"US FED cuts another 50 basis points"

"US markets and market players were expecting 50 basis points rate cut at the conclusive session of FOMC meeting on 30th Jan'2008, in spite of 75 basis points cut two weaks ago in an emergency meet, and Mr Bernarke delivered it" This decision leaves all regulatory news from over seas completed for the month, the fears of recession are now factored by all markets, the credit crunch and turmoil in Financial markets in US and performance of the Financial Sector whether improves with these relief measures is to be seen in times to come.

Certainly the interest differential at gross level and real terms widened between US and India, as RBI has left the rates unchanged since ecoonomy is doing well, though few sectors of the economy are affected due to appreciation of rupee and slowing down in US economy. RBI always maintained to act, as per the need of the hour or situation, without linking to scheduled Monetary or Credit Policy meetings. RBI expects huge capital flows from overseas, and is presently giving importance for the liquidity management.

Reliance Power the largest IPO from an indian corporate has finalised the basis of allotment, and decided to allot 15 shares to eligible applicants who subscribed for 225 shares in retail category, and the refund of excess application money starting 01.02.2008, should be in the hands of investors by next week, improving liquidity with market players. Today is the Derivatives settlement for January and also the last day of the first month of 2008.

January 2008 has seen All time highs and 30% correction from tops and has been quite volatile, driving away the small investors and traders from the secondary market. However, both Sensex and Nifty maintained the support at 200DSMA in the carnage, due to the support from Domestic Mutual Funds and DIIs. September closings of 5021.35(Nifty) & 17291.10(Sensex) will act as strong supports for today, in case of weakness and 5383.35(Nifty) & 18361.66(Sensex) previous week's closings would offer resistance for today. Any weakness is to be bought into at support levels, for a pre budget rally beginning from 01.02.2008, since the outstanding derivatives positions have come off from very high levels, as relief rally can be expected in our markets, concentrating on the corporate performance and the expectations from the Union Budget to be presented on 28.02.2008.

Strategy for the Day: Buy 5000 Calls on weakness and 5400 Puts on rallies for intra day quick returns in January series. Note: book profits quickly as the time value for money(premium) vanishes in no time, since today being the last day of the settlement.

Alternatively, one can buy 5000 straddle in February Series and wait till the settlement of February series.

"RBI leaves rates Unchanged"

"Putting all speculation to halt, RBI Governor Dr.Y.V.Reddy, announced that all the key rates left unchanged while reviewing the monetary situation domestically, and global uncertainity, and preferred to act instantaneously, without linking to monetary policy meetings which are scheduled every quarter, to manage the liquidity in our economy."

 

Number of analysts, and market players were hoping that RBI will follow suit, after US has cut 75 basis points cut a head of FOMC meeting which began on 29th. One needs to appreciate that every country, has its economy and the regulator has to take steps to meet the requirement of their economy and not ape US in these times of decoupling of economies. Our markets shall react and move, to the global news from here on as almost all important news and events are over for the month. Derivatives settlement on 31.01.2008, shall have the volatility based on the decision of FOMC meeting today (which will be known to us by late night) and FIIs behaviour shall indicate the direction of our markets.

 

Our markets will be in consolidation phase till budget time, and a pre budget rally can be expected after 11th february, as the money blocked in Reliance Power IPO will be in the hands of retail investors and HNIs by that time, as well as listing will be completed. This quarter shall be turbulent, and stability to global markets can return in April/May based on the Q1 performance of US companies, and confirmation of slowing down or recession of US economy.

 

While India, Hongkong are looking strong Nikkie, Dow Jones and Nasdaq are trading below their 200DSMAs which gives rise to greater volatility. The correction of 30% happened to Nifty, in very short time, leaves room for some consolidation before the next upmove begins, which might take a month or two, in our estimation.

 

Nifty is taking support at 5021.35(Sept closing) on closing basis in this turmoil during this month, hence any weakness in the markets should be utilised to purchase blue chips around 5050 levels for substantial returns by year end.

 

Strategy for the Day: Buy 5000 calls on weakness and 5500 puts on rallies for quick returns in today's trading.

"Nifty corrects 30% from all time high"

"The final of 7 day continuous correction, cleaning of excesses of leveraged positions, brought the indices to the first 10% circuit filter within minutes of start of trading on both NSE and BSE. Nifty touched a low of 4448.50, which is exactly 30% retracement from the all time high of 6357.10 made on 08.01.2008; which completed the correction. The bounce from this level, in front line stocks brought indices to a level of 4900 on resumption of trading, but the trapped investors, brokers and margin calls brought volatility during rest of the session, at one time threatening the second ciruit filter at 15% also.

After several bouts of volatile movement between 4500 and 4900 nifty finally settled at 4899.30 which is 200DSMA. Sensex too finished the day recovering 1500 points from the low made at 15332.42, closed around 200DSMA finally. US Fed has announced a cut of 75 basis points each in the interest rate and discount rates in an emergency meeting a head of scheduled FOMC meeting on 29th & 30th, seeing the panic in US and global markets on the fears of recession of US economy, to calm the investors, and also to pump in liquidity, which brought some stability to US indices which have fallen more than 4% at the opening, in line with other markets, recovered from the lows, though closed in negative territory. European markets have turned positive at the end of the trading FTSE posting 3% gains, Australian markets and Japan indices posting 3 to 4% gains already, augurs postive opening for our markets, and stability or relief rally can be exepected today.

The behaviour of the indices around 200DSMA (Nifty 4894.14 & Sensex 16629.43) is to be watched very carefully, as if this level is broken in the next level of selling, if any, shall disturb the long term trend of the markets and our markets might go into bear phase, in the immediate short term.

