RSI and stochastic are at overbought zone, indicating profit booking This week Indian markets succeeded in the 52 week high levels. Relative Strength Index and stochastic oscillators are carrying out their trade in overbought zone for the consecutive fourth week indicating profit booking chances. Moreover stochastic oscillator starts forming lower bottoms which is something distressing for bulls. 10 Day Simple moving Average (SMA) is constantly performing as reliable support around 5,400. A short term downtrend can only be expected if Nifty trades below 5400, If Nifty manages to breach this mark decisively then we could see downside probably upto 5,300. Further, MACD is hovering close to 60 and on the verge of showing negative crossover indicting correction. Further, European Banks Stress test result and forthcoming monetary policy will remain decisive factor for deciding the short term movement of market. The Nifty is expected to remain within the range of 5,300- 5,475 and Any instability on the global front will bring about selling pressure from current levels. A breakout of 5,475 levels will guide the Nifty towards 5,520 levels.
Comment
Renuka (Sell)
Comment
Looking Forward The first quarter results announced by the companies so far have been decent. The combined net profit of a total of 303 companies rose 25.5% to Rs 20510 crore on 17.7% rise in sales to Rs 133828 crore in Q1 June 2010 over Q1 June 2009. Though the sentiments on the domestic bourses look positive, some nervousness & volatility is expected as investors will watch for any surprises in central bank's monetary policy review on Tuesday, 27 July 2010. Volatility may rise as traders roll over positions in the derivatives segment ahead of the expiry of the near-month July 2010 derivatives contracts. Valuations have also turned expensive following series of up-moves in the markets from past couple of sessions and the support of uninterrupted foreign fund flows will be required if the benchmark indices have to scale fresh intermediate peaks. Investors will also eye on some prominent results due next week including RIL, NTPC, HUL, ONGC and Hero Honda. The market will continue to take cues from global markets; fund flows and risk appetite. Results of the stress test of European banks due late on Friday, 23 July 2010, will set the tone for global equity markets early next week.
Daily Movement of Nifty  Daily Movement of Sensex, Net FIIs & MF investment Weekly return on BSE Sectoral Indices
US stocks lower during the week (till Thursday) with lackluster economic data and comments regarding the uncertain economic outlook from Federal Reserve Chairman Ben Bernanke generating selling pressure. Bernanke remarked that the economic outlook is "unusually uncertain," prompting considerable selling on Wall Street. Bernanke further stated that the Fed remains watchful and ready to act in the case of another recession. The Fed chief also painted a forecast of moderate economic growth along with subdued inflation, while also remarking that the job market has a long way to go in the recovery process. Meanwhile, market ignored the better-than-estimated earnings from the big companies. Also, buying enthusiasm remained subdued as investors were presented with another negative batch of US economic data, which was played a vital role in sinking the mood on Wall Street. Looking ahead to next week, the markets are likely to move in reaction to the latest earnings news from Microsoft, McDonald's, Honeywell and Amazon.com, among many others. Asian markets gained during the week after hurting initially by extremely weak cues from Wall Street. With gains in crude oil some buying emerged in the resources while steady earnings news from the US made investors buy the Asian stocks. Chinese shares biggest gainers during the week led by miners on speculation that China will not tighten its monetary policy moves to curb economic growth. Meanwhile, leading economic index for Japan fell 0.6% month-on-month in May. Despite, Fed Chairman Ben Bernanke bearish outlook for US economy Asian markets surge significantly buoyed by expectations that strong earning season would continue. European markets recouped their early losses later in the week. Markets were lower in the early part of the week led by downbeat economic numbers from US but sentiments were boosted by strong results from U.S. financials and on optimism that bank stress tests will improve the sector's outlook. Caterpillar, Morgan Stanley, Credit Suisse Group beat analyst expectation. Miners featured among the top gainers supported by strong metals prices on the back of a weaker dollar. However, the stress test result is still due to come as it would be released after the market hour on Friday, though expectations are good and may take markets higher. Further, the ongoing earning season will also influence the markets in the short term. Weekly return on major Global Indices Data of US and European markets taken from July 15 to July 22, 2010 Data of Asian markets taken from July 16 to July 23, 2010 Weekly Change in the Composites of S&P 500
Global Key Events
Domestic Key Events
 Most Active Contracts  Put-Call Ratio  Volatility Index  FIIs Cumulative trailing 5 day's data
FIIs & MFs investment in Debt Market
(Source: SEBI) Bond Yield (7.80% CG 2020)
Spread  Liquidity Adjustment Facility
Weekly change in Crude prices per Barrel
Inventories (weekly change)
Weekly change in Gold prices in Rs/10gms
Rupee continues to decline against major currencies as high dollar demand for payment obligation weighed. Rupee started the week lackluster weighed down by dollar demand from a large infrastructure company and a large energy producer coupled with a sharp fall in the offshore forward Rupee. INR further weakened to its lowest level in a month and half as dollar demand for some defence-related import payments pushed greenback higher. Bernake's comment that US economic outlook is uncertain had also sent USD and Japanese yen higher. However, towards the end of the week the Indian currency manage to recoup some of its losses following dollar's sharp losses against major currencies, rebound in the domestic share market and dollar sales by a few custodian banks. Continued strength in Euro against USD pushed Rupee lower against European currency too.
