Markets This Week

Currency
Rupee sharply strengthened & broke psychological level of 40.00 on 19th Sept.’07 when Fed trimmed rate by 50 bps on 18th Sept.’07. Possibility of a huge dollar inflow, because
of an interest rate arbitrage, was the chief reason behind this strength. Stock market also surged from 14,000 to 20,000 within two months. RBI did not take any action, to narrow
down interest rate difference. Again this week, Fed trimmed rate by 75 bps in an un-scheduled meeting. But Rupee remained stable. What happened? Forex market is not discounting any possibility of a Dollar inflow even after interest rate difference is widened by 175 bps?
Markets are always ahead of events. Forex market will tell us, whether fresh Dollar inflow will resume to take advantage of interest rate difference. 39.00 seems crucial level for a Rupee. As per market rumors, Central Bank seem actively defending this level. If Rupee breaches 39.00 in coming days then it indicates that huge Dollar inflow again started & RBI gaveup.
But if Rupee sustains 39.00 level then it hints two possibilities. First one is RBI succeeded in defending 39.00 level. Second one is FIIs changed their stance & only interest rate difference is no more a big excuse to pour money in India.
One should remember that after Fed’s rate cut by 75 bps in this week, FM stated that Govt will take every action to ‘moderate’ capital inflow rather than to ‘stem’ it. Curbing P-Notes by SEBI in Nov.’07 is not an old story.

Narration
FIIs are daily pulling out average Rs. 2,500 cr. from cash marketsince past two weeks. This is an indication of a genuine profit booking on investments. Despite Fed’s 75 bps rate cut in this week,
Rupee remained stable. Earlier Rupee broke psychological level of40.00 in Sept.’07 on fear of a further capital inflow when Fed trimmed rate by 50 bps. Rupee remained firm indicates that either RBI is protecting a Rupee or FIIs changed their stance & just an interest rate difference is no more a reason to pour money into India. 39.00 is a crucial level for next few days & might tell us whether fresh Dollar inflow will resume or not. IT stocks seems preparing itself for this movement in a Rupee. Hence IT index widely underperformed in a falling market. FM already hinted possibilities of a ‘moderation’ in capital inflow rather than ‘stemming’ if capital inflow affects growth. Flagship Infosys gained 3.9% in this week.Pressure is mounting on RBI to trim rate after Fed’s unexpected rate cut by 75 bps in this week. Bond Market seems already discounted 50 bps rate cut as yield on 10-year Govt paper came down from 7.89% to 7.39% within past four weeks. Sensex lost 9.5% in January while Bankex lost just 0.33%. This indicates players are betting on bank stocks hence expecting a bonanza of a rate cut in
RBI’s quarterly credit policy review in next week.
Capital Goods index seems main culprit behind market’s weakness since Nov.’07 peak. BHEL & ABB lost 16% while CG index lost 11.5% in January against 9.5% fall in Sensex. Alstom lost 25%, Areva 19%, BEML 16%, Crompton 12%, Kirloskar Bros. 26%, LMW 30%, Praj 31%, Punj Lloyd 18%, and Thermax & Voltas 15%. Only L&T and Siemens weathered in January by loosing around 6%.
Hero Honda surprisingly gained 0.15% on weekly basis while lost just 0.7% on monthly basis when Sensex lost 9.5% in January. Something is cooking in Hero Honda’s counter. But one should go long only above 800. Maruti lost just 1% while Tata Motors managed to close in green in this week. Exide is looking strong bet in Mid Cap segment. Players seems accumulating Auto stocks from weak hands on hope of duty reduction on Automobiles in forthcoming general budget, to spur manufacturing growth. HUL & ITC lost 6%. Tata Tea gained 2% on a chilled winter in past 46 years. Cipla, Dr.Reddy lost 10%, Glaxo lost 12% while Ranbaxy lost 5%. FMCG & HealthCare are the weakest link in current Bull Run since past three/four years.
DLF & Unitech lost 6%.
Interest rate sensitive Bankex managed to float while Realty lost 7%! This seems an anomaly & market might rectify this after RBI’s credit policy review in next week. Either Bankex should come down or Realty should climb. Metals lost 22% in January against 9.5% loss in Sensex. Ispat Ind. Lost 44% in January after rumor that promoter milked two months back! Nalco, Welspun & Sesa Goa managed to gain while Sterlite lost 10% despite its energy IPO buzz. Tisco lost 8%.
Reliance lost 6%, ONGC 16%, RPL lost 17%. There is no word to write anything about losses Mid & Small Caps.
Trees don’t grow to sky.

Market
Fundamental analysis of ‘strong hands’ drives markets, which creates technical levels.
Technical analysis is nothing but ‘following’ what strong hands are doing.
In previous week, on Friday 18th Jan.’07, Prime Minister’s economic advisory council head Dr. C. Rangarajan conducted one press conference. He predicted possibility of 8.9% growth for current financial year while 8.5% growth for next financial year.
Every one knows that economy is moderating after four year growth & 8.5% is not a surprise for market.
But Rangarajan added two very important points while projecting 8.5% growth. He predicted
possibility of a slow down in manufacturing because of worsening power situation & 3.6% growth in agriculture against current growth of 2.5%.
Central & various State Govts many times publicly acknowledged that power deficit will continue upto 2012.
Most aggressive project executer like Reliance energy, also clarified that first megawatt from UMPPs will be available in 2012 only.
This hints that odds are in favor of manufacturing slow down because of Power deficit. PM’s economic
advisory council is cautioning specifically on this front.
Weather is an act of God. PM’s economic advisory council is projecting very optimistic agricultural growth of
3.6% in next year against current 2.5%. What happened with Govt’s projections & planning in case of Sugar & Wheat is not an old story.
All market men & media is talking about excess leveraged positions in F&O segment & liquidity dry-up because of Reliance Power’s IPO. But very few participants seem taking note of this man, who is sitting on top of all economic data.
Govt is the strongest hand in any market as Govt is setting policies & priorities which set trends in economy. If already worsened power situation deteriorates further in coming months then manufacturing slow down is possible. If agriculture growth can not achieves 3.6% growth in next financial year then GDP growth may even not sustain at 8.5%.
In a nutshell PM’s economic advisory council hinted possibility of a less than 8.5% growth in next financial year on Friday 18th Jan.’07. On that Day Sensex closed at 19,013. 61.8% recovery of previous fall from 21,206 high to 15,332 low comes around 19,000.
This is a classic example how fundamental analysis (of strong hands only and not every he and
she on a street) & technical analysis are inter-woven & inseparable.
If Sensex sustains above 19,000 i.e. sustains 61.8% recovery, then it indicates that market discounted possibility of a less than 8.5% growth in next financial year. In such a case, market might see new high after some group rotation.
But if can not sustains above 19,000 level then one should listen to the man who is sitting at the top of all economic data.