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Jose's - India next week - 6th - 12th July

|Includes:EEM, HDB, IBN, India Fund (IFN), INFY, TTM, WIT

The Indian stock market as expected moved up, Nifty end at 4425 with a gain of 1.1%. The week did see an ambitious economic survey being unleashed with a 7.75 % growth with so many bold suggestions like the $5 billion PSU divestments, with multiple reforms on power, infra & banking. The survey also laying a base on the pretext that the US economy has bottomed out (This may be calling it too early). India will surely move on to the big league in the world markets, the latest bloomberg study shows the emerging markets market capitalization has moved up from 18 % to 24 % from Jan 2008. So the smart monies know where they need to be headed. The emerging markets have > 65 % of the world population, so the money flow should shift this way sooner. Indian Co’s have raised $ 2.3 billion from QIPs last quarter, so there are many people willing to take a bet on Indian equities. The de coupling of the emerging markets have been happening for a while now, India & China were one of the few markets which went up last week despite a blood letting correction across US & Europe last week.

The budget is due on the 6th of July and as usual all the wish lists get announced by the media and exciting the investors. The present government in India has a mandate to steam roll with all major reforms, they need to be a tad careful about being complacent. They need to address the fiscal deficit situation and kick start the economy into the double digit growth mode despite adverse global economic outlook. The fastest routes on reforms will be the banking, pension, PSU divestment, phased removal of subsidies etc. The spending prudence must continue. Markets have discounted some of it while the new government came to power in mid may, the markets have gone up 20 % expecting these, so what more does the market expect ? With the markets trading at 21 times PE, we are close to the avg. top. Once the budget is out of the way, the focus will shift to the Q1 earnings and the forecast for 2009-10. The international markets seem to have started a correction last week with US flagging off a 9.5 % unemployment rate.

On the derivatives indicators, we are at Rs 73K Crores Open Interest and the PCR is at 1.21in volume & 0.99 in value, implied volatility on calls is at 42 % & puts at 49 %.The uncertainty of the event is showing up on the Puts volatility. My view is we will see huge volatility on 6th July on the eve of the budget, banks & PSU stocks will outperform on the day with the rest under pressure. Technical indicators too confirm this.

Stock idea for the week : Have a hedge strategy, Buy into the Bank Nifty @ 7350 levels and Sell the Nifty at 4490 – 4560 levels.