Weekend Report on http://www.indiabulls.com/securities/mailermis/weekly-reports/weekend-platter-23Jul2010.aspx Weekly Derivative Insight on http://www.indiabulls.com/securities/mailermis/special-reports/pdf/Weekly_Derivative_Insight_July_23_2010.pdf Weekend Platter on http://www.indiabulls.com/securities/research/equity_analysis_report/Special_Report_PDF/WP_Jul%2023.pdf Today Market Update on http://www.indiabulls.com/securities/mailermis/morning-brief/morning-brief-26Jul2010.htm Index Outlook: Action-packed week ahead
 It was one of those rare weeks in which index movement went almost unnoticed. Changes in takeover code and new GST system hogged the headlines along with the first quarter earnings, keeping the attention of market participants riveted. The Sensex utilised this opportunity to slip to the high of 18,237 on Friday and recorded its first weekly close above the 18,000 mark in the last 29 months. The week ahead promises to offer edge-of-the-seat excitement with the monetary policy and derivative expiry scheduled mid-week against the backdrop of accelerated quarterly earnings announcements. Volumes in derivative segment was more than Rs 1 lakh crore in the last two sessions and open interest has crossed Rs 1,75,000 crore indicating heightened speculative activity. Index put-call ratio at 1.56 leaves open the possibility of a short-squeeze rally next week. The Sensex recorded yet another 52-week high last week and the response from the market participants was just as indifferent as the previous week. Movement on Friday has resulted in a doji star in the daily chart that implies selling pressure at higher levels. The 10-day rate of change oscillator drooping lower corroborates this lack of momentum in the near term time-frame. Oscillators in the weekly chart are also nearing the upper end of their medium term range. There is no doubt about the fact that the short and medium-term trends are still up. But we continue to advise caution as the index is at important resistance zone. The laboured manner in which the index is edging higher suggests that the intermediate term range between 15,500 and 18,500 continues to shackle the index. The fact that the medium term downtrends in global benchmarks has not reversed yet is another reason why it is best to stay on guard. If we consider the movement of the Sensex from February lows, e-wave targets are 18,356 and 19,271. Minor wave count of the move from 15,960 lows gives us the targets at 18,382, 18,668 and 18,998. In other words, there is strong resistance between 18,300 and 18,500. If this zone is surmounted, 19,000 would be on the cards. The medium term trend will reverse lower only on a close below 17,370. The Sensex is headed higher in the short-term but it can face hurdles at 18,325, 18,620 and 18,668 in the days ahead. Supports for this period would be available at 17,856 and 17,730.  The Nifty too went on to yet another 29-month high last week and closed above the 5,400 mark. The short as well as the medium term trends in this index are currently up. The index could move higher to 5,511 or 5,545 should the rally extend next week. But it needs to be borne in mind that the Nifty faces stiff resistance in the band between 5,400 and 5,450. Traders should stay on their guard until the index is safely past 5,450. Supports for the week ahead would be available at 5,353 and 5,323. Traders should divest their longs on a close below the second support. The medium term trend in the index continues to be up but e-wave targets of the move from 4,786 throws up the next target at 5,511. Minor counts of this move throw up the targets of 5,448 (where the index is currently positioned) and then at 5,545. In other words, the index faces strong resistance in the zone between 5,450 and 5,550. If this zone is surpassed, move to 5,780 would be possible over the medium term. Global CuesMarkets focused on the recovery in European economies last week and were heartened by the stress test results of European banks. Most benchmarks popped higher to close with strong gains. But the rally has not progressed enough