BOAML India: Will Get Worse Before It Gets Better!

Sell year-end rally; tough markets over next six months; expect index to correct to 14,500

India has been the worst-performing market this year, falling a third in US$ terms. Peaking inflation and a consequent pause in RBI rates are a positive which will likely help the traditional December rally. However, we continue to expect a tough market over the next six months and expect a correction of the Sensex to 14,500 as growth concerns take center-stage:

1.

GDP growth to slow; downgrades likely: We expect FY13 GDP to slow to 6.8% and consensus to cut GDP forecasts over the next few months. GDP growth in the next few quarters is likely to come even lower at around 6.5%. A slower GDP will be led by: (a) a slowing global economy, (b) impact of high rates and (c) slowing investment spend.

2. Earnings downgrades to continue: We continue to expect earnings downgrades, led by slowing sales and sustained margin pressure from rising labor and interest costs. We expect the bottom-up Sensex EPS of Rs1,275 to be downgraded to Rs1,200 (growth of under 10% vs. expectations of nearly 15%).

3. Valuations will see slight de-rating: Based on analysts’ forecasts, markets at 13x one-year forward PE are at a slight discount to long-term averages. Slow down in GDP and earnings growth as well as falling RoEs will likely lead markets to trade lower.

Secondly, on a relative basis, India trades at a 27% PE premium to GEM markets, higher than a 10-year average of 17%.

Markets stop panicking when policymakers start panicking; year-end index 19,000

The good news is that we could get some positive returns in 2012 if policymakers take steps to reverse the economic slowdown. like a) aggressive rate cuts by RBI: we expect rate cuts from April 2012 (though slow given stick inflation); markets typically rally 3-6 months after the rate-cut cycle starts, and (b) policy reform by the Government.

Sector overweights: Pharma, autos and banks

We play a mix of defensives (through pharma rather than staples) and consumer-related rate sensitives through autos and private sector banks.

Market Report- Middle East-Unrest.

Last week was not so good for our markets.Heavyweights like Reliance had hit 52 week lows.In the past 10 trading sessions FIIs were seen selling to the tune of about 3000 crores.World Markets rallied for the week with thin volumes.Volumes this week may be low as well.With good set of economic data coming from US, the markets across the globe are rallying and we are left out.
  With fiscal deficit widening and the decline in forex reserve by 93000 Crores in the past 7 weeks added fuel to the fire.Inflation for the week ended December 10th fell sharply giving room for RBI to cut rates in the next policy meet.The Rupee is still hovering around 53 mark and the OMCs are planning to raise the petrol prices soon will again have a negative impact.
 Since November I have been writing about a possible attack on Iran which may send the crude prices to sky rocket(Analysts were talking about 175$ per barrel and even some were arguing about a possible 250$ per barrel),as Iran threatens to block the Strait of Hormuz through which 40% of the total world's oil trade takes place.Israel was planning an attack around Christmas time and the plan was delayed when the US drone was captured.The good news is that if the Hormuz strait is closed, the oil prices moving northward will be contained as the pipeline construction from Abu Dhabi's largest oil fields to Fujairah is complete.With this pipeline under operation the trade through Hormuz strait can be bypassed.The pipeline will be tested next month and it is a breakthrough for UAE's oil exports.
  Tension between Syria and Turkey are escalating as US Defense secretary visited Turkey a week back and the Vice President of Syria visited Russia.
  Kindly hedge your overnight long positions as a fully blown out war may send the equities down the drain and the commodity prices to sky rocket.As we have already witnessed the attack on Libya and Egypt this year, I strongly feel that the attack on Iran which is suspected to be equipped with Nuclear weapons and the attack on Syria equipped with Russian missiles will have worse impact than the former attacks.

 The later part of the article is to throw some light on the events which may happen early next year and to equip our readers with the necessary prowess to tackle, if such a situation arises.

 Enjoy the last week of this year.Volumes may be thin.Avoid leveraged positions.

Have a happy week ahead!!


