ithought market wrap No.49, 28 Oct 2011
The skeptics rarely get the market direction right and the habitual ones mostly go wrong. The European crisis was threatening to collapse the global stock markets. The agreement on debt waiver reached by European Nations was greeted by the markets with a euphoric rise. Investors waiting in the sidelines must be a worried lot. If you did not buy when the NIFTY traded at 4700 levels, what do you do with the NIFTY at 5400 now? Once you play the waiting game, changing tack mid-course could be a costly thing to do. If you think the Indian markets could again correct to its recent lows. , then just hang in a bit longer. If you believe that the markets may not break its recent lows downward, then the only option is to buy into every dip. Remember that stock markets have their own way of overcoming bad news and treading a fresh path seeking positive reinforcement.
The week saw a secular up move – Rising gold prices, stock prices, inflation and interest rates. The markets will seek fresh direction again as the European crisis and the results season draw to a close. News flows will dry out and markets are keenly watching how FII’s react to the recent rise in Indian equities. FII’s hold the key to market direction and a decisive trend will emerge only when FII’s make up their minds. The rallies will mostly be sold into by domestic investors and only concerted buying by FII’s will take the markets any higher. The gold prices may slip as the crisis in Europe has blown over. Inflation is leaving the Government stumped for solutions and the central bank is left with limited options but to keep raising rates. This will only hurt disposable incomes of the middle class as they struggle to meet higher EMI needs.