to imply a reversal in the medium term downtrend from the April peak. CBOE volatility index declined to the short-term support at 23 as stock prices zoomed higher. Decline below this level will signal that the medium term trend could be on the verge of reversing higher. The Dow recovered from the intra-week low of 10,007 to close the week at 10,425. Despite the gyrations of the past two weeks, the medium term trend in the Dow continues to be down. It is once more poised just below its long-term 200-day moving average. Key resistance for this index is at 10,650 and a strong close above this level is required to turn the medium term trend neutral. In other words, the week ahead is very important for determining the medium term trajectory for this index. Asian markets are however gung-ho with many indices recording new 52-week highs last week. The Shanghai Composite recorded a strong rebound from the key support at 2,370. Decline below this level will imply that the index could decline all the way down to the October 2008 low. PIVOTALS  Reliance Industries (Rs 1,060.1) RIL witnessed lacklustre trading last week and ended it with an Rs 2.7 fall. The stock still continues to trade within the narrow range between Rs 1,050 and Rs 1,100. The company is scheduled to announce its first quarter results on July 27; we believe the results can signal a clear short and medium-term direction for the stock. Hence, short-term traders can avoid trading in the stock until its results are out. Immediate key resistances are at Rs 1,075 and Rs 1,100. Short-term important supports are pegged at Rs 1,050, Rs 1,030 and Rs 1,000. Medium-term trend is down for the stock. Failure to move beyond Rs 1,100 will signal that the stock can remain sideways in the aforementioned band for some more time. On the other hand, conclusive rise above Rs 1,100 could take the stock higher to Rs 1,130 or Rs 1,150. State Bank of India (Rs 2,494.7)  As anticipated, the stock moved up and achieved our short-term price target of Rs 2,500 on Friday by recording its life-time high of Rs 2,504. The stock has advanced 2.2 per cent for the week and is testing key intermediate-term resistance at Rs 2,500. Strong move above Rs 2,500 can lift the stock higher to Rs 2,550 levels. Short-term traders can continue to hold their long position in the stock with stop at Rs 2,450. Nevertheless, reversal from this resistance will signal weakness in the short-term trend and the stock can slip to Rs 2,450 or Rs 2,430 in the ensuing week. Immediate supports for the stock are at Rs 2,400 and Rs 2,350. As long as the stock trades between Rs 1,900 and Rs 2,500, its medium-term trend continues to be one of sideways consolidation. We reiterate that a forceful penetration of the resistance level Rs 2,500 would take the stock ahead to Rs 2,650. Tata Steel (Rs 536.1)  Tata Steel surged Rs 26 or 5 per cent in the previous week, with good volumes. This up move was in line with our prior expectations; the stock made a strong close and reached our target of Rs 540 last week. Traders with short-term perspective can extend their long position while maintaining stop-loss at Rs 520 and target of Rs 560. However, a drop below Rs 520 can drag the stock lower to its key supports, which are pegged at Rs 520, Rs 500 and Rs 480. The stock continues to be in medium-term downtrend from its April peak of Rs 701. To negate this view, the stock has to surpass Rs 575 levels. Infosys Technologies (Rs 2,781.8)  The stock moved sideways in the zone between Rs 2,740 and Rs 2,790 and finished the week with Rs 3.5 increase. The near-term outlook is sideways for the stock as long as it trades below its immediate resistance level at Rs 2,800. Short-term traders can desist trading in this counter for the week. Since the February trough of Rs 2,333, the counter has been on a medium-term uptrend. Medium-term investors can consider holding the stock with stop at Rs 2,600 levels. Resistance above Rs 2,800 is at Rs 2,843. Immediate supports are at Rs 2,720 and Rs 2,700. — Sizzling Stocks
