Weekly Newsletter - Jan 29 2011

After some relief last week, the Indian market resumed its slide, with the NSE Nifty falling under the crucial 200-DMA level. Another rate hike, which was in line with forecast, seemed to rattle the markets. Investor sentiment took a fresh knock as FIIs continued to sell amid persistent worries that high inflation and consequent hardening of interest rates could slow the Indian economy. The governance deficit, coupled with a spate of controversies and worsening of the external balance have also been flagged by many as among the key headwinds.



Next week will be important as well. It will be interesting to see whether the bulls can fight back after being battered several times in the past 2-3 months. FII flows will continue to be the critical variable for the Indian markets. Inflation also has to soften substantially from the current levels and the Government has to get cracking on reforms. In this context, the Budget will be a key event to watch out for. Intent may not be enough. UPA II must get its act together and take some bold measures to keep the momentum in the Indian economy going.

While monthly auto sales, trade data and manufacturing PMI will provide further clues on the state of the Indian economy, one also has to keep an eye on manufacturing and services PMI data from around the world, besides US monthly jobs data. In addition, a lot of key companies are yet to announce their results. Technically, the level to watch out for on the way up is 5530 and 5630. In case of a harder fall, the Nifty could find support at 5350. The going will not be easy for some time to come and one has to brace for high volatility as well. Take a stock centric approach and be extra careful before the tide turns in favour of the bulls again.