Global recession is confirmed and the question is how long it lasts!

All markets are in strong bear grip, and every one is clear that the bull phase of 2003 to 2007 ended with indices giving away 65% of gains from all time peaks. All happened in much quicker time than every one expected, inlcuding me, though I predicted that 2008 is a tough year for equities and economies in January'08. US, UK and Japan are in clear recession as per the economic data revealed. The after shocks of financial crisis and credit crisis also is hitting indian economy and growth is slowing down here. The fall in commodity prices, weakenig of US dollar are offsetting the positive / negative effect mutually. No one thought Crude will trade below 60$ in the same year when it touched 148$ in 2008. Rupee moving from 39/$ to 50.50/$ has hurt FIIs badly this year. This is the problem with 'hot money'. it will evaporate in quick time.

 

Though crude came below 60$ Government of India is not considering the reduction in petroleum product prices, as they fear that demand shall inrease, putting strain on forex reserves as rupee is weak against US $. Oil marketing companies shall earn sizeable profits this year, and the burden on government to issue oil bonds or even pay interest is reduced which is good for balance sheet of GOI. Weakening of rupee is good news to Exporters to some extent, but there is no increase in profitability, as the finished product prices or billing rates in case of services are adjusted to the devaluation of currency. The major problem that industry and banking shall face will be meeting import obligations, with rupee not coming below 47/$. Certainly all the expansion programmes and import of Capital Goods etc., shall be deferred and put on hold as the project cost increased by 20% on the depreciation of rupee count itself.

 

Whether our markets have bottomed out? or when they will bottom out is the question looming in the minds of all investors, fund managers and analysts. The measures initiated by G-20 group and our own government, might arrest further fall below lows made during last month, Nifty(2252.75) & Sensex(7697.39) on 27-10-2008. For any reason if these levels are tested or breached, it will be good time to build longterm portfolio of blue chip stocks like, Reliance, Ongc, Infosys etc., Volatility has become part of life and markets which one has to live with for another 6 months atleast, until the stability of economies and recovery is visible. It will be traders with professional expertise who can make money now. Long term investors have to buy and hold for minimum 2 years for substantial returns.

 

Happy trading!

Nifty recovered 900 points from low of 2252.75 from Diwali onwards! Are we out of woods finally?

After hitting a low of 2252.75 on 27.10.2008, before Diwali, Nifty made a spectacular recovery of 900 points to reach 3142.10 yesterday. Similar pattern happened with Sensex too. All global markets have recovered in same fashion. What contributed to it suddenly? The rate cut by Fed, followed by JCB, RBI and now Australia all measures suggest that the global slow down and may be recession is being feared and anticipated. European banks too follow the rate cut move shortly. US economy is facing one of its worst crisis, and the Presidential Election results which should be known by today's evening, will set the tone for the measures that would be unleashed by new President. The markets will be reacting to the outcome of the result from today onwards, as the approach will be different if Obama wins.

 

Nifty has taken support at 5DSMA and faced resistance at 20DSMA yesterday, however, closed around 20DSMA level which is currently placed at 3131.03. When the indices have made 'V' shape recovery in equal number of days, we can expect a 'pause' from now, for some consolidation to happen in a range of 2800 to 3200, which would pave the way for next major either down or up move. Thus, investors and traders need to be cautious from now on, as the macro economic fundamentals have not changed in just 5 days. The bearish ness will continue till 31.03.2009 for certain till entire PN outstandings of unregistered FIIs are cleaned from the system as far as our markets are concerned, which I have been harping for the past one year.

 

Indian banking will face a new problem from now on, as loan defaults will increase due to volatility in exchange rates, commodity prices, and crash in realty and housing sector prices. The CRR cut, Repo rate cut of RBI though eased the liquidity problem temporarily, banks having mobilised long term deposits (more than two years) at 10% + levels, shall find it difficult to reduce lending rates, and there will be shrinkage in Net Interest Income from next quarter onwads, once they are forced to reduce PLR.

 

For now, 2008 has seen high of Crude and other commodity prices, Inflation, Equity indices, Rupee Depreciation etc., however, whether there will be reversal of trend in immediate near term? the answer according to me is a big 'NO'. Castles are built for years where as they can be destroyed in no time! The next bull rally can, if any, shall be from 2010 only!

 

Range for the Day: Nifty might trade in the range of 2800 to 3200 today.