 United Breweries (Rs 322.4) The stock skyrocketed on Thursday following the company's announcement of record first quarter results. The company's profits more than doubled, and sales was up 37 per cent . The stock surged further on Friday by gaining 14 per cent. The stock has climbed 38 per cent last week accompanied with heavy volume. It is facing significant long-term resistance at Rs 340. With the stock's robust rally, its daily momentum indicators have entered in to the overbought levels implying that caution is necessary. Short-term traders who are sitting on profits can take profits off the table at this juncture. Investors with medium-term horizon can remain invested in the stock as long as it trades above Rs 270. Strong weekly close above Rs 340 would give a target of Rs 380 in the medium-term. However, inability to surpass this resistance will drag the stock lower to Rs 300 or Rs 280. Gati (Rs 86.2) The stock surged 9 per cent on Monday with good volumes. It however started to test its significant long-term resistance around Rs 73 in the subsequent trading sessions. While testing this resistance, we observe that the stock had formed a flag pattern. The stock broke out of this pattern on Thursday by jumping 10 per cent, which implies that it has met the price target of flag pattern. The stock's rally sustained further and ended the week with overall advance of 27 per cent. It has strongly closed above Rs 73, signalling a bullish medium-term stance. The volume traded was extra-ordinary in the last couple of trading sessions. Medium-term investors can consider holding the stock as long as it trades above Rs 73 and with the target of Rs 100. Short-term traders can book partial profits off the table at present level or around Rs 90 while retaining Rs 81 as stop-loss. Inability to move beyond Rs 90 will pull the stock lower to Rs 75 levels. Key support below Rs 73 is at Rs 65. — Stock Strategy: Consider going long on Alstom Projects
 Alstom Projects (Rs 704): The stock has been in a steady trend in the last three months and it crossed the crucial resistance level of Rs 630. It now finds resistance at Rs 761, though in between Rs 725 could act as a minor resistance. As long as the stock rules above Rs 510, the long-term outlook remains positive for Alstom Projects. F&O pointers: Derivative trading also presents a positive bias for the stock as it added long positions. Alstom Projects (market lot: 500) added fresh long positions. The stock futures closed at a premium over the spot price of Rs 699. It accumulated over 21 per cent or 71,000 shares on Friday. The counter witnessed a moderate rollover of also 27 per cent. Despite fresh accumulations, the overall market-wide open interest stood at just 12 per cent. Options are not active. Strategy: Traders can consider initiating long on Alstom Projects (August) futures keeping the stop-loss at Rs 679 for a target of Rs 761. If the stock opens on a positive note, shift the stop-loss to Rs 711 or 725, whichever is higher.  Praj Industries (Rs 78): After the announcement of its Q1 numbers, the stock tumbled sharply on Friday. The overall outlook remains negative for Praj Industries, as long as it stays below Rs 102. It now finds an immediate resistance at Rs 83.4 and support at Rs 63.25. The stock appears to be heading towards this support level. A decisive close below Rs 63.25 has the potential to weaken the stock to Rs 48.5. F&O pointers: Praj Industries futures (market lot: 4000) added fresh short position on Friday. Rollover to August series is low at 18 per cent. The overall market-wide position stood at 51 per cent. Options are not that active to discern any view out of it. Strategy: Consider going short on Praj Industries (August futures) keeping the stop loss at Rs 83 for a target of Rs 63. Shift the stop-loss to Rs 78, if the stock opens weak. Follow-up Gail India: Last week, we had advised traders to consider going short on Gail India. The strategy ended on negative note, as it had hit the recommended stop-loss. What's in it for the stakeholders
A look at the implications of some of the major changes suggested to the takeover regulations.
