Currency is the King

Last week, US Federal Reserve announced that it would buy back over 1 trillion dollar of government debt. Though it is a bad move for the global economy in the long run, global markets rejoiced the move with the hope that thus increased dollar flow would help in reviving the world markets in the short run. Our market also joined the global party with a second consecutive positive weekly close, which is rarity nowadays.

Buy back plan resulted in weakening of US Dollar against all other major global currencies. Gold and other commodities went up in dollar terms. Crude Oil crossed psychologically important $50 levels. Reports that China was piling up base metal inventories helped base metals to post gains.

In addition to the above, positive data on housing and employment from USA resulted in a global rally in equity markets too.

Indian markets also joined the rally on the hope that FII inflows would go up here onwards. Beaten down sectors like metals and realty were the major gainers for the last week. Barring Capital Goods, almost all sectors had a positive week. Highlight of the last week was the surge in small and midcap stocks outsmarting their largecap peers.

Though the fall of headline inflation to new low levels (0.44%) raised fears of a deflationary environment, there were fresh hopes of further cutting in interest rates also.

Thanks to the huge stimulus packages announced by governments/ central banks across the globe, there is a lot of money flow into the economy and some part of it may find its way into markets also helping them to stage a relief rally.

At the same time, Nifty closing below the crucial mark of 2810 points and the Dow Jones closing below 7500 levels show that the markets are not yet fully convinced about any major revival in the equity markets. Surge in CBOE Vix also indicates that we may expect some more volatility in the market in the coming week.

As there is no major economic event in India on account of General Elections, our markets may follow the global trends particularly from USA. There is a lot of economic data going to be published in US coming week, which may set the tone for the global markets.

As we told earlier, 2810 levels (Nifty) will continue to be a strong resistance. Traders may take long position once Nifty breaks 2850 decisively however with a strict stop loss limit.

F&O expiry for March series, due for this week, may add to the volatility of the individual stocks.

Rupee may follow the global trends and it will be difficult for it to break 50 mark because of surge in crude oil prices.

Happy week ahead.

A Bear Rally in sight?

There was a positive surprise for the Indian investors last week who expected a narrow subdued trade for the week because of the two intervening holidays and ongoing election season. Profit shown by Citibank (unexpectedly) and its chairman’s assertion that the bank would no more require government assistance spurred the sentiments of the global markets. Our markets also happily participated in the global rally. Now, we have wait and see whether this rise will turn into a bigger “Bear Rally” taking Sensex to 10000 plus levels.

Though IIP (Industrial Production) numbers (-0.50%) were negative, markets took them as positive as the expectations were still worse. Similarly, inflation falling to multi-year low levels raised fresh hopes of another round of rate cuts by RBI.

Traders who were shorting the market till then caught unaware by the sudden upsurge of the market and started covering their short positions in a hurry, which resulted in further rise in the indices.

FIIs turning to be the net buyers and the breadth (Advance–Decline Ratio) being positive were the highlights of the week. However, trade volumes were much lower which is cause of concern.

Index majors such as Reliance, ICICI Bank and SBI led the rally. Stocks from the beaten down sectors such as Real Estate, Banks and Metals gained in a big way. Auto sector also went up because of their better show of sales numbers. Sizeable order for heavy vehicles from government helped Ashok Leyland and Tata Motors to post significant gains. Sale of shares (personal holding) by one of the top executives of Bharti Airtel impacted its shares negatively.

Dollar weakened against other major currencies including Indian Rupee because of fresh hopes of revival of economy. Similarly, Crude prices went up because of the fresh hopes of higher demand for oil arising due to the increased government expenditure under their stimulus packages.

Volatility indices like CBOE Vix and Indian Vix fell sharply giving the hopes of a stable markets in the coming week. It will be quite interesting to see whether bulls can come out of the bear-grip next week and take the Nifty to 3000 levels (Sensex 10000 points).

Last week, Nifty has closed at the strong resistance levels and it has to cross these levels (2730 points) to move towards 2810 points breaking which towards 3050 points. If, Nifty fails to cross the said levels, we may witness another round sell-off dragging the Nifty down to 2500 points once again.

Traders may initiate long position in case Nifty breaks 2730 levels firmly in Monday’s early trade, however with a strict loss limit of 2670 points. 2550-2600 points appear to be a strong support for the market. PSU Banks look attractive as majority of negative news flows have been factored in.

Indian Rupee may strengthen against US Dollar depending on the further rise in the global markets. However, it will be quite difficult for it to break 50 mark.

As of now it appears that the markets may be cautiously bullish and look for further direction from US markets. Bulls have to keep in mind that the “Bear Rally” cannot last for a longer duration unless there is a major turnaround in the global economy.

Wishing you a happy week ahead.

