08 January 2011

Nifty : Foreign Followers

Let me start with 2 charts, which I think is and should remain connected well into 2011.

If one looks at the two charts, finding an inverse correlation is almost unavoidable. Maybe we are not having a day to day match, but whatever we have is of very "unacceptable" quantity. Dollar sold off heavily in September, Nifty rallied significantly then, Dollar bottomed in early November, Nifty topped out then. Its only early days of 2011 and Dollar and Nifty are tied to each other almost day to day.What does this tells about Indian markets, or the approach of investors in Indian Markets?

India is looked only as another "risky" asset class and has got the benefit of easy monetary policy in the West, very much like other Asian countries. There is NO India growth story of which we keep hearing about in TV that is attracting foreign capital. Its just a rising tide of liquidity which is pushing up all boats in Asia. And we all know what happens to this kind of liquidity when its most needed.

I believe the majority of buying which took Nifty from 5300 to 6300 was done by FIIs, and if they are in need of all the money again, Nifty can well drift back to 5300. DIIs, I feel are in a sorry state, as they are bigtime cash-strapped, as there is hardly any money from retail flowing to them, rather they are facing redemption from investors who got stuck in the January 2008 crash. So they will being aware of the "game" try to outwit their FII counterparts by buying from them when they "sell in panic" and selling them when they "buy in panic". It remains to be seen who will be holding the "time-bomb' when its time to BOOM!

The Dollar Index chart shows the possibility of the making of wave 3 from its late November lows. It has also consolidated below 200day moving average and has started showing strong momentum above the clouds. The Ichimoku lines are almost on the verge of giving a strong buy signal. If all things fall in place for dollar and it clears 84 mark, it has very "alarming" targets. And as the charts have shown the earlier easy money trade of sell dollar and buy risk, will get re-winded pretty fast. For a rough estimate I think a run of dollar to 84 will take down Nifty to 5500 region. A relook of things again would be better to forecast what happens later.

 So don't go by what your favorite TV channel analyst says about the "reason" for Nifty's rally or correction. All of us know what and where the real game is going on.


Muffu said...

""So don't go by what your favorite TV channel analyst says about the "reason" for Nifty's rally or correction""" .. :)
Would love to watch what cnbc aawaz says on monday ;)

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