 The norms as proposed by the Takeover Regulations Advisory Committee of SEBI will make more than just cosmetic changes to the country's M&A regulations. By suitably overhauling the regulations, the recommendations, it seems, are aimed at empowering every stakeholder in the event of a takeover. Here are some of the major changes suggested and theirimplications for different categories of investors. Hike in threshold limit The threshold limit for open offers following acquisition of shares in a company, is proposed to be moved up to 25 per cent of the voting capital of the target company, from the current 15 per cent. This comes on the back of increase in the average promoter holding in listed Indian companies to about 48-50 per cent currently, compared with a 15-20 per cent holding a decade ago. With promoter stakes pegged at higher levels, the threshold for strategic acquisitions too can be higher, without the threat of a change in control. Implications for companies: This would help companies tap more funds from strategic investors, over and above the current 15 per cent limit. They can attract higher investments from private equity and qualified institutional investors, without concerns about losing control. The hike could also help corporates increase their strategic stakes in other companies. For example, ITC, which has a 14.9 per cent stake in EIH, can now increase it up to 25 per cent without triggering the takeover code; Petronas International Corp's 14.9 per cent in Cairn India and TMI Mauritius' 14 per cent in Idea Cellular are other instances of strategic investors poised at crucial levels. Nonetheless, the 25 per cent limit could pose constraints, to the extent that it also empowers minority blocks holding more than 25 per cent in the company to block special resolutions. Implications for retail shareholders: Investors can expect more deals where companies sell strategic stakes to investors. They could benefit from an improved funding environment for their companies. They also stand to gain from the presence of PEs and QIBs as significant shareholders. Having more institutional investors on board could ensure better corporate governance standards; empowerment through ability to block a special resolution being a case in point. Increase in buying interest from strategic investors could reflect positively on the companies' share price too. 100 per cent open offer The committee has recommended that acquisitions of shares which cross the 25 per cent limit be mandatorily followed with an open offer (from the acquirer) for all the shares of the target company. This differs from the current regulations, where the acquirer has to mop up only 20 per cent additional shares through the open offer. The paper substantiates this by stating that in the last four years, less than 15 per cent of the open offers have been higher than the mandatory minimum. Implications for companies: It increases the cost of acquisition, as companies would now have to ready their war chest for a 100 per cent buyout before they set out to acquire. This could certainly increase the sums acquirers have to cough up. For instance, had Daiichi bought all the shares of Ranbaxy it would have cost it roughly 2.5 times more. While this may bring down the M&A activity to some extent, serious players may still go ahead with the buyout. Companies that are the object of hostile takeover attempts may breathe easier though, as the acquirer may need to expend more to put the deal through. The tussle between Inox Leisure and Reliance MediaWorks, to gain control of Fame Cinemas, is an example. Promoters with lower stakes may be more mindful of pledging their shares. Implications for retail shareholders: This would give all shareholders an equitable opportunity to exit their investments, as the acquirer cannot differentiate between a promoter and public shareholder in accepting the shares tendered. It will result in 100 per cent acceptance for all investors tendering to an open offer, instead of proportionate acceptance, which is the case now. To cite the Ranbaxy-Daiichi Sankyo case again, though the latter bought out the company's promoters at a hefty 45 per cent premium to the market price of the stock, public shareholders in Ranbaxy did not entirely benefit. Only 38 out of 100 shares tendered in the 20 per cent open offer were accepted. The move could also encourage promoters with lower stakes (examples – IVRCL Infra, and Karur Vysya Bank) to shore it up, indirectly supporting share prices. Changed pricing norms The committee has expanded the scope of the open offer pricing regulations. The current regulations specify that the minimum price for an open offer should be the higher of the price paid by the acquirer (or persons acting in concert) in 26 weeks prior to the public announcement or the two-week average price of the shares. The new proposals specify volume-weighted average price paid by the acquirer (and persons acting in concert) in the preceding year and the sixty-trading day volume-weighted average market price to these, to determine the offer price. The recommendations also require acquirers to add the "non-compete" fee paid toselling shareholders, to the negotiated per share price for determining the open offer price. This is in contrast to the current norm that requires this addition only when the non-compete fee is more than 25 per cent of the open offer price. Implications for companies: The extension of the look-back period to a year could expedite the offer process, as postponing public announcements of open offers will become costlier. The inclusion of the non-compete fee to the offer price would add to the costs. For instance, when Idea Cellular bought Spice Telecom, it had offered the promoters a 24.9 per cent non-compete