Alex sir's Nifty(spot) view for the Day.
 Supports for the day are at 4690, 4674, 4715. Resistances are at 4745,4771,4785

Market Report

Yesterday, Nifty opened negative for the day and drifted to test lower levels and bounced back from the lower levels after the European indices opened positive.Finally it seems that the Santa Claus rally is materializing.Much awaited inflation figures for the week ended December 10th came at lower levels and food inflation fell sharply.The Banking stocks rallied for the day expecting a rate cut from the central bank as the inflationary pressure is easing.

To reduce the budget deficit, India plans to borrow 50,000 crores by pledging the shares it holds in the corporates.
Fitch ratings said in its 2012 outlook that the Indian economic growth to rebound to 7.5 in FY12-13 from 7% in current fiscal.It adds that after taking no steps for sometime the Government has taken initiatives on SEZs and increasing the foreign participation in debt market.These moves are likely to have a positive impact.


Telecom stocks faced selling pressure as DoT said 3G mobile roaming services are illegal.IT stocks fell as the Oracle's(Third largest Software Company) earnings fell short of street expectation in the US.

US GDP is revised to 1.8% for the third quarter and the analysts predicted it to be unchanged from the previous estimates of 2%. Continuing the trend for past few weeks, US jobless claims fell to April 2008 lows.US indices ended up by more than half a percent.

Japanese Markets are shut for the day as the country celebrates Emperor's Birthday.Rest of Asia is trading positive.

European indices rallied as the UK Q3 GDP is revised higher.Though the indices advanced, the volumes were thin ahead of the holiday season.

I expect our markets to open positive tracking the global peers.Stay cautious at higher levels.European indices are set to open positive for the day.

We wish you all a Merry Christmas!!

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Market Report

With the rally in global indices and the Moody's giving stable outlook on Indian Government bond ratings at Baa3(For more, refer to the P.S)made our indices to rally by more than 3%. Rupee gained to 52.5 as the markets rallied.Reliance Industries rallied by almost 5%.Reliance inds invested in Terra Power LLC through one of its subsidiaries.Terra Power LLC is into ultra modern nuclear power generation.

Top IT companies are planning to reduce the onsite work by 5% to avoid stringent visa regulations and to cut the costs.This comes at a time when the the US House of Representatives have tabled the bipartisan bill, popularly called the Call Center Bill.

Inflation for the week ending December 10th to be announced today.After a fall to 4.35% the previous week, it would be interesting to watch whether the inflation continues to ease.Analysts expect food inflation to ease to 3% by first week of January.


To avoid a credit crunch in EU , the ECB injected 489 Billion Euro into the EU banking system.This move aims at increasing the liquidity of the EU banking system and averting a crisis in the near term.


Expect our markets to open flat to negative tracking the global cues and the inflation data will decide the direction for the day.


(India's foreign currency bond ceiling is unchanged at Baa2, and the foreign currency bank deposit ceiling is now Baa3. The local currency bond and bank deposit ceilings are unified at A1. In addition, the Indian government's local currency short-term rating has been changed to P-3, from NP)

Market Report-Santa Claus Rally

Indian Indices fell for the fifth straight day in a row.I am sure the macro economic factors have started affecting us in a big way.Today,we may see a gap up opening tracking the rally of the US and European indices.Asian indices are trading positive for the day.Stay cautious at higher levels and retail intra-day traders, kindly have a stop-loss.


Italy’s Q3 GDP is set to be released today. As the country is reeling under pressure to plug the deficit hole am sure the GDP numbers would negatively surprise.But as this is widely expected I don't expect a Knee jerk reaction by the markets.Keep an eye on the same.


Europe's VStoxx -the volatility Index or the Fear Index is at the lowest level in 4 1/2 months.

Existing home sales in the US will be announced today and it is expected to gather momentum.

Back home, Winter session of the Parliament is extended till December 29th.If measures are not taken to control the fiscal deficit we are in for a deep trouble,as the FIIs have pushed the panic button and is evident from the fact that most of the Nifty 50 stocks making yearly lows and CLSA downgraded India to Neutral from Over-weight.

On 7th of December Nifty futures made a high of 5134.65 and we made a low of 4538 yesterday.A fall of about 12% within 2 weeks.With most of the Nifty 50 stocks hitting yearly lows , the heavy weight Reliance Inds hit 52 week low in yesterday's trade.Since December 1st, the interesting thing about our markets is, everyday we made a low which was much lower than the previous close.