Obama - The Change

Coming week is going to witness a historic occasion of Mr.Obama, swearing in as the President of United States of America. For quite some time, we have been only hearing bad news, from USA, such as recession, job losses, bankruptcies, liquidity crisis etc. This is the first good news for the world from USA after a long time not just because a person, from the community that has been exploited for centuries, is becoming the head of the most powerful country of the earth but also because he is the person who won the elections by promising a “Change”.

Week that was

Market opened negative this week because of worse than expected US labour data and indecisiveness of our government in bailing out Satyam. Further, poor results from Bank of America and the decision of Citibank to sell its own parts had a negative impact on the global markets. Many Global markets being down this week on account of recessionary fears and financial crisis were not going well with our markets.

At the same time, to the surprise of many pundits, our markets found strong support at around 9000 points for Sensex (2700 points for Nifty) thanks to the strong rumours that Ambani brothers are nearing a settlement in the KG Gas sharing issue. Further, speculations of KG gas production starting any time soon and supply of gas to NTPC helped the markets to cap the losses for the week. Reliance Pack was the star performer for the week. IT stocks did well mainly because of the positive surprise by Infosys quarterly results. Sharp fall in inflation raised fresh hopes of one more round of rate cuts. However, Realty stocks continued their downfall. Bank stocks did badly during the week despite good results because of the negative outlook on the global financial sector. FIIs were the net sellers for the week.

Week Ahead

As said earlier, Obama factor may help the markets to have a small rally in the beginning of the week. However, the gains may be limited because of the strong underlying bearish sentiments across the globe. Satyam Scandal and doubts of Corporate Governance of the Indian Companies may haunt our markets for some more time. Resumption of FII outflows may also hit the sentiments of the market. To sum up, our market is likely to be highly volatile this week with the indices moving wildly on either side.

Resistance levels are

Sensex - 9500-9600, 9900-10100,
Nifty- 2900-2930, 3000-3030

Support levels are

Sensex - 8950-9050, 8400-8500,
Nifty - 2700-2725, 2475-2525

Traders may initiate short position in case Nifty closes below 2700 levels and long position above 2700 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials (in case of market fall) on a long-term basis.

Rupee is expected to weaken further against the US Dollar and move between 48.00 and 49.50 on renewed FII outflows. Its direction will depend on the factors discussed above.

Happy Week Ahead

India Resilient?

Rescue Packages announced by the Government of India and Reserve Bank of India helped our market to post significant gains during the last week despite the negative IIP growth and Rejection of “Bail-out Auto Package” by the US Senate. Global cues particularly US cues were generally negative during the last week.

Week that was

Market opened positive for the week because of rate cut announcements by RBI and the stimulus package of the central government, which included some tax relief measures and incentives for exports. Inflation falling to 8.00% and contraction in IIP has given fresh hopes of some more rate cuts by RBI and more action from government to revive the economy. Sensex and Nifty gained around 8% for the week. Realty sector was the biggest gainer during the last week on the hopes of some more rate cuts and relaxation of bank norms on lending to housing sector. Banking sector was also one of the major gainers for the week. Metal stocks went up sharply because of the strong results from Tata Steel and export relief measures announced by the government. Oil and Gas sector was also up because of the speculations that the KG gas issue may be amicably settled soon.

Week Ahead

As we expected in the previous week, Sensex closing well above 9350 points is positive news for the market. Rise in the market with strong F&O open interest is another positive factor for the market. Net FII inflows for the week has also improved the sentiments of the market. Hence we may expect that the market will be positive during the next week also. Fate of Auto Relief Package in US Congress, Federal Reserve’s decision on further rate cuts, fresh RBI/Government measures to revive our economy will impact the overall direction of the market.

Technically the Resistance levels are

Sensex - 9750-9850, 10200-300,
Nifty - 2980-3030, 3140-60
Technically support levels are

Sensex - 9350-9450, 8700-8800
Nifty - 2800-2810, 2675-2700

Traders may initiate long position at current levels and at around 9350 levels and short position around 10200 levels. Trading positions should be with strong stop loss limits.

Rupee is expected to strengthen further against the US Dollar and move between 47.50 and 49.00. Its direction will depend on the factors discussed above.

Happy Week Ahead

Will markets be stimulated?

Government of India and Reserve Bank of India have announced their stimulus packages to revive our Economy. A detailed review of the stimulus package will be made soon on the same blog. For the time being let us discuss about the direction of the markets for the coming week.

This link can be clicked for the detailed report of Government Stimulus package and this link can be clicked for the detailed RBI report.

Week that was

Though, our equity market opened positively for the week, it was not able to sustain the gains because of the negative cues coming from global markets. Global recession particularly that of United States has become a reality now. Further, negative growth of sales reported by Maruti impacted the sentiments of our market which started sinking down. At the same time, expectations on the stimulus packages, rate cut hopes, fall in inflation (8.40%) and fall in international crude prices helped the market in averting a big fall. IT stocks were the major losers for the week because of th expectations of "less order intake" on the backdrop of global recession. Metal stocks gained in a big way because of the better than expected results from Tata Steel. Banking and Real stocks were the other major gainers on the expectations of rate cuts. Power, Capital Goods and Infrastructure stocks have also gained on the expectations of government's investment in infrastructure. For the week, key indices closed with marginal losses.

