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India week ahead - 30th aug - 4th Sept 2010

|Includes: EEM, India Fund (IFN), INFY

The Indian markets after long underperformed the global indices with a 2.2 % fall, is this the start of the much needed correction? I would think yes. The Indian market has been supported by the FII’s and they just started selling, sold $750 M in 3 days and our markets are down. The DII’s do not have much free liquidity due to huge redemption that has been happening off late. We are entering Sept/Oct season when the FII redemption will be at its peak due to global compulsions. So we may be ripe for a good correction soon. The US is already on a path to self destruction, the Fed just announced that they will do all it takes to keep their economy going. The $ is strengthening & all the baby boomers rushing to the safety of Bonds, we may be seeing the last and final rally on them. With the US running a debt/GDP of > 350%, we may see the foreigners exiting it at a faster pace. Already India & China are using them to buy assets globally and increasing the share of Gold, may be the right strategy. The Indian markets saw an unprecedented OI unwinding of Rs 70000 crores last week due to the expiry, the rollover was around 1.4 Lac crores. This is one of the highest OI in recent times, people are taking large risks, the Indian market has the ability to swing rapidly. We are in for some turbulent times ahead. FII is selling, the Indian economy slowing, the easy liquidity vanishing.

This week the Indian markets will move based on liquidity & to some extent the monthly dispatch Nos. of Auto & cement. The US had a technical pull back on Friday, they are entering the weak times, so we may not have anything much to expect there too to support the market.

The derivatives position for the week stands at ` 143448 Crs in OI; the PCR is at 1.45 the option IVs for Calls at 14 % & Puts at 22 %. We should see some volatile movement as people are paying huge premium for the Puts. It pays to be a positional trader with a lot of patience. The bias is downwards.

Nifty on 20th August: 5408

For the week: Sell Nifty @ 5460 levels for a Target of 5350 SL: 5490

Stock trading Ideas: Buy M&M @ Rs 600 – 605 for a Target of Rs 635

Happy Trading!