Let us hope that the policy makers fix the policy deficit, it would do more good in bringing down the fiscal deficit.Traders around the world have started talking about the Santa Claus rally and it seems to be materializing.I hope we catch that virus.

Market Report

For four days in a row, our markets ended in negative.Realty,Banking and Auto stocks lead the fall for the day.Reliance Industries ended up by almost 2% for the day.SBI,ICICI,TataSteel,

Sterlite ind,Maruti,L&T,BHEL are the stocks which had hit 52 week's lows for the day.Asian markets ended lower for the day as the North Korean Premier passed away and the Armies of South Korea and Japan were put on high alert.

Parliament on Monday cleared the Digital cable TV bill.Information and Broadcast Minister said, her ministry is in talks with Set top box manufacturers to make them available at around Rs.1000-1200.TRAI is expected to impose tariff capping for channel subscription and the users need not subscribe to a whole bouquet of channels.This move could eat into the revenues of the companies which are into DTH business.Keep on eye on DTH companies like Dish TV,RelianceBig,Bharti,SunTv,TataSky and Videocon.

Australian and New Zealand Dollar strengthens against the major currencies in early trades today while Yen declines.

CLSA had pulled out its investments from ICICI and HDFC recently and for the first time since 2002 , it had cut the weightage of India to 6% from the earlier 11% in the Long only Asia-Ex Japan portfolio.

Expect our markets to open positive tracking the Asian peers and it may edge higher for the day.Avoid shorting for the day.

Alex sir's view on Nifty(spot).
Supports for Nifty are at 4601,4562,4487. Resistances are at 4628,4648,4683.

Market Report-Hope is not a strategy.

Hope is not a Strategy.Once you complete reading this article, you will understand why I have written about hope.The last policy meet of RBI for the year is happening today.And there is lot of speculation and rumors doing the rounds about the rate cuts,unchanged rates or even a rate hike.

Let us consider different scenarios.(Kindly read all the scenarios before taking a trading decision).

A rate cut.

Should a rate cut be announced? Yes.There is liquidity crunch in the system and the Banking system needs a adrenalin shot in the near term.What would be the after effects? There would be more cash flow, more loan disbursements as the rates are less.More Auto sales,more real estate sales.With the Central Bank taking all the necessary measures to bring fiscal deficit to the desired levels,it may announce a rate cut.

Unchanged Rates.

Should the rates be unchanged? Yes.Except China, countries like Australia,New Zealand, South Korea,Indonesia left their rates unchanged in the last policy meet.This is the last policy meet of the RBI in this year.So RBI may pause for the moment and shift to a wait and watch mode to see how things are shaping up and then take a decision in the next policy meet.

A rate hike.

Should the rates be hiked? Yes.With Rupee weakening to all time lows sending the cost of imports to the roof and with September's inflation revised to double digits and the November inflation still above the 9% mark(there are chances that it can be revised to double digits too). Normally inflation drops during the Winter season.But this is not the case this year.With the RBI curbing Rupee forward trades yesterday and it takes into effect immediately both for the domestic and Foreign traders, it indicates the fiscal deficit is blown out of proportion.Adding fuel to the fire is the 9 Billion Dollar error in the export data.So RBI even may take a hawkish stance and hike the rates.

Hawkish or Dovish, the strategy for the day is to wait and watch.Don't hope for any of the above scenarios according to your convenience and take huge leveraged positions.Why?? Yeah.You know it.Hope is not a strategy.

Market Report

Yesterday,Sensex ended below 16000 mark for the day as higher than expected inflation data dampened the sentiment.European indices opened lower for the day and a fall in international commodities prices pushed the metal stocks lower for the day.Banking and the Auto stocks fell after the inflation data was announced.Rupee scaled new lows against the dollar for the day.

European indices ended down almost by 2% and US indices ended down by almost a percent and a half. USD gained against all the currencies sending the commodity prices to crash.

