Weekly Newsletter - Dec 31 2011

To say that 2011 was challenging would be an understatement. There was no dearth of bad news be it the never-ending list of scams, or spiraling inflation, or hardening interest rates, or general economic slowdown, or a sliding rupee, or policy paralysis or the eurozone debt crisis. So, naturally investors shied away from Indian markets. In fact, India was among the top losers.

But after having experienced so much turmoil across the board, things can only look up sooner or later. The outcome of UP elections could have a significant bearing on the policy decisions of UPA II, including the Budget. It might also change political equations at the Centre. Once inflation moderates to acceptable levels and the state elections are over in March, we could see reversal in interest rates and few policy initiatives as well.

The December F&O expiry has seen traders rolling over short positions, leaving chance for a short squeeze. Corporate results, IIP, inflation, RBI policy action and global events will underpin the markets' direction next month.