Free NEWSLETTER for the week ending 17-10-2008

Hi Friends,

 

    The global mess kept pounding Indian markets, which twice avoided trading freeze this week. The Sensex tumbled 16% and the Nifty lost 14% after sinking to lows of 10,239 and 3198, respectively. Headwinds seem to be a gentle word for the markets world over as indices continue to witness ruthless selling. We believe the market is yet to find a firm bottom. Despite relatively attractive valuations, index heavyweights could succumb to the selling pressure of FIIs and domestic funds. Even after falling so much, the weekly charts are still giving sell signals. Weekly MACD with bearish hook formations looks still dangerous and may even fall much more from here. Weekly slow stoch looking more dangerous and is ready to enter the lower zone thus giving more bearish signals and confirming to what bearish macd is indicating. Similarly daily indicators are also giving signals that show continuation of bearish trend. Although as per the price of the indices, they give an impression of over sold levels, yet in bear phases, this over sold levels continue to remain oversold for days & weeks together. The only consolation this week is that Dow has fallen continuously for 7 days in a row and a day or two of pause or dead cat bounce can not be ruled out in Dow & other Asian markets. Similarly sensex has fallen for five days in a row which may take a pause for a day or two. Or even may show a corrective upward move from these or slightly lower levels.

 

    The Government, SEBI and RBI announced measures to ease the pain in the markets, but the same met with limited success, as the massacre continued unabated. The Government expanded the scope of infrastructure to allow companies in mining, exploration and refinery sectors to raise overseas loans through the ECB route. Capital market regulator SEBI removed restrictions on offshore derivative instruments (ODIs) in both, the cash as well as futures & options segments of the market. SEBI chief C.B. Bhave said the 40% cap on ODIs, including participatory notes (PNs), out of the total assets under custody in the cash market will also be done away with.

But, the biggest step was taken by the RBI, which slashed CRR by 150 basis points to 7.5% to boost liquidity. The reduction in the CRR comes into effect on Saturday and will pump Rs600bn into the banking system. Also, the Government canceled bond auctions worth US$2bn. The central bank sprung into action after call rates in the inter-bank overnight market soared to a 19-month high of 23%, and the rupee hit an all-time low of 49.30 bringing this year's losses to 20% before it regained some ground.

Finance Minister P. Chidambaram and other top government officials reiterated the strength of the Indian economy and promised to take further steps to provide more funds to the banking sector. "We will take steps to infuse liquidity because we recognise that the flow of credit smoothly and efficiently through the system is vital to the stability of the financial system," Chidambaram said.

Finance Secretary Arun Ramanathan said that the RBI has assured the government it was keeping a close watch on the market and would take appropriate steps. The Government set up a panel, which includes representatives from the RBI, to assess the liquidity problem and report back within a week, he said. The RBI blamed the money market squeeze squarely on international conditions and assured investors that the Indian economy was in good health.

 

    Many ICICI Bank customers received SMS messages on their mobile phones on Saturday, assuring them that their deposits with the bank are safe. The message read that the bank is well capitalised with good liquidity. "Please do not listen to baseless rumours," said the message, before ending with greetings for the festive season. This was part of a campaign by the bank to allay fears of their customers, even as rumors of deposit withdrawals by account holders did the rounds. The scrip fell by 20 per cent on the Bombay Stock Exchange on Friday, to a three-year low of Rs 364.10.

    The US government lent insurance major AIG an additional US $37.8bn. The insurer was seized last month and lent US $85bn. The company's executives, meanwhile, got a rough ride in Congress for spending US $440,000 at a fancy resort the week after AIG was bailed out. Bank of America reached a settlement with those states, including California and Illinois, that had brought lawsuits against the lending practices of Countrywide Financial, a beleaguered lender bought by the bank this year. The settlement rejigs the mortgages of around 400,000 homeowners and could cost up to US $8.6bn. Separately, Bank of America raised US $10bn in a share sale and said it would halve its dividend. SAP, the world's largest maker of software for business, said it had experienced a very sudden and unexpected drop in demand. And figures showed that the rate of growth in revenue from online advertising in the US in the first half of 2008 was considerably lower than in the same periods in 2007 and 2006. IBM, however, reported a 22% increase in quarterly profit.

 

    For the week ending 17th October, the trading range of Indian markets will be entirely driven by Dow and Asian markets. Even a flat day in Dow can see good up move in Asian and Indian markets. The day Dow bounces back and closes in the +ve, one can see rocket like move in Asian & Indian markets. The weekly range may be confined to the levels of 2997 to 2878 on the lower side in case of week world markets  & 3535 to 3730  on the higher side in case of strong world markets. A close and sustains above 3535 will be the first signal for big jump till 3730 and in case nifty closes above 3737, and sustains above it,  then be sure to see 4000 + levels by end of current expiry. Inability of nifty to cross and sustain above 3535 may signal another big downward slide.

 

Considering the unprecedented carnage in the global financial markets and uncertainty over the fate of the US and other major economies, we would like to refrain from giving any investment ideas. We continue to advise caution at this stage. Investors should stay on the sidelines till the global selloff abates and markets stabilise. One should not get carried away if there is any kind of a relief rally, as further selling is expected. Clients are advised to stick to intraday trading. Any advance in Indian stocks can only be sustained if global markets recover.

 

    For trading on Monday morning, initial opening will depend on Asian opening. Depending on the progress of Asian markets, Indian indices will move. However the volatility is likely to be high. Nifty spot although looks weak on the daily and weekly charts,  buoyant Asian indices can change the whole situation for nifty and sensex which will blindly follow Asian markets. Sustaining above 3320 can propel nifty spot to higher levels towards Fridays trading highs of 3371 to 3401 levels. Sustaining above 3401 can surely propel nifty to cover a portion of Friday's opening gap till 3454 levels. With weak Asian markets, expect another gap down or flat opening to find strong support around 3222 levels. However breach of 3222 can breach the Friday's intraday neck line to move down towards 3200 followed by 3180 or 3155 levels from where some short covering may be expected. Buying of 3400 & 3300 or even 3500 calls on market declines and holding it till end of the month is likely to give good returns as a good bounce can be expected during the 2nd half of the month. 

 

     

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