Hang seng opened negative today and is down by 2% for the day.Almost all the Asian indices are trading negative for the day.The only good news for the day is HSBC Chinese manufacturing PMI came at 49 compared to 47.7. Still it is trading below the 50 mark.Anything lesser than 50 is contraction.

Dollar index trades above the 80 mark.

Third Advance tax numbers to be announced for the day.



Alex sir's Nifty(spot) levels.
Support for the day is at 4693 and 4650. Resistances for the day is 4785 and 4820.

Market Report

It was a very volatile session yesterday and finally we managed to close at 4800 on Nifty spot.Nifty futures ended with a 36 points premium as the Markets rallied in the last 30 minutes of trade.Index heavy weight Reliance almost touched August 2011 lows and finally managed to close at 742,up by 2%. After the retail and 4G wireless services, there is a news that, Reliance is in talks to start a fast food restaurant chain like McDonald's and Domino's with a standardized menu and express delivery service.It is expected to take shape in the first quarter of 2012-2013.And the company has plans to scale up its investments in US shale gas sector.

Inflation data for the month of November 2011 is to be released today.Analysts expect it to ease to 9%.(October Inflation was at 9.73% and September 9.72%). Markets may give thumbs-up to a lower inflation number.I expect the inflation to come lesser than 8.56%(Strictly my personal view based on my own research).

Rupee had hit all time lows of 53.52 against the USD and closed at 53.22.Yen falls to 9 day lows against the USD in early trades,today.

In US, the last FED meeting for the year 2011 took place yesterday and it was Ben Bernanke's Birthday yesterday.I did not expect any stimulus out of the last meet of the year.But the Markets reacted sharply and erased its initial gains as no stimulus was announced.

Asian Markets have opened negative tracking the US cues and Nikkei hits 2 week's lows in early trade.Keep an eye on inflation data for the day.

Alex sir's view on Nifty(spot) for the day.

4828, 4872 are the Resistances for the day and 4780, 4744 & 4721 are the supports for the day.

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Market Report

From high growth to slow growth to low growth and finally No Growth now.Industrial Output contracted in the month of October 2011.With Diwali in the month of October and the IIP contracted, am sure November data would surprise negatively too.Rupee had hit all time lows against the US Dollar and ended at 52.84. In the past 3 trading sessions, our indices are almost down by 6%. Stocks like ICICIBANK,TataPower,SAIL,

Sterlite Ind,NMDC, Hind.Copper have hit 52 week lows.TCS, WIPRO ,HCLTECH and INFY ended up in green for the day as Rupee weakened against the USD.

Global indices fell yesterday as the rating agencies announced that the Friday meet by EU leaders did not come out with a concrete solution and rate cuts are imminent. Expect another round of sell-off, if France and Germany lose their AAA rating.

Asian markets are trading lower for the day and the SGX Nifty futures is trading at 4716 at 7 AM IST.

There is a huge OI increase in 4700 put. Keep an eye on 4700 levels on Nifty.If 4700 holds, we may see a bounce back.But if 4700 is breached we may see further sell-off.

Alex sir's Nifty(Spot) levels.

Support for the Day are at 4728,4693,4643. Resistances are at 4786, 4820.

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Market Report

Last week was very volatile and we ended negative for the week.EU meeting on Friday was the highlight.Most of the EU leaders agreed to a more credible plan to end the crisis and the European and the US indices rallied on Friday.The Asian indices have opened positive and almost they are up by a percent and a half.Expect our markets to open positively , tracking the optimism of the Global indices. I would advise to stay cautious as the IIP data is released for the day. Expect IIP data to come at lower levels for the Month of October.

Data to watch for the Week

IIP data Today.

Inflation data for the Month of November 2011 on Wednesday.

Third Advance tax numbers on Thursday.

RBI's Monetary policy review on Friday.

Short Indian Rupee for the day at the open and add more short positions if the IIP data comes lower than the September's data. Keep an eye on Capital goods stocks and the Banking Stocks.They may react sharply to a bad set of IIP numbers.Traders may go long if Nifty Futures crosses 4935 after the IIP data is announced.

Alex Sir's Nifty(Spot) levels

Support for Nifty for the day 4837-4822-4794.Resistance for Nifty for the day 4920-4950.

