does it mean that markets never fall in the end of every calendar quarter? No, I'm not saying that. There are no absolutes in life. For example, if there's an earthquake. If there's a war. If there some man made or hand of God kind of unexpected adverse situation, of course, the markets can fall to the end of every calendar quarter also.

But barring these unforeseen circumstances, chances are and a very good probability that too, is that the markets do remain firm, which is when the bears, who are experimenting or getting aggressive by shorting the markets, tend to lose a lot of money.

So for the last few remaining days of June, I would suggest you play a very careful hand. Try not to go against the biggest players in the market, which is the Indian mutual fund industry, which is sitting with Rs 3,305,660 crores and counting at its disposal to invest in the market.

So expect higher values in the markets, which I think all retail investors tend to like. We all love a bull market. It's good for business. It's good for our portfolios and the end of June is expected to bring us some more cheer.

On this cheerful note, I'll bid goodbye to you, not before reminding you to click like on this video if you agreed with what you saw. Subscribe to my YouTube channel if you haven't already done so. In the comments section, do let me know what you think of this video and good, bad, ugly, all your feedback is always welcome.

I wish you have a very, very profitable day my friends. Do take very good care of your trades, investments, health, family, and friends. Thank you for your patience and thank you for watching. Till we meet again in my next video, take care. Bye.

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst

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