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India - Week ahead - 17th - 23rd August 2009

|Includes: EEM, HDB, IBN, India Fund (IFN), INFY, TTM, WIT
As expected, the Indian stock market (NSE) touched the said target of 4350 and pulled back to the 4620 levels. This week we saw the surprise up move in the June IIP data to 7.8 %, this was ahead of the general expectation. Are we seriously seeing an uptick in Industrial output? Time will tell. The Govt. unveiled the new tax code, which has been well accepted, this will be put into practice starting 2010 onwards. The good part is they plan to make the tax regime simple and do away with a lot of exemptions. Hope they do something about the $70 billion still to be recovered from disputes. The drought situation is taking a alarming proportion; we are at 57 % deficit on rainfall and will affect the sowing season in a big way affecting food prices across the country. The GDP growth of India can suffer too, the IMF already has already dropped the India GDP growth to 5.8 %, and will the drought like situation drive it down to 3 %? If old times are to be believed, this may come true.  The consumer price index in India is moving up despite the WPI came in at – 1.38 % last week. This is an absolute joke, who is the Govt. trying to fool? The common man knows how his /her purchasing power is vanishing at the store levels. The price of rice, cereals, sugar etc has all gone up 20 – 30 % in the last 3 months!
The US markets have been clutching on to straw and holding on to the stimulus driven ‘artificial rally’. We are slowly starting to see retail sales drop & consumer sentiments drop, this may be the start of bad news. The world has been pumped with $ 2 Trillion (Rs.100, 00,000 crores), what else will happen, high liquidity driven rally in the stock markets ranging from 50 – 90 %. Am surprised the rally has moved only so much? The free money has chased all asset classes and set the ball for the next ‘Big bubble’. There will be an implosion and not sure, which government will come forward to rescue? The next few months, will be a scary place in the stock market.
In India, this week all eyes will be on the monsoon progress & the government plan to tackle the drought situation. All efforts will only drive our fiscal deficit to uncontrollable levels.
The derivative indicators tells us, we will continue the correction this week too,  The derivatives for the week stand at Rs 78083 Crs OI, the PCR is at 1.01, the option IVs for Calls at 34 % & Puts at 36 %. So brace for a downward movement this week. The technical levels indicate, we may see supports at 4420 – 4350 & 4250 for the Nifty.
Stock idea for the week (Long term) : Buy Health care stocks (Cipla, Dr. Reddy’s, Apollo hospitals)
Nifty idea of the week : Sell Nifty @ 4520 – 580 for a target of 4250 (Stop Loss : 4620).