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India - The week ahead - 27th July - 2nd August 2009

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

The Indian stock market moved up 4 % this week, the earnings season has been good globally, thanks to the fear in the last few quarters which forced analysts to downsize the estimates for the economies and companies. The stock markets always looks at the estimates Vs actual and any surprises on the +ve/-ve will be meted on the respective stocks. It is interesting to watch the fear index across the globe vanishing. We have the familiar ‘Green shoots’ theory on the economy, it is very normal to see 2 quarters of heightened activity in the stock market post the falls.

This week will see a major event in terms of the monetary policy on 28th July, the expectations are running high, with the Indian Govt. gobbling up $100B in loans, the RBI may not have head room to do much. RBI, as always will follow the line of least resistance and will try not to wake the inflation tiger. The $ is weakening driving money to risky bets in commodities, but what is the diverging factor is the demand for commodities are not moving up, as the developed economies are not consuming enough. So is there a global trap in the making ?

On the derivatives indicators, we are at Rs 98K Crores Open Interest and the PCR is at 1.3, implied volatility on calls is at 31 % & puts at 36 %. On technical indicators, markets may move up to 4700 levels, where there are multiple resistance, also we are in the 21st week from the March weekly lows. This week will set the trend for the future. Beware, we are running on government induced stimulus and most govts, have said they can do anything more. So the bears are in waiting to hug…it may happen soon. So be on your guards.

Stock idea for the week: Do not trade, watch the levels of 4700 for the Nifty and exit all your delivery holdings there.

 

Stocks: IFN, EEM, INFY, WIT, IBN, HDB, TTM