Week Ahead

Sensex closing above 8900 is a positive sign for the market. We can expect that there may be small rally in the market. Technically it may face resistance at 9350, 9950 and 10200 levels and there are supports at 8350 and 7700 levels. Traders may initiate long position in case Sensex closes above 9350 levels however with a strict stop loss limits.

Auto, Banking and Real Estate stocks may be considered for trading on account of cut in interest rates. Infrastructure, Capital Goods and Power stocks may be considered on account of government stimulus package.

Indian Rupee may appreciate against US Dollar in the coming week on account of the government and RBI measures as said above.

Wish you all a Happy Week Ahead

Tomorrow Never Dies

Even though, Mumbai was attacked by the Terrorists, our Stock Markets have shown remarkable maturity and the F&O settlement was quite peaceful.

Week that was

Bailout of Citibank and Slashing of interest rates by China kept the hopes of the global markets alive. There was a very much positive movement in majority of the global markets from which our markets also took cues. There was a marginal rise in the large cap indices on a weekly basis. Sensex closed above the crucial support line of 8900 points, which gives hopes of positive trend for the next week. However, Real Estate sector was the worst hit.

Inflation continued its downward trend falling to 8.84% and GDP growth was at 7.60% raising fresh hopes that RBI may cut rates once again. Rupee had a marginal fall against USD closing at 50.12.

Week Ahead

As said earlier, there are chances of mild up-trend for our market. Sensex will have a strong support around 8650 levels and find resistance at 9350, 9650 and 10200 levels. Further direction will depend on the global cues and decision of RBI to cut the interest rates. Rupee will be range bound and consolidating around 50 levels. Rupee movement will depend on stock market trends and NDF market movements.

Happy week ahead.

Sleepless Nights

Crisis in the “Never sleeping Citibank” brought sleepless nights for the equity markets across the globe. There were speculations in the markets that Citibank was about to become bankrupt any time soon. Such speculations were not without reasons. Citibank announced that it would downsize its workforce by 53,000. Its share price crashed in US markets in the last week. Announcement by the US President elect Mr.Obama that the Head of Federal Reserve Bank of New York would be the Treasury Secretary of his cabinet brought some cheers in the market on the last day of the week.

Week that was

Our markets were showing negative trends throughout the last week except for the last day’s surge taking cues from Global markets. Major global markets were very much negative during the week and many of them hit fresh lows of the year. Official confirmation of recession in Japan and few other countries helped the bears to have a complete grip over the market.

In India, Rate cut talks and moderation of inflationary expectations did not help our markets much that closely tracked the global events. Prime Minister’s request to the corporate to cut the prices to revive the economy did not go well with the market. Even though crucial line of 8900 points was broken during the week, the last day’s last hour surge helped the Sensex to close above the line of 8900 points bringing in some hopes.

For the week, Sensex lost around 470 points (5.10%) and Nifty lost around 120 points (4.16%). Once again, the Realty sector was the worst hit followed by Banking and Metal sectors.

Crude Oil prices went below $50 during the week. CBOE Vix peaked at 80 during the week and then had a fall during the last trading session of the week.

FIIs continued to sell in Indian markets and our Forex Reserves further came down to $246 billion dollars. Inflation had fallen to 8.90% from the previous week level of 8.98%. Indian Rupee weakened further against US Dollar because of FII selling, surging import needs and NDF market arbitrage.

Week Ahead

Last day of the previous week witnessed a rise for the indices with a high F&O volume indicating that the short-term trend will be positive. Fall in CBOE Vix (US) also supports the view as the global volatility may come down in the immediate future. Even though there are fears of a possible Citibank bankruptcy, markets are now in an oversold zone and there may be short covering and bottom fishing at every lower level.

There are strong bets in our market on a possible rate cut by RBI, as there is a moderation of inflationary expectations, which may help our indices to stage a brief relief rally.

This week, Sensex may march towards 9400 levels breaking which to 9800 levels. In case of any bad news from US, the downside targets are 8400 and 7800 points.

Rupee may consolidate around 50 levels with a positive bias, as the immediate expectations on our equity markets are positive. Further direction will depend on the movements in NDF markets and Equity markets.

Investors may look into stocks of public sector banks, which may be benefited by the probable rate cut with a long-term view. Similarly, Oil Marketing Companies, which are going to be benefited by the fall in international crude prices, may also be good bets for long-term call.
Wishing you a happy week ahead.

Slope of Hope?

A classical Bear market always keeps the “Hopes of Recovery” alive by not allowing them to become a reality.

