Pre Open Thoughts: Bumpy Ride Ahead!!!

Pre Open Thoughts: Bumpy Ride Ahead!!!

Ø You must look within for value, but must look beyond for perspective. These are fragile times and suddenly the market goes into a tailspin like it did on Friday. There are several unsubstantiated theories doing the rounds about the swift and sharp crash but we won’t get into those now. The indices again are set to kind of oscillate in a range with no clear destination in sight.

Ø The early bounce across world stocks has tapered off a wee bit. Jittery investors are worried over shaky corporate earnings, uncertainty over government economic policies, and headwinds blowing from the revival of the Euro zone debt crisis

Ø Coming back home, Indian companies ability to repay debt is deteriorating the most since the financial crisis that tapered in 2009 as the economy slows and the highest borrowing costs in three years erode profits.

Ø With negative global cues the start is likely to be flat to slightly negative; 4700-4900 will continue to be the broad trading range on the Nifty in the short term. There appears some hope though that the early January rally may sustain if crucial upcoming events are supportive. February in particular will be critical owing to the UP election and Union Budget. We feel If the Congress party puts up a decent show partnering with a strong ally like Samajwadi Party, it will be extremely positive for the markets.

Ø So for a while before things start looking up. the bumpy ride is set to continue. According to Systems Nifty Is likely to ignite the uptrend above 4900.

Research: Banking

Ø Banking stocks have bounced-back by between 10% and 19% from their recent lows, in the past three weeks. Nifty Index is up by 7%, reflecting the bigger interest in banking stocks on expectations of a rate cut.

Ø In start of the month We downgrade the Indian Banks to Under Weight on a relative to Index basis from Equal Weight. We downgrade the Indian Banks to Under Weight on a relative to Index basis from Equal Weight. The local macro environment has deteriorated significantly since our last round of sector review causing this downgrade. We believe the current cycle in India can turn worse than 2008 because the environment has turned poorer and reforms have taken a back seat. Worse still, pseudo socialism (Food Security Bill etc.) and crony capitalism (2G auction etc.) have come to the fore. Inflation staying stickier than 2008 will hamper the RBI’s ability to crash interest rates as fast.

Ø In our view, it would be safer to sell on current strength rather than hold/buy on expectations of a further rally.

Results Today: Aster Silicates, Automotive Stampings, Dewan Housing Finance, Ind-Swift Labs, ING Vysya Bank, Motilal Oswal, Reliance Industrial Infrastructure, South Indian Bank and Tata Elxsi.