Market View: March 20

Markets have rallied globally in the past couple of weeks, S&P has briefly flirted with 800 levels again (after falling from 800 to 680 in almost a single breath).

Going by the volatility in the market, trading has become extremely difficult. Markets have been moving 10-15% every couple of weeks. (Similar is the case with FX markets where we have seen lifetime highs and lows for a lot of currency pairs in the same year).
Expiry view has gone completely wrong, and now I believe that the down leg would start after the expiry. With impending results announcements, and the upcoming elections, there is plenty of bad news that could come out.

I'm still sticking with the negative view, and think that the markets are now in for a steep crash. With rising unemployment all over the world, a 20% rally is the last thing one would expect. We may see a 2400-2500 expiry range for the April and May expiry from here.

US Dollar: Inevitable Fall?

In their latest policy action, Fed has started buying US Treasury Bills from the market. Finally, they have realized to the reality that they are running out of ammunitions. And this is the first indicator that US economy may be in much deeper sh*t than everyone thinks it is.

The Fed ran out of ammunition as the rates were already hovering around zero. And to provide more incentives to the market, they were left with one last option - printing money. So, on one hand, the government is running huge deficits, and is issuing bonds to finance them. On the other hand, it is printing more $ to repay the same. This is as blatant a misuse of their stock currency status as is possible.

The world markets have reacted sharply to the news, and USD is down against all the major currencies. GBP and EUR are currently trading at YTD highs of 1.44 and 1.36. Initially, I had a view that economies of UK and Europe are in shambles, and we may see massive devaluation of their currencies. Now it seems that USD has also joined the club.

I think we may see USD weakening a lot from here. China, the world's largest investor in the US treasury has openly expressed their concerns over their holding, and going forward I see more of their investments going into EUR, GBP, JPY, and Gold. In addition, they might prefer investing in commodities rather than US T-bonds. And once this process starts, USD may fall off a cliff, literally.

I would be short USDINR at levels of 51-52, with a year-end target of 47. We may see INR weakening to 53-54 levels in the short term (on the back of fiscal concerns, and election uncertainty), but I think the issues with USD are much serious and long term in nature.

Market View: March 13

I have been wrong in my market views so far for this month. As against the initial expectations of market falling towards 2500-2600 band, we have seen major rally across the world for the last 2 days. S&P after moving from 800 to 680 levels in a week has bounced up sharply to 750 levels.

However, keeping the initial view intact, I still believe that we would be seeing a 2500-2600 expiry range. Nifty is currently trading at 2720 levels (which is a very strong resistance level now). I don't think we would gap open on the +ve side on monday (unless US moves by another 2-3% today, which seems unlikely).

This rally was also long overdue as markets had become over-sold. Nifty futures were trading at a discount of ~100 bps. And any gap-up opening was bound to cause huge short-covering - which is exactly what happened today. Now the Nifty futures discount have come down to 3 points, from 20-25 levels earlier. Now it seems that markets have over-reacted on the +ve side, and we would soon see a discount in the range of 10-12 points.

INR has remained flat at 51.5 levels, and going by the quantum of FII selling, I think we may even see 54 levels soon. Add to it the possibility of rate cuts.

Market View: March 3

February expiry was a surprise of sorts for everyone, though market returned to their earlier levels on the first couple of days of march expiry. Nifty futures have broken below the 2600 levels, and unless there is a huge swing in the US in either direction, we may have an expiry close to 2600 levels.

In US, S&P has broken its 800 support, and has sunk to 700 levels. It might rest here for some time, and then go towards the 600 support. I guess 600 would be the target level for s&P for this year end, and we may reach there sooner than later.

Europe is in a complete mess, and its surprising how the currecy hasn't broken down completely. I won't be surprised to see the Euro break down to 1.0 levels, and GBP go down to 1.20 levels. Given the high vols in the currency markets, we may see huge swings in all the currencies.

Gold crossed the USD 1000 resistance briefly, and crossed INR 17000 level in India. However, it has returned to slightly saner levels at 900, and I think it might go all the way down to 700. I would be short the metal at these levels.

On the volatility front, we haven't seen too much volatility in the markets. Even though we are within breathing distance of the October lows, the market seems to be taking it very clamly. There is slow and steady drift in the markets, and this way, we might see 2200 levels in Nifty by June 2009. March-April results may the next big trigger for the world markets. And going by the trend, the results are going to come much below the consenses estimates.

Market View: February 16

Nifty is going to become a free-float weightted index, and as a result of this, a large number of stocks would have their weight changed in the index. Stocks such as Infosys, ICICI, L&T, and RIL which have large free-float would see their weight increase in the index. Other stocks such as ONGC, Bharti, SAIL, TCS, Wipro which have a low free-float would reduce in weight.

Just as it was in Jan, I have a bearish view on the market. However, I don't think 2500 levels would be broken in the next couple of months. With elections around the corner, I don't think there would be huge movements in the market either way. A hung parliament may give the final downward push to the market, but that is still far away. In the near term, I expect the market to creep towards 2600 levels, and stay in the 2600-2700 range for some time.

On the volatility front, I think the volatility may remain low till april, and then shoot up. However, given the fragile state of the market, I would rather be long vols than short it. And at current levels, its quite attrative for longer tenors.

