Weekly outlook on Indian Stock Markets – 27/08/2007 to 31/08/2007

Well, if “caution” was the word of the last week, “consolidation” could be explain the mood and the sentiments for the next week.

We all know how a car behaves when it starts initially. It makes lots of noises, vibrates and then gets ready for a ride. The same could be seen in the stock markets in the coming week. It may volatile initially during the week, but there are chances of sustain upward movement later during the week. For me, the corrections in last few weeks were tremendous and markets are now looking in a better shape to digest any bad news that may come from sub-prime issue.

So, the next week could be a week of consolidation. Some of the large cap stocks look pretty attractive in terms of valuation, especially Cipla, Reliance, Bharti and ONGC… Similarly, mid-cap segment are also looking geared up to see a phase of upward movement next week.

The coming week will also be bringing the F&O expiry and hence one can seen the unwinding of various short positions that investors have taken on account of huge fall in the last few weeks. Thus, the corresponding long positions will only support the market levels.

Globally, the concerns of sub-prime are again re-emerging. The Bank of China has just disclosed that it has invested around $8.2 billions in the US sub-prime market. Similarly, various hedge funds and financial institutions can also disclose their investments in USA prime and sub-prime. Such announcements could send jitters in the equities, but the impact is already discounted enough to cause any considerable trouble to the markets.

Nutshell, one can see the phase of consolidation. I think one can put some fresh funds into equities in the coming week. Those, who have stuck in long positions few weeks back, may also find the way to come out / within the permissible limits of their losses.

Below are some upsides and downsides for the coming week.

Upsides

1) Market Re-bounce - Re-bounce, shown by markets during the last two days, give an indication that market is creating the base to gear for upside again. Thus, one can see the upside in the coming week.

2) Catching up with Peers - Other Asian markets have gone up during this week. But Indian markets, lagged behind due to political uncertainty. This uncertainty has reduced considerably now, especially after Left announcement that they do not want to fall the govt in near future. Thus, one can see the Indian markets try to catch up its Asian peers in the coming week.

3) No major redemption - The hedge funds did not report any major redemption, which they feared of. Thus, the cash on which they are now sitting, can be invested in Indian equities in the coming weeks or months.

4) No exposure to sub-prime - Unlike Chinese bank who have invested in sub-prime, Indian banks have not any exposure in US sub-prime markets. Hence, one can see it no major threat of liquidity crunch in Indian financial systems and this can act as a morale booster for the Indian stock markets.

5) Robust Economy - Renewed Political Stability, Currency within the desired range, Moderate Inflation, No threat of Sub-prime issue… Overall, Indian economy is looking in good shape than its other Asian or European peers. What else, global financial heavyweights want from Indian economy?

Downside

1) Compromised Matrimony - Till now, Left has acted as a wife who controls her husband by threatening him to go to her parent's’ house if her desires are not fulfilled. In other words, UPA government is under the tight siege of Left, which does not favor reforms. Thus, there are chances that Indian as well as foreign companies may not like this compromise matrimony. And that will have an adverse impact on the sentiments of the investors.

2) Strengthening of Yen – As discussed last week as well, the yen has appreciated in recent past and has touched the levels where yen-carry trade may not be favorable proposition for Japanese investors. Now, if yen continue to strengthen against dollar, the markets could see unwinding of some positions in Indian markets as well.

3) Major loss reported by any global financial institution – The financial institutions have finally had a look at their balance sheets to identify the risky assets. Thus, any announcement of a major loss to any big financial institution can see market swiveling down.

4) Relative Instability in global equities – Despite re-bounced of Asian and European equities, the instability has not totally gone out of the financial system. Hence, any bad news on sub-prime could again imbalance the markets worldwide and hence, may trigger the corrections in equities world wide.


Well, these are my views on the mood that may prevail in Indian stock markets next week. You too can forward your views and comments on Indian stock markets.

Wish you all a happy investing!!!

Indian Stock Markets - weekly update 20 Aug - 24 Aug 2007

The markets are expected to open bullish on Monday and Tuesday due to Fed discount rates interest. On the other side, bears will try to decrease the momentum by discounting the political uncertainties prevailing in the country on the account of Nuclear-standoff between the Left parties and Congress. So the markets are expected to remain bullish somewhere between 15-350 points for the first two days of the week.