Strategy for the Day: Accumulate Reliance Inds, SBI, HUL and ITC on every dip from now on with a one year time horizon for reaping minimum 30% returns. One should avoid small caps and momentum stocks, as they lack liquidity.

"Carnage on Indian Markets"

"The unabated fall on Indian bourses yesterday, was though similar to other major falls witnessed in 1992,2001,2004 & 2006; but historic as it was swift, un anticipated by everyone. We have cautioned in our 2008 forecast and before market hours to increase cash levels by selling on rallies, but hardly any rally was there to sell since technical factors took over which are beyond any person's control, to do damage control.

It appears there was inter bank settlement problem on friday, due to which margin calls are not met by few brokers, and the sudden fall of more than 5% on indices, lead to wiping of entire margin of traders and retail investors, who deal with sub brokers, who are forced by exchanges to cut the positions, failing which exchanges have forcibly squared off the positions, resulting in almost 12.5% on indices when calculated from the day's high to day's low. While BSE could not allow trading beyond 10% circuit filter though the fall happened after 2.30p.m trading continued on NSE, which lead to some more confusion among the retail which lead to further panic.

Once this exchange forced selling is over, indices bounced well off from day's lows, though posting largest ever single day fall creating history.

All global markets have witnessed steep fall on heavy selling resulting in 5% to 8% fall, US markets were closed and shall open for trading on Tuesday. The low's made on Nifty(4977.10) & BSE(16951.50) are very close to 200DSMA and the indices have closed far below 100DSMA which stands at NSE( 5529.14) & BSE(18617.52) confirming the short term top at 6357.10(Nifty) made on 08.01.2008 & 21206.77(BSE) on 10.01.2008.

Since our markets have posted continuous losses for the past 6 trading sessions bringing in more than 20% correction from the recent tops made in 2008, some relief rally or stability shall return to the markets today/tomorrow. However, the pain is not yet over, as further margin calls from the banks and other brokers shall accentuate the situation, if there is another round of weak opening and trading.

2008 yearly channel support on sensex lies in the range of 16500 to 17500 which shall be tested more than once, and any bounce from these levels shall be the first opportunity to invest in front line stocks like...Reliance, Ongc, Itc etc., Staying cash or protecting the portfolios with going long on put options is the prudent strategy for the time being, till the dust settles and calmness returns to the world markets.

Strategy for the Day: Buy 5000 calls on weakness and 5500 puts on rallies for quick returns.

Reg: Outlook for the Week "Sell on Rallies"

"We have advised that year 2008, will be tough year for the equity markets, especially, secondary markets; which is being experienced in all markets including ours during the past one week. Without any indication a correction of more than 10% from the recent tops has taken place by last friday, and the pain seems to be not over, as there is no reduction in overall outstanding positions in derivatives.

 

US indices, Nikkie have clearly pierced 200DSMA and have entered bear phase, which is exerting pressure on other markets, due to large scale selling by FIIs. Whether it is short term bull market correction or long term bear phase shall be confirmed by this month end, as two important events are going to decide the rate sensitives, and outlook on the economies. FOMC meeting on 29& 30th and RBI Monetary policy meeting on 30th, shall be watched keenly for the cues by analysts.

 

Tech sector results of Infosys, Wipro and Tcs are in line with expectations, but still there are no takers, hence continue to slide and make new lows. Results from indian corporates are good and continue to show confidence in better performance, the expectations of investor friendly budget or popular budgets, since it is going to be the last budget from UPA, as their term ends in 2009, shall be built into the February 2008.

 

Nifty & Sensex have breached 50DSMA and made a bearish cross over (20DSMA (6096.50) being higher than 5DSMA(5967.06) offer supplies from trapped investors, hence any relief rallies from here on shall meet resistance at these levels. We recommend a strategy of "Sell on rallies" if one is a nimble short term trader, so that the cash levels can be used to pick up the same stocks at a lower levels.

 

Strategy for the Day: Buy 5600 calls on weakness and 6000 puts on rallies for quick returns as a strategy for this week.

Happy new Year 2008 - "Out look for the Year"

At the outset a happy new year to all viewers of the blog! 2008 shall be a tough year for equity and financial markets, as inflation, raising commodity prices, Elections for US president, and last budget from UPA, certainly aiming at the early elections in 2009; would bring in huge volatility on indices world over, including Indian Markets.

In any market performance of individual stocks, with supporting track record and growth story and performance on track, inspite of any external conditions, would continue to out perform. 2007 has closed on very strong positive note, unexpected by many analysts, as far as our markets are concerned inspite of good amount of selling by FIIs at every raise of indices. It shows that the domestic money is showing its power and belief on india's GDP and corporate performance, which is being confirmed with the huge subscription to NFOs of mutual funds, while the indices are at all time highs.

Events to watch from now shall be: Infosys results on 11th will give cue about the effect of slowing of US economy, and its possible impact on tech sector for 2008; The other sectors should post good results, if the advance tax payments made on 15th December are to be considered as indication. Once, the results are out, expectations of Union Budget 2008-2009, will play their part on sectors and markets. Already few sectors like sugar, fertilizer, FMCG are showing some front running on expectation of some sops and tax cuts, as FM indicated the compliance is to be rewarded with cuts which shall induce more compliance, thus more revenue.

Forex reserves, balance of payments position are quite comfortable, while strengthening of Indian rupee against US $ is causing sleeplessness for the regulators, as it is hurting exports, and sectors who solely depend on it, and not having the capacity to have effective forex management (hedging) as large corporates can afford to.

Strategy for the Day: Buy 6000 calls on weakness and 6400 puts on rallies in January series, for quick returns.