Jose Koshy's  Instablog

The past week the markets exhibited a sideways move with a +ve bias and moved up 1 %. The markets continue to defy gravity with the loose $ regime, despite the $ strengthening a bit, markets continue its march, looks like there are too many hedged positions in the stock & commodity markets. In India, there was news on Food inflation touching 14.6 %, this is extremely high and the government is trying but will find it difficult. The pressure on the cane price was seen with the farmers taking over Delhi and the Lok sabha came to a stand still, the government is under pressure to increase prices and also manage the Sugar prices which is going up by the day. The Sugar co’s will pay the price and make them unprofitable. The sugar co. stocks were battered with an average of 8 – 10 % drop in price. The other news was on the government indicating there would be mergers in the PSU banks and they plan to have 10 PSU banks. This is a smart move from the government side. The consolidation will help manage the Basel II norms. Reliance has set its sight on a large acquisition and is seriously bidding for Lyondell. Lyondell is a $ 50 B company.

This week markets will take global cues and move accordingly, the $ seem to be having a technical pull back and all eyes are in the green back moving up, so the much awaited correction in the global stock markets can happen. The derivative settlement will also play up in the markets. The Indian PM is visiting the US and eyes will be on his 4 days there and the statements he will be making.

The past week the markets moved up on a good IIP data & the disinvestment story, the IIP data came @ 9.1 % way above expectations. The inflation is raising its head once again; the loose money policy is set to drive it sharply. The food inflation is @ 13.6 %, so are we out of the woods? The answer would be NO. The macro story of food inflation is also to do with the cultivable land is shrinking in the face of industrialization across the country. So we will only see this worsening going forward. The NREG scheme is driving rural income and thereby rural growth & consumption, the price of food is set to go up further. So agriculture commodity is a place to invest and get to farming in India.

This week markets will take global cues and move accordingly, Obama is on a 10 day Asian trip, this is the first time an American President is spending so much time at a stretch in Asia, this confirms the seriousness US is attaching to the growth markets in Asia. If the US plays it smart and gets to reduce cost and start to export to markets in Asia, they can get off the recession mode sooner. The Indian market will be looking forward to the RIL AGM, already there are expectations getting built on settlement announcement & large global acquisitions etc. So markets are already discounting all these. I will be surprised if any major announcement would be made by RIL. The FII’s continue to pour in cheap $ into commodities & stocks.

The derivative series has seen some good accumulation last week, the derivatives positions for the week stand at Rs 113000 Crs OI, the PCR is at 1.56 the option IVs for Calls at 25 % & Puts at 30%. The derivative indicators suggest there is huge hedging happening. On the technical side, we are trading at very strong resistance levels around the 5050 – 5100 levels. So watch for any pull back. There are huge shorts in the market that is cushioning the falls.

The past week saw some volatility and the markets touched a low of 4550 levels and then pulled back to 4800+ levels. This confirms the traders & investors are confused with the state of the market. Looking at the global economy, we continue to see things have not improved as dramatically as people think. The US has seen unemployment touch 10.2 %, this is sure to affect consumption & also burden the US government. The UK government continued to pump in $ 45 B into 2 of the largest banks. The G20 summit continues to talk about not pulling out the stimulus. The US has passed the health care reforms bill that will cover 96 % of Americans and cost the exchequer huge monies. So we are seeing a lot of socialistic model of governance in the capitalistic economies. In turn we have India talking of pulling out of the stimulus & hardening of interest rates going forward. The smart thing India did was to buy 200 tones of Gold from IMF last week, this still is just 5 % of the forex reserves, it may be prudent for the government to take this to 10 % going forward. The government also spoke about the disinvestment of PSU’s upto 10 % and raises money for social programs. This step will help in reducing the fiscal deficit of the government.

This week markets do not have any major news to play on, technically the $ looks ready for a spurt, it is trading a shade below the 50 day average and most of the people pessimistic about the $ and have moved it to alternative asset class like stocks & commodities. There is a huge $ carry trade that is happening – borrowing cheap $ and investing in high risk/return. If this starts to unwind, we can have a crash in the global markets. India will have the IIP data for September coming in, if we go with the excise collection numbers, this will surely be lower that the August numbers. The inflation on food articles is at 13.4 %, the sales volume for last quarter came in at       – 8.5 %. So where is the growth?

The new derivative series has seen some good accumulation last week, the derivatives positions for the week stand at Rs 93000 Crs OI, the PCR is at 1.31 the option IVs for Calls at 27 % & Puts at 30%. The derivative indicators suggest we may be in for a sideways movement with a – ve bias. The next 2 weeks look weak keeping all the factors in mind.

The week spanned out to a script, the Nifty closed at the lows of the day, falling by as much as 3.3 %, India was one of the worst performing markets this despite China & other Asia pacific markets moving up. There was a level of tiredness and skittishness at the top. The $ fall being arrested forced a lot of FII’s to sell this week. The Pe ratio is at 23 times, which is above the average, so some level of profit booking has happened. This week saw couple of good news in the form of NTPC disinvestment and some good nos. reported by companies, but all these seem to be well discounted.

This week we must continue the fall, we will also a volatile movement with the October derivative series coming to an end on 29^th and also will have the credit policy announcement on the same day. The inflation has raised its head back again @ 1.2 % and we have industry bodies talking about a 10 % inflation by March 2010. These are not good news for the markets. We also have the credit growth at the lowest rate at < 10 %, this is one of the lowest since 1997. So are we just seeing rhetoric of a great revival or just loose liquidity driven economic activity? This week in the US, we have huge earnings season along with the $ 100B debt sales, all eyes will be on it to take cues. Is US printing more notes to buy their own debt? The levels of participation by foreign countries have drastically reduced in recent weeks. The $ is on a technical stop, and all indicators seem to say they will start strengthening for want of any safe haven for now! Very soon we may have more and more countries dumping $, The first such signs are here, the IMF SDR is being brought in a big way by the US govt. this is a sign that US does not believe in their own $.

The new derivative series has seen some good accumulation last week, the derivatives positions for the week stand at Rs 112356 Crs OI, the PCR is at 1.29 the option IVs for Calls at 23 % & Puts at 25%. The derivative indicators suggest that we must see unwinding of positions if we break the crucial 4980 levels, the PCR suggests there is a level of negative mood in the markets. The technical indicators suggest, we have started the the much needed fall.