Week that was

Every thing looked fine at the start of the previous week. There was a massive stimulus package announced by China. Dollar demand across the globe had eased down. Pace of FII outflows from Indian markets had slowed down. Global cues were better. Local sentiments improved. Helped by the above factors, Sensex rallied to the levels above 10500 points at the start of the week itself.

Huge sell-off came thereafter. Sensex lost more than 1000 points from the top it formed for the week and ended with a net loss of 580 points (5.81%) for the week. Better than expected IIP numbers (4.90%) for the first half-year (2008-09) and surprise fall of Inflation rate to single digit (8.98%) failed to arrest the losses for the week. Realty Sector was the worst affected with a weekly loss of 14% followed by Capital Goods Sector.

US economic data released during the week confirmed that US is in the grip of recession. Also, there were doubts in the minds of investors regarding the continuity of support to the Wall Street after the regime change. Nasdaq lost as much as 8% and Dow Jones lost 5%. Other major Global Indices barring China also faced big correction during the week.

Rupee witnessed one more fall because of renewed demand for US Dollar. Crude Oil continued its downslide.

Week Ahead?

G-20 meeting has come out with a set of sweeping plans to revive the world economy. Efficacy of these plans is yet to be known as an outgoing US President headed the meeting and the incoming US President did not participate in the meeting.

Surge in CBOE Vix (Volatility Index) and NSE Vix indicate that there will be huge volatility in the coming week also. Technically (as we mentioned in the previous week) Sensex has already broken the important support line of 9600 points and closed well below it. Other technical indicators also point out that the downtrend may continue in the coming week also. However, with the Inflationary expectations moderating, any RBI action in bringing down the interest rates may be a positive factor for the market.

Sensex may find a technical support around 8900 points and a resistance around 10200 points. Traders may consider taking opposite position on extreme situations however with strict stop losses. Investors may consider entering into ETFs (Sensex and Nifty ETF) at the levels around 9000 points with a long-term view.

Rupee is expected to be consolidating around 50 levels and much will depend on FII action and RBI intervention.

First Phase of the Downtrend is Over?

Till some times back, every thing looked all right. Stock markets were scaling new highs. Real Estate prices were hitting the sky. Employees were enjoying hefty bonuses and huge pay hikes. India was talking about double-digit growth.

Whatever happened then looks like a dream now because of the Subprime crisis and the consequent global recession.

Since then, stock indices have crashed out. Metals have plunged down. Real Estate prices have been brought down to earth. Multinational (Investment) Banks went bankrupt. Jobs are being lost. Governments are supporting the Banks by providing capital. Central Banks are cutting interest rates drastically and pumping in billions of dollars into the system to ease out liquidity crisis.

As of now, panic level has come down in the financial markets, which appear to be finding a bottom for the time being. Dollars are more freely available in the international markets and LIBOR level has come down significantly.

Experts feel that the first phase of the downtrend is over for the time being. The second phase will be impacting more on the economies rather than the financial markets.

Second phase of the downtrend may witness the bankruptcy (i.e. not able to service the Debt and support the imports) of countries like Argentina, Hungary and Pakistan. IMF has already stepped in to save these countries. Global economy will be slowing down in the immediate future.

Now let us review our markets.

Week that was

As we expected, there was a sharp rally in the in the equity market for the first two days supported by cutting of interest rates by the central banks across the globe and FII inflows. However with the global markets turnig negative after the US elections were over and our weekly Inflation (10.72%) being much higher than the market expectations, Sensex was not able to cross the resistance level of 10750 points decisively. Huge sell off was then witnessed taking the index back to 9600 levels. Still, Friday’s small rally of 230 points helped the Sensex to close positive for the second week in a row. The positive news for the week was the return of FII flows into our markets. Bad news is that the series of economic data released in USA confirmed that USA is grip of recession.

Rupee rallied against US Dollar after hitting a historic low of 50.15 levels in the previous week. However the bad news is that the Forex Reserves of the country dipped by another $5.5 billion for the week ended 30.10.2008.

Week Ahead

As we mentioned earlier, the panic level has come down and there is some sort of stability returning to the markets across the globe.

Arrest of FII outflows and rather some inflows into our markets too have improved the underlying sentiments

Technically, Sensex can again rise to the levels of 10800 points breaking which it may move towards 11800 points. Only precondition is that it should hold above 9600 points and in case of any fall below that level it may retest 8900 levels once again.

Traders are suggested to take position according to the global movements however with strict stop losses.

Investors are suggested to buy some blue chip stocks and public sector banks with a 3-5 years time horizon at fall, as there is limited down side from here onwards.

Rupee may consolidate around these levels as (already mentioned) there is easing of dollar demand in the international markets.

Have a nice week ahead.

Interest Rate Cuts are in the Interest of the Nation?