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Market Report

Yesterday, almost every sector ended in deep red in our markets.It was bad news one after the other.In another blow to the new reforms, Parliamentary committee rejected the proposal to increase the foreign investment cap in insurance from 26% to 49%. And in another twist the Parliamentary standing committee rejected the UID Authority bill in the present form and has asked the Government to redraft the bill.Though the inflation numbers were decent, it went unnoticed by the markets.

Expect our markets to open negative following the fall in US markets yesterday and initial weakness of Asian peers.ECB said it would not increase Government bond purchases and called the bond purchases program is not eternal. This sent the world markets into deep red.And as expected ECB reduced the rates by 25 bps.

IIP data for the month of October will be released on Monday,December 12th.Be prepared to expect some negative surprises.Keep an eye on the outcome of the EU leaders meet.

Alex Sir's view on Markets.

The PCR(Put-Call ratio) is well below the 1.2 cut off mark which indicates there are no sufficient put option at the lower levels.In a bearish scenario, this is extremely negative.The IV(Implied Volatility) of the options are LIKELY go up from the current levels , from 24 to 32 for calls and from 29 to 36 for puts.

Expect huge volatility in the near future.The Banking,capital goods and metal sector will show further weakness.

The better strategy which would fit in, in this volatile condition is a LONG STRANGLE.

BUY 4600 PUT and BUY 5000 CALL.

Nifty has support at 4873 , 4750 and 4650. Resistance at 4988 and 5108.

Have a happy weekend!!


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Market Report

It was a volatile session yesterday. Nifty(spot) almost touched 5100 and then drifted lower to end at 5062.Entire focus of the market is shifted to the EU crisis.EU stocks opened positive for the day and drifted lower when a senior German official said, ESM and EFSF cannot be run simultaneously and Eurobonds would intensify the crisis and not solve it.A poll by Reuters showed that France would lose its AAA rating within 3 months.

If on Tuesday it was Germany's factory orders which surprised the markets,yesterday it was Industrial production for the month of October.It came at 0.8% compared to the -2.7% decline in September. Bank of England and ECB meet today for the rate announcement and there is an expectation that ECB would cut rates by 25 bps.

India's Inflation data to be announced during the day.I expect it to be lower compared to the previous announcement.The drop is attributed to the roll back of fuel price hikes by the Oil marketing companies.Expect our markets to open negative tracking the Asian peers and a fall below 5040 on Nifty future will trigger further weakness.I don't think the inflation data will have any impact today on the markets.The interest decisions of both ECB and BoE will be announced after our market hours.I would advise avoiding overnight position for the day.

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Market Report

As the Markets around the World are expecting the EU leaders to deliver on December 9th, let me remind you of something from the past, On July 21st, the EU announced that the Crisis is almost solved,On October 26th, they announced the crisis is over, and here comes December 9th. I am not very optimistic about the December 9th meet. Any bad outcome from the meet means, S&P's downgrade.If Germany and France comes out with a credible solution by risking their fiscal situation, again there is a possibility of a downgrade. I would say, EU nations have stepped on a landmine and they expect a miracle to happen.

As Samuelson on his book on ,"Economics", says Recession usually lasts for 6-12months.So can we assume that we are already into recession or shall we call it a depression as some of you may argue that this down trend continues since 2008. Whatever you call it, the situation is not all rosy.Though the Italian 10 year yield had fallen below 6% yesterday and the German Factory output surprised everyone, I am more worried about the domestic problems we have.

Few days back, our own bonds, the 10 year ones, have touched 9% mark.Am sure our Government will find it very difficult to meet the fiscal target of 4.6% of GDP for 2011-12(FM admitted the same). The rupee is weakening at a rapid pace and I don't think RBI intervention is going to help.In the month of November , RBI intervened ,still the currency fell down by 7% in the same period and the reserves dropped by almost 80,000 crores.

With slow growth and higher inflation,it would be interesting to see, if RBI cuts the rates in its next meet on 16th December.If the rates are cut, it would trigger higher inflation again.And if the rupee continues to hover around the 52 mark against USD, the oil marketing companies would be forced to hike the fuel prices(BPCL said, it will hike the prices anytime soon). Adding fuel to the fire is the Iran tension which is sending the crude prices higher.So we may be forced to live with high inflation and slow growth-stagflation.This is worse than the 2008 situation for India.

