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India - The week ahead 3rd - 9th August

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

The Indian stock market moved up 2 % this week, the earnings induced rally is on its last lap. The earnings were ahead of expectations and the Indian stock markets have closed near the 9 month highs. The domestic investors are buying into all the news ($1.2B was the net Buy in July), the FII’s have been net sellers ($ 300M net Sell in July). Indian markets performance seems to be slowing compared to the global peers. The US markets posted a better than expected GDP number and the $ 200B bond auction went off well. The US has $ 1.8Trillion of debt to be auctioned by end of the year, the question is who will buy ? If so what will be the yields? Are we running into the greatest trap of all times, keep printing notes to buy back debt and get into the vicious cycle? If this has to happen, then inflation will go through the roof across the world. Already, we are feeling the same in developing markets with food prices moving up by the day.

The Auto nos. in India has come out way ahead of estimates with a 28 % growth in July (Not all numbers are out). The July – Sept, is generally considered to be a weak quarter for the year, and having this type of performance is rather fantastic for India inc. We have all auto co’s hitting 52 week high on the markets. They have out performed the broader markets. This week will see all the other key capital production nos. out like cement dispatches etc. Markets normally, discounts future earnings and nos. So are we getting into a highly euphoric state ? Time will say !

As we start the new settlement for derivatives, the longs seem to have moved at a faster clip than the shorts. The derivatives for the week stand at Rs 62699 Crs OI, the PCR is at 0.98, the option IVs for Calls at 34 % & Puts at 36 %. We seem to be on a neutral front. Traders are waiting in the sidelines to bet on the direction of the markets. There are no major events except for some IPO’s that may be lined up by mid August post the success of Adani power, which was subscribed 21 times.

Stock idea for the week (Long term) : Buy into Jayshree Tea & Renuka Sugar on all falls.

Nifty idea of the week : Sell Nifty @ 4680 – 720 for a target of 4450 (Stop Loss : 4740).