Nowadays, RBI’s moves have become more predictable which appear to be just following the signals from the finance ministry. There has been a cut of 3.50% in CRR (the money, banks have to keep with RBI in cash), 1.50% in Repo Rate (the rate at which Banks borrow from the Central Bank) and 1.00% cut in SLR (the money, banks have to keep in statutory liquid assets) in the last few weeks alone.

Let us discuss hereunder whether these monetary measures can actually help the country in coming out of its economic slow down blues or these measures are simple paracetemol doses given to cure (tranquil) the cancerous diseases.

First of all, let us understand the economic problems that we are going to face in the near future because of the (current) global recession.

Ø There will be a fall in demand across the globe and our exports may be hit. BPO and BFSI segments of our IT sector may also be hit.
Ø Rising of new capital funds by our corporate will become more difficult in the absence of vibrant stock markets and FII inflows (Capital formation is key to sustain growth of any developing country).
Ø Business confidence will come down because of fall in demand and difficulties in rising funds. New businesses as well as expansion of existing business may not take off in large scale. In fact, there are possibilities of downsizing/closure of many existing business units leading to job losses.
Ø Real Estate Sector will be affected because of lack of demand and Lifestyle Sector will also be affected, as the consumers may prefer to cut down their expenditures in uncertain times.

Coming back to the monetary measures as discussed in the first paragraph, pumping money into the system may not help by itself to improve the economic conditions like similar measures (not addressing to the core problem) failed in US. Throwing money into the problem is like adding fuel to the fire.

No corporate will come forward to put additional money (by borrowing) in to their businesses if they find investment is not going to be profitable because of the expected fall in demand. Also, commercial banks may not lend if they find that projects are not viable even if their margins are good. As the Money growth (M3) is already at very high levels, cutting interest rates may make it more difficult to contain inflation in the immediate future.

To sum up, the real problem of today is not the scarcity of money but the risk appetite among the investors because of the lack of confidence in the growth of the country.

On the other hand, there are certain positive factors for India rising out of the current global recessionary environment.

Ø India is basically an import-oriented country. Our growth is more of consumption oriented rather than export oriented like China. When there is a recession across the globe the price of basic goods such as oil, cement, steel and other metals will come down helping the country to reduce its import bill and indulge in more infrastructure building measures at lower cost.
Ø In case of cost cutting measures of businesses across the world, there is a possibility of more BPO business flowing to India. Indian industry can conquer new frontiers if they are able to come out with innovative products (like Nano Car) with high cost efficiency.

Further, there has been a huge economic imbalance created in the last eight years of our economic growth. Few sections of the society have been benefited much more than the masses of the country. Now we have a (forced) breathing time to think about taking the growth to the masses also.

It is the right time for the Indian government to come forward and increase its investment expenditure particularly in the infrastructure, public health, public utilities and primary education sectors, which will benefit both the masses and the industry. Further right mix of prudent monetary and fiscal measures can help us to come out of the difficult times.

Light at the End of Tunnel?

October 2008 has been one of the worst ever months for the Stock Market with its key index (Nifty) registering a huge loss of 26% on a monthly basis. FIIs sold around 15,000 crores worth of stocks during the month alone. However, the last week of the month has raised few hopes of stability returning to the stock markets.

What gives the hopes?

There was a smart recovery in the (last week) opening day’s trade after hitting a multi year low of 7697 points in the intra-day session. Diwali’s Muhurat trading witnessed the best ever Diwali day gain. Wednesday, market managed to hold the big gain with a smooth F&O expiry. Friday, market registered one of its best gains in its history. Thus there were sparklers on every day of the week, registering a gain of 1000 points on a weekly basis. The losing trend was broken in the last week.

US markets also closed positive on a weekly basis. More significantly, the volatility indicator CBOE Vix has come down indicating that the markets are calming down for time being.

There were interest rate cuts by almost all the (major) central banks. India’s turn came after the business week was over as last but not with the least number of cuts. There was a cut of 50 bps in Repo Rate, 100 bps in CRR and 100 bps in SLR releasing around Rs.80,000 crores to the system.

Inflation has also come down on a weekly basis to 10.68% and there are provisional reports indicating that FIIs were the net buyers on Friday. Beaten down stocks like Unitech were the major gainers for the week.

Rupee has marginally strengthened against US Dollar on a weekly basis first time since a month.

What’s ahead?

All the above factors give fresh hopes that market may stage a recovery in the near term, which can take the Sensex to 10750 levels breaking which to 11800 levels. At the same time, if the market is not able to sustain the opening day’s (Monday) gains there will be down trend which may take the Sensex to 8900 points breaking which to 8300 levels.

All depends on the FIIs’ activities, which have been selling in the market with venom thorough out the entire calendar year 2008. But the pace of FII selling may slow down in the immediate future.

I am still having the view that market may hit a fresh trough wherein the panic will set in the minds of Indian Investors (also) before taking any solid up trend. Till that time, market may be consolidating in the range of 9000-12000 levels.