From Wednesday onwards, there can be a threat of sub-prime issue again cropping up and if it occurs, its affect can be seen in European and Asian markets including that of India.

From the current facts, it seems that, the USA economy has successfully transferred its problems to the European and Asian Financial institutions and banks. Thus, the ultimate sufferers in the near future can be these economies who have invested substantially in sub-prime mortgages.

Even the steps taken by Fed and other central banks are just a small relief measure. It is like controlling the fever of the patient who is suffering from viral fever by injecting a dose. How big the problem is still unknown and this cause the major problem. It seems that by Wednesday onwards the effect of the temporary relief may largely reduced and hence, one can see a fresh bout of selling in the markets from thereon. Also domestic factors like the uncertainty within the government circle due to nuclear stand off may rub salt on the wounds of the bleeding Indian markets.

From Wednesday onwards, one can see a downside of about 600-700 points and hence, "caution" is the word that one can follow this week. Till one see a sustain upwards rally, the small investors must remain outside and remain cautious.

Below are the few upsides and downsides that can affect the Indian Stock markets this week:

Upsides

1) If the Central Bank takes further steps to resolve sub-prime issue, there could be a resurgence of renewed confidence among the investors worldwide.

2) If yen depreciates against the dollar, it will ensure the sustain yen-carry trades and hence, ample liquidity in world equity system.

3) Currently, Indian stock market looks attractive in terms of valuations and hence, one can see fresh round of funds entering into Indian equities.

4) If the stand-off between the left and Congress subsidises, the market can see huge upside on the account of it.

5) The hedge funds redemption is another area of concern. If this fear doesn't turn into a reality, then once can see the fresh investments into Indian equities by hedge funds operators.


Downside
1) If Fed does not take clear stand on sub-prime issue, then the market can again go into the moment of despair and uncertainty.

2) Yen appreciated quite substantially last week. If this trend continues, then one can see the unwinding of yen-carry trades, which will result in funds going out of markets.

3) Fresh Hedge Funds redemption can occur, since investors' confidence has gone down on the account of last week downside. Thus, if this fears turns into reality, the hedge funds will have to take out the money out from the markets.

4) If the stand-off between Congress and Left actually turns out to be really serious, the markets will surely seen a downside.

5) Any news regarding the collapse of any hedge funds / financial institution can cause jittery among stock markets.

Indian Stock Market - Weekly update 13th - 17th August, 2007

Last week has been extra-ordinary for the markets. Aftre the initial meltdown, markets seems to have recovered, till Thursday afternoon, when BNP Paribas sub-prime mortgage woes came into surface.

This acted as a trigger that took global indices to another low. It seems that markets have catched the sub-prime mortgage fever that may take another few weeks or months to recover.

One of the major concerns pertaining to this fall is the "uncertainity" - uncertainity on how deep the issue of sub-prime mortgage is and how many banks / financial insttutions have burnt their fingers in it?

Thus, it seems unlikely that markets will go up steadily this week. Though, some amount of short-covering is seen, which is common after such volatility. Long term and medium term investors can still wait as more correction can be seen in the markets. Intraday Traders need to
track local and global events quite carefully since every name dragging into sub-prime mortgage woes will trigger a fresh correction in the market. Hence, caution is the word one must remember. Till the time, the cloud of uncertainity about sub-prime clears a bit, the market expected to remain volatile.

Below are some of the upside and downside factors that are expected this week:

Upside
1) The current side last week may result in a bit of short-covering this week around.
2) The money from Middle-east, is yet to enter into Indian markets. Thus, this correction may result in some of this money coming in.
3) RBI annoucement that Indian Banks and FInancial Institutions are laregly unaffected from sub-prime woes
4) Hawkish stance by Fed and European banks on this issue.
5) Rate cut by Fed to infuse fresh liquidty into the equities.

Downside
1) Fresh names of banks and financial institutions coming into sub-pprime trap
2) yen appreciation against dollor will eject more liquidity from stock market.
3) Rupee appreciation against doller will invite more volatility in the stock market
4) Sub-prime turn out to be a global disease
5) fear of Global Recession due to US economy slowdown.

Wish you a very happy investing this week!!!!!