Coming back to our markets, it is better to be a trader in this markets.I don't see any optimism in the near future, either from the global front or from the domestic front.Expect some of our companies to give a blow in the form of forex losses in the quarterly results.

There is a saying,"The great thing about the stock market is you always have a second chance to get better and learn from your mistakes".

So to get a second chance, you need to have a strict stop loss in place.

Have a Happy trading day!!

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World Markets

Dow futures up by 77 points.

FTSE futures up by 7 points.

DAX futures down by 4 points.

CAC futures up by 14 points.

Italy's PM Monti will be presenting 30 Billion dollar worth austerity measures.

Nikkei is up by 37 points.

Hang Seng up by 75 points.

Market Report

On Friday, Nifty and sensex ended up by more than 2% and a weekly gain of more than 7.3 % ,biggest weekly gains since July 2009. All the Banking stocks rallied as S&P assigns stable outlook to 10 Indian Banks.European stocks rallied on Friday expecting the EU leaders to come out with a more credible plan to come out of the financial crisis.US stocks ended almost flat amidst a decrease in jobless claims.Treasuries and US dollar rose indicating concern about this week's EU meet.

Keep an eye on the European developments, as on Friday morning the Asian markets and the European and Dow futures were flat to negative till 12 PM.But after the speech by the German Chancellor, the DAX and the CAC index futures were up by 1.5% which lead to a rally in our markets. US markets rallied on the EU optimism and with a good set of jobless claims,I expected it to close in the positive zone.But finally the markets ended almost flat as the dollar and treasuries rose.

As the volatility is moving up in recent trading days, have a strict stop loss and be prepared to experience the roller coaster ride.We rallied on the day, when our GDP came at lower levels compared to the same period the previous year.And US markets erased the gains on Friday when the jobless claims were better than expected.Be prepared for such gravity defying stunts.

Yesterday,around midnight Iran announced it had downed an Unmanned US spy drone and this came at a time when the tension is escalating between Iran and the European nations.Keep an eye on Oil prices.

Tomorrow is a trading holiday on account of Muharram.Avoid carrying over-night positions.

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Humor- European Debt Crisis

Alex sir's views.

Nifty has support at 4910 -4861

Resistance at 4972 and 5017.


Profit booking by noon is expected.

Market Report

All the global indices rallied for the day(US and European markets rallied on Wednesday) as China had announced a 50 BPS cut in its rates and the Central banks(FED,BoE,BoJ,ECB, Bank of Canada and the Swiss National Bank) announcement to contain the EU crisis. Our markets opened with a gap and could not sustain at higher levels.Among the sensex stocks, Bharti Airtel, Bhel, ONGC, Sun Pharma and HUL ended negative for the day.


For the past 6 months, KFA defaulted on payments to Mumbai Airport(MIAL) and it owes 90 crores to MIAL.MIAL plans to put KFA on a cash and carry basis from tomorrow.KFA said, it will not affect the flights in and out of Mumbai and the company will operate filghts as per the revised schedule announced recently.

Rupee strengthened against the dollar(Dollar fell against major world currencies). A move below 51 in Rupee may trigger sell-off in IT stocks. Though the Rupee is currently trading around 52 levels, expect inflation to be lower in the coming weeks due to base effect.The fuel price reduction is yet to be priced in. As long as the Rupee hovers around 52 levels, don't expect further price reduction in fuel prices as it means higher import costs for the Oil companies.


JPMorgan expects Australia's RBA To Cut Rates by 25 Bps in this month.

Eurozone's November PMI came at 46.4 lowest since June 2009. European indices ended in red for the day.

I would advise caution to the retail investors.Don't get carried away by rallies like this.If you remember, on October 27, S&P rallied 4 % on a new European plan but the gains did not sustain.Including Wednesday's rally, S&P rallied 9 times since 2008 by 4% and had fallen by 4%, 10 times in the same period.Trade with a strict stop loss.

Have a great weekend!!

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