Investors are suggested to look into large cap stocks that have given good September results and public sector banks at falls. Traders may take a position based on the support/resistance levels as mentioned above however with strict stop loss limits.

Rupee may consolidate around 50 levels and may have marginal appreciation in the light of monetary measures of RBI.

Wish You All Happy Investing Times Ahead.

Dwindling Forex Reserves

Forex Reserves of our country has shrunk by $15.47 billion (approx.Rs.77,000 crores), its largest ever fall, to $258.415 billion in just one week (ended 24.10.2008)

Reasons for such sharp fall are

1. Persistent selling of equity shares in our market by FIIs
2. Strengthening of US Dollar against other major currencies across the globe leading to the devaluation of such currencies in RBI’s kitty.
3. RBI intervention in the Rupee market to arrest its fall against US Dollar.

Forex Reserves are of strategic importance to any country. Countries like Argentina and Pakistan are on the verge of financial bankruptcy as their forex reserves are not sufficient to support the imports.

Review of Monetary Policy

Diwali Crackers were already exhausted

Diwali gift of 250 bps cut in CRR bringing in Rs.1,00,000 crores into the banking system and 100 bps cut in Repo Rate was announced little before the Mid Term Review. Hence, there are no changes in the key rates by the RBI.

Other Highlights

GDP forecast for 2008-09 revised to 7.50-8.00% (currently 7.90% against previous year’s 9.20%)

Inflation projection for the end of March 2009 at 7.00% (currently 11.40% against previous year’s 7.80%)

Moderation of money supply (M3) to 17% during 2008-09 (currently 20.30% against previous year’s 21.90%)

Trade of Interest Rate Futures will be introduced by early 2009.

External Commercial borrowings (ECBs) limit is enhanced under the automatic route.

Cost limit for ECBs is also enhanced.

Domestic Oil and Shipping Companies permitted to hedge their freight risk with overseas exchanges /OTC markets.


Stance of the Policy

From the review, it appears that RBI wants to balance its objectives of financial stability, price stability and growth.

With the inflation still being in double digits and Money Supply being well above the target of 17%, RBI is not comfortable in cutting interest rates further.

RBI wants to ensure sufficient liquidity in the system through the Repo window.

At the same time, it appears that RBI will not hesitate to take some unconventional measures such as cutting SLR and increasing FII limits to stimulate growth.

Banks may not alter their lending/deposit rates for time being.

Oil companies may be able to save some percentage of their costs through the provision of hedging.


Even though there have been relaxations to enhance the Forex inflows, it will be difficult to arrest the dwindling Forex reserves.

Diwali Discount Sale

During last week, Stock Market was very much generous to its customers unheard in any other market to offer many stocks at huge discount (80-90%) to their previous year’s prices. For instance, one can buy entire pack of real estate stocks (one each) within the price that was paid for one single real estate stock last year i.e. DLF Ltd. I was telling my friend that he could buy many big names at the cost of a biscuit packet for his child.

What went wrong?

There was a short break in the downtrend for the first two days taking the Sensex to the intra-week high level of around 10,800 points after which the market fell like there is no bottom. Persistent selling by FIIs and global melt down made the market to have an unprecedented fall.

Repo Rate cut, fall in inflation numbers and melt down of commodity and Oil prices did not enthuse the market. A tragedian anti-climax waited for the last day of the week wherein Sensex fell by more than 1000 points thus closing just below its crucial support line of 8800 points.

Index stocks like Unitech (cash crunch), Suzlon (blade breakage) and ICICI Bank (financial crisis) fell prey to romours and faced huge correction in their prices. Reliance pack also continued its downfall.

Real Estate stocks were the worst hit for the week followed by metal stocks.

Rupee went above 50 levels for the first time in its history. Strengthening of US Dollar across the globe and stock market crash were the main reasons for such fall.

What’s ahead?

Currently, Panic rules the market. There is an insufficient liquidity support in our market, which makes it difficult to absorb the huge FII outflows (outflows have been to the extent of Rs.50,000 crores during the calendar year alone).

Our market will be keenly looking for global cues for the direction hereafter. In particular, there is a series of economic data to be released in US in the coming week which will be closely watched our markets also.

There is an oversold position in the F&O segment and short covering may be expected this week during the F&O expiry will happen.

Next support for Sensex comes around 8600 followed by 8200 points. There is a possibility of a sharp recovery (as it happened in the first two days of the previous week) taking the index to around 9800 levels. Breaking 9800 levels will be key to further upside.

Rupee may continue its downfall and the next support comes around 51.00-51.50 levels. Rupee will be closely tracking global movement of US Dollar and stock markets.

Traders are suggested to be cautious in view of high volatility and those with high risk appetite may trade in options taking contra view i.e. when the market is extremely negative buy Nifty Call Options and vice versa.

Investors with an investment horizon of over 5 years may start invest in ETF (Sensex and Nifty) schemes in small quantities.

