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India Week ahead - 25th - 31st January 2010

|Includes: EEM, HDB, IBN, IFN, Infosys Limited, Inc. (INFY), REDF, WIT
The much expected correction finally came on to the world market this week, India fell by 4 %, so were most of the world markets falling around the same levels. The writing on the wall was there for the past 3 weeks, with low volumes and markets not taking any stance despite the US mooting taxes on banks to recover the bail out money on Jan 12th. The US had to see the Massachusetts drubbing the democrats in the senate on the first anniversary of Obama to get the fall in the US and the rest of the world. The US also has tightened the banking norms and will pass a bill soon on breaking up the banks & proprietary trading. It is surprising, the US has taken this stance so late, they should have done it long time back, and would have avoided the Bears  Sterns & Lehman collapse in September 2008 and thereby the world market collapse. These moves will have a medium term impact on all investments across the world, the US is suffering from contraction of demand despite the stimulus and inflation is slowly raising its head across the globe. What beats me is India has 16 % inflation on food & US is at 1 % despite all the stimulus and free printing of money. The economics does not add up. I was reading an article recently which compared the global nominal GDP & the financial assets with banks, from 1990 to 2009, the nominal GDP has moved 3 times and the assets with banks have gone up 6 this not crazy ? Economists will scream HYPER INFLATION. So very soon, the world will have to see this correction. The start is the credit default swaps premium is slowly edging up. There are enough signals to see the PIIGS nations & UK may face sovereign default soon.
The reason am writing world stuff in India the week ahead is, India cannot stand out or be de coupled when all these happens around us. The Indian markets fell despite good numbers from companies like Reliance, ICICI bank, Airtel etc. Markets have already discounted most of these numbers and the India PE is @ 23 times. These levels are a warning for a correction from a 80 % up move. India may be a good long term story, but we may not decouple so early from the rest of the world. India may fall lesser than the rest. We may have seen the Top for 2010 globally; there is clear signs for the global markets to see a double dip. Am of the opinion, the S&P in the US can fall up to 50 % in 2010/11. India too will have to fall but a little lesser than that. So do buy on dips that is at least 30 % from the present level not before that. 
This week markets will look to the earnings season & the RBI policy on 29th Jan, markets are technically oversold in the short term, so we may get a bounce. Smart traders must sell into the up moves.  
The derivative series has seen some good roll over to the new series, the derivatives positions for the week stand at Rs 126000 Crs OI; the PCR is at 1.04 the option IVs for Calls at 22 % & Puts at 25%. There is no panic as yet in the Indian markets, so we may get an up move soon. The markets will be volatile
For the week: Buy Nifty @ 4950  for a target of 5080, keep a strict SL @ 4920