Saturday, July 3, 2010

World Markets Down: Why are we holding up?

It was a tumultuous week for the World Markets. Europe, Shanghai and the US markets tanked. Indian Markets have fallen barely 3 pc from the peak. Why this divergence. In the first part, lets look at the charts.

1. Check the Dollar Index, it topped out on June 7th and a corrective down-move began. This led to a sharp up-move in the Indian Markets. The reason is clear FIIs have been buying no-stop since that day. This is the hot money which chases fast moves. For our markets to tank the Dollar Index will need to reverse.

2. In Oct 2007, The Shanghai Index topped out first. It led the fall and the rest of the world followed 3 months later. In terms of percentage of falls, Indian markets fell later but caught up with the Shanghai in terms of percentage fall.

3. In this year 2010, Shanghai as fallen about 30 pc from its peak. The Indian Market will follow suit and roughly that should amount to a cut up till 12600 in Sensex and 3750 Nifty at the bare minimum.

4. The World markets are all coupled together. The Divergence happens only in the time frame as in they need not tank at exactly at the same time. If the World markets fall, then we will not continue rallying. This is because the FIIs will book profits in India and deploy them elsewhere. Till the time, the Indian retail and Domestic Funds become stronger this will continue.

5. In the next part, lets try and explore the fundamental reasons why we are holding up yet.

1 comment:

  1. Great charts, Nishit.

    The Nifty and Dollar Index charts are almost mirror images of each other. Quite interesting!