The rally in our markets for the past 3 days, recovering almost the entire losses, in the past 5 trading sessions preceding it, seems to be indicative of survival of trust vote by the present UPA government, though they may not reach simple majority by crossing the magic figure of 272. Ofcourse, global markets also are rallying simultaneously, and FII figures inidcating short covering, and fresh buying, as valuations look quite attractive, after indices corrected more than 40% from peak of 2008, and some stocks and sectors correcting more than 50%. The results so far are in line with expectations, and factually, no political party including the strong opposition NDA or Left who wants the UPA to be defeated on the floor of parliament, are not prepared to have early election, due to adverse economic conditions. Well government survives to night, and it goes to IAEA meet to discuss the Nuke deal, but with the absence of support of 272 MPs it will be reduced to 'minority' government which cannot take any important policy decision in the day's to come! Apart from it, the pressure mounting on the Speaker Sri, Somnath Chatterji to step down, from his parent party CPM, and vote against UPA might force him to resign from the post to night or before commencement of 'monsoon session' of parliament, which again poses a serious problem for the minority government to elect 'speaker' of its choice, where it needs support from some or all opposition parties! Thus, the political situation domestically will continue to haunt the markets, while the problems, of higher crude prices, inflation, slowing of growth, weak monsoon effecting the economy and the common man and industry in general.
When we analyse from the above unfolding situation, the current rally is a relief rally, in the deeper phase of a long term bear market, and shall 'fizzle' out suddenly, taking the indices to re-test the lows made on 16.07.2008, or even breach in the days/weeks to come. Unless one is a very long term investor, say hold for a minimum period of 2 years, should not hold stocks and build portfolio, until confirmation of bottom formation is known. Currently, both the indices have closed firmly above 20DSMA levels, June Closing levels and also previous week's closings, augurs well for continuation of rally. Today, markets will have higher volatility, as the news flow and profit booking a head of an event, and survival of UPA government in trust vote to night, shall bring further gains, challenging 4300 on nifty where, I expect bears to become active once again. Nifty futures have closed with 5 points premium yesterday at the end of the session, indicates optimism on survival of the government. US markets have closed marginally negative overnight, and asian markets are currently trading in positive territory. VIX closed at 40.40 indicates higher volatility today. The swings on nifty can be very wild today and tomorrow, thus, traders and investors should have strict stoplosses on their positions, to minimise the losses, if the tables turn against them. Singapore Nifty futures are currently quoting at 30 points discount which might bring some initial weakness due to profit booking and short build up too.
Range for the Day: Nifty might trade in the range of 4040 to 4220 today.
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