fee on top of the open offer price given to public shareholders. Under the new regulations, the acquirer will have to pass on such a premium to all shareholders. Heidelberg Cements-Mysore Cements (non-compete fee of 25 per cent) and Tata Tea-Mount Everest deal (7 per cent) are other such instances. Implications for retail shareholders: The removal of the two-week average price and the inclusion of volume-weighted averages would leave less room for price manipulation during open offers. The addition of non-compete fee component would ensure that public shareholders get the same price as promoters, no matter how the deal is structured. Delisting made easier The proposals state that while going for the mandatory 100 per cent open offer, acquirers, if willing to delist the company should make it public upfront. If they end up with a shareholding greater than the delisting threshold of 90 per cent, they can delist the company. The remaining shareholders can tender their shares at the offer price within a specified period. In case the acquirers land up with more than 90 per cent holding without intending to, they will have to proportionately return the tendered shares across investor categories (promoter and non-promoter) such that minimum listing requirements are met (25 per cent public holding). Implications for corporates: Delisting process gets easier for willing companies provided the offer price is attractive enough. It may do away (it needs to be seen how this is handled when the proposals are passed into law) with the reverse book-building process that companies would have had to take otherwise. Implications for retail shareholders: They stand more empowered to influence delisting. If not convinced about the price, they can exercise negative control; minority shareholder blocks can help here. They will also not be at a disadvantage when the acquirer crosses the delisting threshold without intending to, as the tendered shares would be returned on a pro-rata basis to both promoters and non-promoters. Now, P-notes gain a sheen of respectability  SEBI's restrictions on issue of P-notes has helped curb dubious fund flow Offshore derivative instruments (ODIs) or participatory notes (P-notes), as they are more popularly known, are fast losing their notoriety and getting accepted as one of the legitimate conduits for external funds. That the regulators are able to breathe easy on this count is due to the fact that the value of P-notes outstanding is currently down more than 60 per cent from the peak value recorded in mid-2007. Participatory notes are issued by foreign institutional investors (FIIs) or their sub-accounts registered with SEBI to investors in other countries. The underlying investment could be stocks or derivatives in domestic market. The anonymity provided by these instruments was the major draw for many and it was this factor that made regulators uneasy. Restricting p-notes These instruments were in the eye of the storm that buffeted stock markets in the last quarter of 2007. More than half of the FII investments in the later half of 2007 were routed in through these instruments. Regulators fretted over round-tripping of money through this route and the fact that hedge funds were using P-notes to send stock prices to unreasonable heights. SEBI imposed restrictions on issue of these instruments and laid down stricter KYC norms in late October 2007. It had also been ordained that P-notes should be issued only to entities that were regulated by regulatory bodies in other jurisdictions. This move has had long-lasting effect on curbing dubious flows through P-notes. Though many of these restrictions were again eased a year later to stop stock prices from spiralling lower, P-notes flows have not gone back to 2007 levels. Peak value of ODIs outstanding was recorded at Rs 4,49,613 crore in October 2007. This amount declined to Rs 61,000 crore by February 2009. The subsequent rebound in 2009 saw FIIs' AUM recording a strong recovery and it currently stands less that 10 per cent lower than the peak value recorded in December 2007. Value of P-notes outstanding has however not been able to emulate this feat. P-notes, towards the end of June 2010, is only 37 per cent of its peak value. Proportion of P-notes in FIIs AUM has also decreased from the peak of 51.6 per cent in August 2007 to 15 per cent currently. Another interesting detail is that though the data for participatory notes outstanding disseminated by SEBI includes ODIs on derivatives, FII AUM data includes only their cash market holdings. The proportion of ODIs would be 2 to 3 percentage points lower in the period prior to 2010 if FII's derivative positions are taken in to account. This anomaly appears to have been corrected in the data provided for the first six months of this year. Diminished value It is apparent that external investors are relying less on participatory notes to invest in India. The fact that about 500 new FIIs and 1,700 sub-accounts registered with SEBI in 2008 and 2009 suggests that many of the external investors decided to register with the market regulator and invest directly in to Indian equities rather than take the indirect route of directing their investment through ODIs. There are other reasons why external investors are not resorting to ODIs to take an exposure to India. Availability of a slew of products listed on overseas exchanges such as Nifty futures listed on the Singapore stock exchange, various India-centric exchange traded funds that track the S&P CNX Nifty or MSCI India Index enable overseas investors to take a call on the direction of Indian equity prices too. SEBI has also been flexing its muscles of late in ensuring greater compliance with disclosure requirements on P-notes, deterring entities misusing this