Stock News - 09-05-11

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SIVASIVA

FCA Future CA

4935 Points Joined March 2010

9 MAY, 2011, 05.20AM IST, NISHANTH VASUDEVAN,ET BUREAU

Nifty rebound may not be sustained, lot will depend on FII strategy in the cash market

The position build-up in one of the most widely-traded Nifty call options in the past few trading days will be closely watched by investors and traders this week to gauge the endurance of the market's newly-found strength. Renewed selling of Nifty 5500 call contracts this week will signal that options traders don't expect the index's rebound on Friday to sustain in the near term.

The relief for optimists is that call writers or sellers unwound part of their Nifty 5500 bets on Friday , when the Nifty rose 1.7% to 5551 on Friday, snapping its nineday losing streak. "If smart traders repeat the strategy of selling at-the-money calls (5500 calls) this week, it means more downside is expected, but a lot will depend on the FII activity in the cash market," said Amit Gupta, derivatives strategist of ICICIdirect .

Foreign institutions have pulled out almost . 2,600 crore out of Indian stocks in the past three days, after the Reserve Bank of India's higher-than-expected policy rate increases on Tuesday. The move has heightened worries among investors that the central bank may not stop at such aggressive monetary policy tightening unless inflation doesn't mellow. Higher interest rates, along with elevated commodity prices, would hurt corporate expansion plans and profits, analysts said.

"The rate hike means greater vigilance on private capex (capital expenditure ). The downside risk is that capex slows creating further supply bottlenecks as we head into 2012 and higher inflation - not a pleasant situation for equities," Morgan Stanley analysts said in a recent report. Stock investors fear a repeat of the situation in 2008, when the central bank raised policy rates successively to contain inflation.

Higher interest rates squeezed companies' profitability and forced many firms to postpone their capex plans. This upset earnings forecasts of investors , who had bought stocks that had baked in even 2011 earnings.

https://economictimes.indiatimes.com/markets/stocks/market-news/nifty-rebound-may-not-be-sustained-lot-will-depend-on-fii-strategy-in-the-cash-market/articleshow/8202074.cms

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SIVASIVA

FCA Future CA

4935 Points Joined March 2010

9 MAY, 2011, 02.38AM IST, DIPEN SHETH,

Indian equities in turmoil: Stay invested for long term gains

For Indian equity addicts, the past month has been nothing short of a detox session. The sharp recovery from February's lows of about 5,200 on the Nifty extended to 5,900 (a jump of over 13%) after the FII inflows, even as many domestic institutions disbelievingly sold into the rally.

Just as the momentum turned, the market cracked again, falling 10% in 10 days to under 5,450. The RBI's recent monetary tightening (repo rate hike by 50 bps) is the immediate provocation. Fresh macro-economic concerns (sticky inflation, fiscal deficit, slowdown in growth, currency pressures) are being voiced again.

Already, edgy investors are talking of an extended crack, to below 5,000, on the Nifty. We were at 6,300 less than six months ago. Obviously, a lot of worry has flown under the bridge since then.

I maintain that we are approaching a half-decent opportunity to turn bullish on India. If the time to get greedy is when everyone is fearful, one must admit that fear is beginning to set in. And the rational investor has a chance coming up to turn greedy.

Factors that are driving FIIs to sell Indian stocks:

> Inflation is persistently high and unlikely to disappear in a hurry.

> Monetary tightening (the RBI upped the repo rate by 50 bps in early May) may not work, as the source of inflation is not loose money but structurally higher demand.

> The demand can be attributed to the government's spending spree, which looked like a wonderful way to revive the stagnant demand in the wake of the financial crisis. Unfortunately, a deeply entrenched political culture that thrives on populism, corruption and aggressive lobbying has ensured that policymakers have lagged behind in tightening the spending.

> As a result, the government has continued with revenue expenditure at elevated levels, which requires ever higher renewals in the face of inflation. This has a spiralling effect on government finances.

> To compound the problem, crude oil prices have risen. The government, true to its politically expedient ways, has chosen to look the other way and has stuck to outdated petro product prices. This has aggravated the fiscal beyond immediate repair again. This, just as rising tax collections in a growing economy promised to improve the fiscal situation.

> We are suddenly faced with 'structural' inflation arising from capacity constraints (not that both the government and private sector have lagged in incurring capital expenditure), which will not be solved merely by tightening the screws on the monetary tap.