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.