If the word to explain the sentiments of the last week’s trading was “consolidation” then, the word that may see its glory in the coming week is “volatility”.
The last week was good for the traders as well as the investors, with Indian Stock markets trying to create a platform to accelerate upwards. Though, it does not seem like an easy ride and I give you a reason for this.
The markets were at all-time high a month back and there were no indications of a deep correction. Thus, many traders had taken long positions in the anticipation of another bullish month. Though, things didn’t turn out the same way and sub-prime crisis spoilt the party.
Now, these sudden changes of events lead to various long positions stuck at that moment. Thus, as and when markets will try to achieve the high levels once again, the traders may take this opportunity to offset / marginalize their losses. And this may bring volatility in the market.
Also, the concerns at the domestic level and international level are not subdued completely. There is no doubt in anyone’s mind that The Left will try to block every reform that will be pushed by the government. Also, the tough stance taken by both the parties with respect to nuclear deal will also create an unhealthy atmosphere within the ambit of a government. Amidst such scenario, there is little doubt that FDI and FII inflows will slow down in the coming year, and hence will keep the markets range bound for the moment.
At the international level also, the concerns on sub-prime mortgage crisis have not diffused completely. Everyone is looking at the Fed Meeting on 19th September with anticipation that Fed will cut the interest rates to control the mortgage crisis.
US President George Bush has announced some tax sops for the mortgage owners to lend them some helping hand, which seems like a positive step.
Now, if we look at Indian stock markets among these factors, a small rally can be seen from Monday onwards, thanks to the relief measures taken by the USA government on the sub-prime crisis. The announcements by the US government will be taken in good light by the investors.
But, the profit booking and offsetting of previously stuck positions could be seen at upper levels. Hence, the middle or later part of the week could be crucial and hence, I will probably like to sit on cash more than the exposure during that period.
Well, let’s now discuss some major events that can impact the stock markets this week:
1) Relief measures like tax sops, etc announced by the Bush Government can pacify the sub-prime concerns and hence, could act as a boost for the stock markets.
2) The concerns over the sub-prime have not diminished completely and hence, the news of any hedge fund suspension can cause jitters in the stock markets worldwide.
3) Due to last month’s deep correction, some stocks are now available at very attractive valuations, especially in the Mid-Cap. So, one may see a renewed action in these stocks
4) The recent correction has made the traders’ wary of taking positions for a longer duration. Hence, one can see regular profit booking by them.
5) The last week inflation data released by Reserve Bank of India has shown it going below the 4% level, which is again a major breakthrough. So, this will be a morale booster for the investors.
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