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Jose's - India the Week ahead 13th - 19th July 2009

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

The Indian stock market as expected went down by 9.5 % last week, the fall driver being the budget announcement on 6th July, Nifty ended at 4405. The expectations ran high post the new government taking over and had factored in all these ahead of the budget; markets expected a liberal environment on multiple rounds, from FDI limits to disinvestments.  The finance minister did say in his briefing post budget that, most of what markets expected need not be part of budget proposals and can be done outside of it. The fiscal deficit at 6.8 % was predicted by the markets, what is more worrying is the revenue deficit which is at 70 % of the FD. Last week we also had global markets tumbling, the fall in India was much more because of the disappointment from the budget event.

This week the focus will shift globally to the earnings season, have we ran ahead of fundamentals? I would think so, like I wrote in my last blog, Indian PE is at 21 times, is at the upper end and the earnings are slowing. Did you know the PE of S&P 500 is at 1800 times earnings? Wow….so that is running ahead of fundamentals. India surely is a great place to invest for the long term. The fatal mistake majority of the investing community globally are making is ‘Keep your money in US stocks’ and trust the $. If US Co’s have to survive, they must move 80 % of their business to outside the US and at least 50 % to emerging markets.

On the derivatives indicators, we are at Rs 70K Crores Open Interest and the PCR is at 1.15 in volume & 0.83 in value, implied volatility on calls is at 32 % & puts at 38 %. We may be in for a sideways consolidation with a – ve bias. The technical indicators is showing a –ve trend too and confirming a 2 week downward movement. The target on the downside for the Nifty is 3500 – 3650.

Stock idea for the week: Sell nifty around the 4050 levels and hold it for 2 weeks and cover at 3500 – 3650 in 2 weeks.