Wish you Very Happy. May this light festival bring new light to the stock market.

Enough is Enough!

Fear, Panic, Pessimism, Exotic Derivatives turning Toxic, Economies darkened by Eclipse, Credit Crisis, Liquidity Squeeze, Sensex Sinking to Four-Digits, Closure of American Banks, Layoffs, Bail outs, Job Losses, Recession etc. The business and mainline media is full of such gloomy headlines these days.

Week that was

As expected by us there was a technical bounce back in market taking the Sensex up by 1000 plus points in the first two days of the market. The rise was due to the positive global sentiments and the confidence of stability returning to the financial system.

However, the last three days witnessed sharp fall in the market despite the cutting of CRR by RBI by full 100 bps (to 6.50%) that too with a retrospective effect and Sensex plunged below 10000 points after two years. The fall was mainly attributed to the exit of FIIs and weak sentiments in our market.

Sensex and Nifty declined by 553 points (-5.25%) and 206 points (-6.27%) to close at 9,975 and 3,074 respectively.

There was a heavy selling in the Reliance Pack and capital goods sector.

FIIs continued to sell. Rupee was trading below 50 mark thanks to the measures initiated by the government to ease the Forex inflows.

The annual inflation, calculated on a point-to-point basis, fell to 11.44% in the week ended Oct. 4 as against 11.80% in the previous week.

What’s ahead?

Sensex at four-digit level is highly depressing. If the downtrend continues, panic may be spreading across the Indian investors’ minds also and redemption pressure will be huge on mutual funds.

However, with the governments and monetary authorities across the world having initiated many measures to restore the balance in the financial system, there may be a brief pause in the falling trend. Also, fall in inflation rates, fall in oil prices and easing of interest rates are positive factors for Indian macro economy.

There is a technical support for the Sensex between 9700-9800 points breaking which 8800-8900 levels will form a stronger support.

In case of positive news flows and pause of FII outflows, we may witness a short-term bounce back to 11500-11800 levels.

However, the volatility in the market is going to remain

RBI is expected to cut Repo Rate in its mid term monetary policy announcement (24.10.2008).

Investors are suggested to look into relatively safer sectors like Banking, Pharma and FMCG. Investment in ETFs (of large cap indices) is also a good option.

Traders may initiate long position at falls however with strict stop loss limits.

Rupee is expected to continue to trade below well below 50 mark and the general demand for US Dollar is expected to slow down.

Weekly Review as on 12.10.2008

Week that was…

As expected, equity market continued to plunge down during the last week also, mainly due to the worsening global situation.

Technical support of 12500 (Sensex) was broken on the first day of the week itself and then, there was a fall of around 2000 points (-16%) in just four trading sessions making it one of the worst ever week.

Cutting of CRR by 150 bps (and also Fed Rate) did not help in improving the sentiments either.

Relaxation of P-Note norms also did not help the market.

The De-coupling theory losing its sheen as the IIP data for the last month was a shock to market.

Still, the fall in inflation is a positive sign but market ignored it.

Even though, Infosys results were on the expected line, its lower guidance for the year brought the stock down before managing to recover at the end.

FIIs continued their selling spree.

Rupee broken 47 levels and fell further down to near 50 mark.


What’s ahead?

There is war like situation across the globe and the international leaders are now trying to solve the deep trouble by mutual coordination. Our government and RBI are also doing their part.

Sensex has now corrected by around 50% from its peak at 21000 levels. Next support for the Sensex is around 9800 levels. Stronger support comes around 8800 points.

Technically, the market appears to be in an oversold zone and a short covering may be possible any time in the immediate future.

At the same time, there has been so much of fall, by which, the back of the market has already been firmly broken and hence immediate recovery to the earlier high levels appears to be near impossible.

Also, even in case of a recovery, it will be a long-term process as well as a painful one.

Traders may avoid short positions, as there is a possibility of a swift recovery of at least 1000 plus points in Sensex in case of any positive clues from global markets. Long positions may be initiated however with strict stop-loss limits.

Investors are advised to exercise caution in picking stocks for long term as it is still not very clear which stock is having more FII exposure and which company is exposed to Foreign Currency risks. Investors are requested to look into Sensex or Nifty ETF schemes wherein the exposure is against a group of blue chip stocks rather than investing an individual stock in the current turbulent period of time.

Rupee may test the levels of 50. However, with the measures already initiated by the government as well as RBI with regards to easing the norms on Forex inflows, further fall may be arrested around 50 level.

There is a saying.


“The bull market ends with a euphoria and the bear market ends with a panic”

Subprime Crisis - An Indian Perspective- Part II

Last week, our stock market suffered one of its worst ever weekly losses.

Investors/traders’ confidence is in shambles now.

Is it a Beginning of an End or End of a Beginning?

Main reasons for such a drastic fall are as under.

