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Quant Structure Recap of the Market (August’17): 3 Long Stocks and 2 Short stocks

Quant Structure Recap of the Market (August’17): 3 Long Stocks and 2 Short stocks
Education Series | September 05, 2017

For the month of August’17, Quant recommended Stocks Grasim Ltd., Ambuja Cement Ltd. and Balrampur Chini Mills Ltd. went up by average 5.8%, while shares to sell ADF Foods Ltd. and Subros Ltd. fell by 8.3%.


Recap of August 2017: Nifty fell by 1.6% during the month; Nifty 500 fell by 1.1% while Nifty Mid Cap fell by 1.3% and Nifty small cap fell by mere 0.7%. Such narrow loss for the month was on account of sharp pull back particularly in Mid and Small Cap Index else from peak to trough sense, Nifty Mid cap Index had fallen by 6% and Nifty Small Cap Index by 9% during the first half of August.

In terms of sector, energy, materials and consumer staples gained by 4.36%, 1.18% and 1.18% respectively. Industrial, consumer discretionary, financial, Information technology, telecom and utilities declined by 2.16%, .47%, 1.73%, 1.36%, .88%, and .23% respectively while Healthcare fell sharply by 6.97% during the month of August.

In terms of the quantitative structure of the market: non-index stocks had much larger fall than index stocks. Average returns of 165 stocks were -4.7% with only 432 stocks giving a positive return for the month. In terms of trend, Price Score was a better predictor of the dispersion of return for the month of August.

Stocks with Price Score (PS) above 70 (at the end of July) fell by only 1.88% whereas stocks with Price Score (PS) below 30 (at the end of July) fell by 8.37%. Stocks with Price Score (PS) above 70 (at the end of July) fell by only 1.88% whereas stocks with Price Score (PS) below 30 (at the end of July) fell by 8.37%.

Stocks with Earning Score (ES) above 70 (at the end of July) fell by 3.1% whereas stocks with Earning Score (ES) below 30 (at the end of July) fell by 6.02%.

3 Long Stocks

Any stocks with high Earning Score (preferably above 85) if trading with poor Price Score (below 50) and if for any period (say a month) positive price momentum comes, then it usually signals revival in that stock price.  For the month of July 2017, Nifty was up by 5.8% and so, the appropriate price momentum level for July was more than 5%. Also, one should avoid stocks that have shown very high momentum (as the fire work might be over in those stocks). And for July, since the level of Nifty return is double, 10% i.e. all stocks with returns between 5% and 10% during July could be called in right price momentum. So the 3 appropriate shares to go long for August were as follows.

Stock NameJuly ES > 85July PS <50July PM >5% & <10%
GRASIM93.4434.745.29%
AMBUJACEM87.5942.547.0%
BALRAMCHIN97.7343.989.5%


And these 3 stocks gave returns in August

Stock Name% Return in August 2017
GRASIM6.69%
AMBUJACEM6.38%
BALRAMCHIN4.35%


2 Short Stocks

If any stocks with low Earning Score (preferably below 30) is trading with high Price Score (above 70) and if for any period (say a month) the negative price momentum happens, then it usually signals topping out of that stock price.  For the month of July 2017, Nifty was up by 5.8% and so, the appropriate negative price momentum level for July was less than 0%. Also one should avoid stocks that have already shown a very negative momentum (as the fire work might be over in those stocks). And for July, if the level falls by 5%, then all the stocks with a return between 0% and -5% during July could be called in negative price momentum. So the 3 appropriate shares to go short for August were

Stock NameJuly ES < 30July PS >70July PM >-5% & <0%
ADFFOODS17.7882.67-1.37%
SUBROS7.6485.85-1.65%


And these 2 stocks fell in August by

Stock Name% Fall in August 2017
ADFFOODS7.19%
SUBROS9.31%
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ABOUT THE BLOGGER
Atul MishraAdvanced Market Researcheratul.mishra@narnolia.com

Atul works with an Advanced Market Research Group at Narnolia Research. His forte is quantitative research on Indian equities. He is a computer science graduate with Masters in Finance from Faculty of Management Studies, Banaras Hindu University.

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