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. 

US Fed lowers rates by another 50 basis points along with discount rates, to ease credit crunch! October series end with huge losses!

Derivatives settlement on 29th saw some volatility, however, ultimately Nifty ended around 2700 levels as against previous settlement at 4110 levels, thus, posting huge losses for the month. 30.10.2008 was a trading holiday for our markets on account of 'Bhai Dhuj' and today is the last day for the month. US Fed has lowered the interest rates from 1% to 0.50% another cut of 50 basis points to ease the credit crunch, and they have just another 50 basis points left in their arms for future rate cut action. The indication though anticipated by many analysts, it alone cannot solve the economic and financial mess the country is facing right now. US recession is confirmed now, and UK Prime Minister too have made a similar statement recently. Dr.D.Subba rao, the RBI Governor who succeeded Dr.Y.V.Reddy too have hinted at slowing of growth of our Indian Economy and inflation target pegged at 7% level for the financial year ending 31.03.2009.

 

Though major Indian Companies are still posting better performance during this year, the sentiment factor from investors and the double whammy being faced by FIIs ...one fall in stock prices..coupled with weakening of rupee against US dollar, made them to unwind long positions and press for sales. So far it is estimated that FIIs have withdrawn about 12$ Billion dollars from our equity markets itself, shows the reason for damage of fall in prices. While ECB Norms are relaxed by RBI, which help inflow of dollars, still the companies having import obligations prefer to keep dollars abroad, as weakening of rupee make dent on their cost and earnings; Certainly importers are major sufferors during 2008, which puts the expansion plans on hold due to huge depreciation of rupee against US dollar.

 

VIX has closed at 68.35 on 29th and volatility shall continue as new series begin today. Nifty might trade in a band of 2500 to 3000 during the week.

 

Strategy for November: Buy 2700 Call and Put and hold it till the end of series for good returns.

Samvat 2065 brought lots of cheer to all equity investors worldwide!

Well, one of the toughest bearishness finally ended with the bounce back on monday, from the lows, and the gap up opening on diwali day (28.10.2008), posting 5 to 6% gains is good news for indian investors. In its first ever major move by US government to subscribe 125$ billion equity with major US banks and Financial Institutions, enthused the investors due to which US markets have posted around 10% gains overnight. All global markets have thus, found medium term bottom for now, however, the confirmation would come by next week, as US FOMC meets, BOJ decides on interest rates, major event will be the outcome of US Presidential Election result on 04th November'2008, where the mojor policy view will be known to US as well as global economies, once it is Obama or McCain will be the Next President!

 

VIX has closed at 70.27 indicating huge volatility a head, that too today being derivatives settlement day, we can expect two way movement. Better Stay away from trading till 31.10.2008.

 

One need to remember that we are in a strong bear market, and every rally will be sold into, by trapped bulls and investors. Thus, very long time investors, having capacity to hold for at least 2 years can start building portfolios, on every dip from now on.

 

Wish every reader and their family a Happy Samvat 2065!