Market View: January 28

Markets world-wide have been rallying for the past couple of days, and seems like that its going to continue for another day atleast. Nifty has moved from 2650 levels on friday to 2850 levels today, and we might see a 2900 expiry (though I would still like to believe that markets might still come below 2800 tomorrow).

World-wide markets have been moving up on renewed optimism, inspite of below expected earnings from a lot of major corporates. I think this rally has been caused due to short covering of the excessive short positions in the system, and might continue till tomorrow's expiry. We might see another downleg in the coming days, and market may touch its earlier bottoms.

2820-2840 was a good resistance band for Nifty futures, and it has broken through the band today. Tomorrow's opening might decide the day market movement. If it opens on the postive gap, we may see a run to 2900 or even 2950. A down gap opening however may take the markets below 2800 levels.

Nifty futures were trading at a discount throughout this month, and rolls happened at INR 5-6 absolute discount.

UK and its much talked about downgrade

After Ireland and Spain, it might be UK's turn to be downgraded. A lot of speculation has been going on on whether UK would be able to maintain its AAA rating.

The most recent quarterly numbers shook everybody up, and GDP has contracted by 1.5% in a quarter. To get an idea of how bad this number is, none of the G-7 countries have contracted by more than 3% annualized in the last 50 years. In addition, there are talks doing round that GBP as such is an inflated currency, with nothing in real economy to justify its levels. UK as an economy is ruled by a few sectors: Energy, Financials and Tourism. And in the current year, all 3 have been badly affected.

While its much outside my knowledge to comment on whether GBP is inflated or not, I certainly feel that the path going ahead is not very rosy for the country. US is a much better placed than UK to contain its crisis. 2009 might see a massive devaluation of EUR as well as GBP. GBP has already fallen from its >2.0 levels to 1.40 levels, and there are reports doing rounds which predicts a rate of parity pretty soon. Same goes for EUR as well, which after trading above 1.60 earlier last year, is now down below 1.30 levels.

We might end up the year with EUR at 1.0, GBP at 1.20 and Yen close to 100 levels.

Market View: January 23

Markets continued to move down on the back of bad news from all around. Companies around the globe are posting bad results, and latest to join the list are the electronics majors Samsung and Sony. Both of them reported record losses, and further outline the common belief now that the recession has expanded into the main street now.

UK economy offically shrank in the last quarter, and now the world growth targets really look far fetched. GBP has been hammered pretty badly, and currently trades at 1.37 (or 67.70/INR).

Back in India, markets broke their 2700 support levels, and traded below it for most part of the day. However, I have a feeling that we might see a small bounce from these levels in coming days. Not that I have a view that markets are going way up from these levels, but I do not expect too many incremental bad news coming out from India. All the large corporates which have announced their results haven't come out with any 'extraordinary' losses. Results of all the big names like Reliance, Infosys, Bharti, Wipro have been 'not-too-bad'. So, I have a feeling that market may remain range bound at these levels for some time now (in absence of a major worldwide shock).

Strangely, vols aren't picking up. Last time markets were at these levels, vols were at 60s and 70s levels, and this time they are peacefully trading in their 40-50 band. I wont be surprised if we see a down leg in vols towards the 40 support.

Market View: January 22

Markets have already fallen by more than 5% since monday, and we are now below 2700 levels (on 1M futures). Going ahead, I think 2700 would act as a strong resistance, and we may see expiry around these levels.

Today the market moved sideways for whole of the day, without making any convincing moves in either direction. There was good money to be made trading intra-day gamma at smaller intervals. Interestingly, I think in these markets both short gamma and long gamma positions can end up making money. For a short gamma positions hedged at the end of the day, there aren't too many large 1-day moves to worry about, and for long gamma positions, markets really move up and down a lot (even a slightest news from any corner of the world spook the markets). Will be testing the same for January data after the expiry.

The expiry view still remains the same, in the 2600-2700 range. And on the volatility front, now there is a slightly lesser chance of vol spikes in this month. Quite a few results have already come-in, and going by the trend, there are no major surprises to worry about.

Market View: January 19

Today was a holiday in US, and hence it was expected to be a dull day. Indian markets opened at almost their previous closing levels, and traded well within throughout the day. Lately, we have been so much used to the volatility that a day where market doesn't move more than a percent point appears too dull.

Markets slowly kept moving up throughout the day, and even as the bad news kept pouring in (RBS announcing a loss of $41B, Spain getting its rating cut from AAA to AA+), markets kept their momentum. It was only during the final 30 mins that market showed slight -ve bias, and started paring some of their earlier gains. Still, on a day to day basis, they closed higher by more than half a percent points at 2850 levels.

Europe which was trading at gains when Asia closed is now trading close to -2.5% down from its previous close. RBS is trading 70% down for the day, and seems like a very bad day ahead tonight for all the markets. Thankfully, US is closed for today, else we could have had another spooky day for Citi and Bank of America.

As I had said earlier, I expect markets to break from these levels (may be triggered by a bad earnings from one of the large caps) in the coming days. January expiry could be at a level close to or below 2700. On the volatility front, I do not expect vols to come below 40 levels anytime soon. Even though the realized vols are currently at a lower level, I think the implieds would continue to trade in a 40+ range for some time.