route. It had recently banned Barclays Capital and Societe Generale from issuing ODIs for misrepresenting facts and non-disclosure of information concerning onward issuance of ODIs to an unregulated entity. The latest move to ban protected cell companies from registering as FIIs and the one requiring PCCs to broad-base or increase its shareholders is another indication that SEBI is trying to prevent misuse of these instruments. The question is; is it the right time to do away with these instruments as reliance on these products appears to be on the wane? No, say market experts. They opine that it is not right to paint all P-notes with the same brush. There could be some bona-fide overseas investors who are investing through these instruments because they do not wish to go through the rigmarole of registering as a FII or sub-account. These instruments offer greater flexibility and are also cost-effective. Ban P-notes? ETFs and Nifty futures listed on overseas exchanges are of no use to investors who prefer to invest in specific sectors or stocks on exchanges. Again some investors prefer to make all their investment across geographies through one intermediary. Such investors could prefer P-notes. The upheaval that can be caused in foreign exchange market by banning P-notes is another deterrent. Measures taken to sanitise the ODI route are proving successful, giving a respectable sheen to these instruments. The case for banning P-notes is now becoming increasingly weak. Monetising the fear gauge During market phases when bullish enthusiasm begins to fade , the fear diffusing the broad stock market gets captured and published on our trading screens as the VIX. The National Stock Exchange (NSE) publication on the India VIX states: "Once market participants are comfortable, India VIX futures and options contracts can be introduced in the Indian markets." India VIX represents the 30-day forward Implied Volatility on the Nifty and is published by the NSE. The India VIX (INVIX) is computed similar to the VIX published by the Chicago Board Options Exchange using a strip of short-term out-of-the-money calls and puts on the underlying index, thereby capturing volatility skew as well. In the US, VIX options have been a huge success and trade like water, with volumes second only to the S&P 500 index options. Launch Interestingly, the INVIX was launched in April 2008, just in time to begin capturing the extreme volatility of the 2008 crisis, a period to which history will barely offer a parallel. In India, the index derivatives market has been a great success since their launch and futures and options are yet to be launched on the INVIX. Why trade INVIX derivatives? Anecdotal evidence indicates that humans tend to think in herds, so when markets crash, all asset classes become highly positively correlated (precisely when you need the contrary), volatility spikes, and as a consequence, a traditionally well-diversified portfolio is no longer effectively hedged. However, the VIX is negatively correlated (time-varying) with the returns of its underlying index, and this relationship becomes particularly strong when the underlying index declines steeply. Hence, a volatility hedge with INVIX derivatives would enable a more effective diversified portfolio. In the INVIX market, an arbitrageur could use these derivatives to capitalise on profitable opportunities with forward-starting volatility. The speculator can take a directional position with futures based on an opinion of future volatility around major macro events, while the traditional portfolio manager can afford a cleaner hedge and purchase downside protection in the form of out-of-the-money INVIX options versus index puts. Calendar spreads Futures traders could, depending on the term structure of volatility, trade calendar spreads using INVIX futures, while an ingenious options trader can mix-n-match strategies to monetize spreads between implied and historical volatility. A sophisticated quant trader could apply statistical analysis to forecast the directional change in the spot INVIX and execute systematic, mean-reverting strategies using INVIX futures. In essence, the launch of INVIX derivatives will increase transparency in the volatility market, enable increased liquidity in longer-term index options at different levels of money-ness, offer traders more building blocks in their toolkit, a portfolio manager more effective hedges, the broker a larger variety of products to offer clients, and encourage more players in the Indian derivatives market. Cluster Since early 2010, the INVIX has meandered broadly within the 20-30 range. Volatility tends to cluster and exhibit a mean-reverting nature. Notwithstanding a major financial crisis, I believe the INVIX is quite likely to remain tame, especially since it has broadly remained range-bound despite the recent Eurozone debt crisis.
*Disclosure: I don't have any positions in the above said scrips & NIFTY FUTURES. Disclaimer: "I do not make any warranties, express or implied, as to results to be obtained from using the information in this e-letter. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report. -- Arvind Parekh + 91 98432 32381 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Monday, July 26, 2010
Market Outlook 26th July & Weekly Update for 26-30th July 2010
Strong & Weak Stocks FOR 26TH JULY 2010
This is list of 10 strong stocks:
Sintex, Idea, Titan, Allahabad Bank, UCO Bank, Crompton Greaves, Bharti Airtel, JSW Steel, Orchid Chem & Syndicate Bank.
And this is list of 10 Weak Stocks:
RNRL, KS Oils, TV-18, Dr Reddy, GT Offshore, Polaris, Finance Tech, Praj Ind, GE Shiping & Balrampur Chini.
The daily trend of nifty is in Uptrend
Corporate News Headline
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