Ø Collapse of American Investment Banks.
Ø Delay in passing the “Rescue Bill” by the American Congress.
Ø Sell-off by US Investment Banks in Indian markets.
Ø Nuked Banks coming in the way of approval of Nuclear Deal by the American Congress.

Now, we are in a “Make or Break” situation.

Sensex is very close to its crucial lifeline of 12500 points and it is quite likely that the levels may be tested once again.

Now, the important question is, whether the support line will hold for the third time (in the recent past). Any fall below this line may take the Sensex even to four digit numbers.

Immediate outlook for our market is grim and there are unanswered questions how many more US banks are going to fail in the immediate future and how much more money is going to move out of India. Effectiveness of the rescue measures is also doubtful.

Traders are requested to monitor the market closely and initiate action only, in case, the said support line is firmly held or a positive trigger from US (Both on rescue bill and nuclear deal)

Cements, Infrastructure, Capital Goods and Power stocks will be in demand, in case of approval of Nuclear Bill.

Dalal Street is now looking at Wall Street (which is already in shambles) for further direction.

At the same time, we should remember one thing.

We should not confuse between the impact of collapse of US Investment Banks on our markets and the same on our economy.

Indian economy is not much dependent on USA like our stock market.

Our economic growth is more consumption oriented than being an export (particularly to US) oriented. In fact, fall in US demands will help us in containing our import bill as the prices of crude and other basic goods will come down.

Indian growth is more visible now than ever.

Friends are hereby requested to look at our countryside for the visibility of growth rather than looking only at cities like Mumbai and Bangalore.

Indians are now importing Audi like cars whereas western countries are getting ready to import Maruti (Alto New version) cars from India. This fact should give a lot of confidence upon ourselves.

Changing demography in India has resulted in more Indians thinking how to grow or how to make money. Traditional way of content-life style is not there now.


India will continue to grow, even though, the growth rate may slow down by some extent.

Still, India will be the one among very few countries to have growth in times of a global slow down.

At the same, major threats for our economy will be

Rising Inflation
High Interest Rates
Terrorism
Infrastructure Bottlenecks
Energy Shortage

Solving of these problems should be a priority for us rather than looking at American problems.


I am of the personal view that Investors may now look for picking some stocks of high quality companies , which can withstand the (likely to be) turbulent times in the (for at least) next two years.

There is a saying. “When tide recedes, one can see who is nude and who is not.”

I would also like to suggest investors to pick such high quality stocks, over a period of time and not at one time, to minimize the price risk.

Even though, gold prices may go up in the short run because of the uncertainty/negative trends in equity markets, gold is not considered as a very long-term investment call. Once US economy, rebounds gold may loss its shine.

However, a portion of investment portfolio can be allocated to Gold investments to moderate the portfolio risk.


Rupee faces strong resistance at 47 levels and there have been RBI interventions in the market in support of Rupee. As I already mentioned, Government may not be comfortable above 47 levels and there may be relaxation of ECB/FCCB/FCNR Deposits rules to bring in more dollars. Or, there may be relaxation in exports norms or tighening of import norms.

I would like to conclude that while investing in India, one has to concentrate on its own economic issues rather than looking at others. Let us concentrate on our Indian Companies where our hard earned money is going to be invested.

Let us stop worrying for others as we have our own tasks.



Wish you happy investment times.

Rupee Fall

Rupee started falling against US Dollar in January 2008 and lost around 15% since then.

Causes

High Trade Deficit because of rising Oil imports. There is a lateral growth in demand for oil in India and the International Oil prices have also gone up significantly.

Sizeable withdrawal of FII money from India on account of profit booking and various other global and local issues such as Subprime Crisis, slow down in global economy on the global front and rising inflation and political instability on the domestic front.

Dwindling ECB inflows as the Capex plans slowed down in India

General strengthening of US Dollar against major global currencies like Euro and Pound.

Implications

Rupee depreciation is good for Exporters as they become more cost competitive in the global market and they get more Rupees for every Dollar they earn.

Rupee fall discourages imports helping the local industries. Thus there is a possibility of an industrial growth.

On the negative side, falling Rupee increases our already bulgy trade deficit and puts a burden on the precious Forex Reserves possessed by our Central Bank.

Rupee depreciation puts pressure on inflation, as we are an oil-importing nation. Any rise in oil prices will directly impact the inflation and thus economic growth.

Falling Rupee will drive away foreign investors and country will be deprived of the capital it requires to sustain the high growth.

Future beckons

Currently, Rupee faces huge pressure from the negative equity sentiments, ever increasing oil demand and low risk appetite of the foreign investors. There is a possibility of Rupee hitting 46-47 mark in the near future,

Rupee management is a tricky and crucial job of the Central Bank and the government. They may have to take a balanced view on it. Once the authorities find Rupee has reached an uncomfortable level, they may (or be forced to) ease the ECB control and the Rupee convertibility to bring back the stability in the Rupee market