Daniel Mankani "DynamicTrader – Trend Trading Dynamics" Trading for a living, systematically profiting from longer term trends.

25Jun/12Off

Bearish forces at work!. Nifty 4500 on the cards?

Last year in Jan, near about 6300 on the Nifty, We advised a short, prior to doing so, our team visited Mumbai, saw the construction all over, saw the folly of the richest man in India with his tall billion dollar building as his home, and witnessed the hope in the AIR, "India Shining". All this presented a peak for the markets.

Efficiency in India is non present and as the euphoria of cheap money nears its end, Indians slowly realize the days of cheap money is over. In Economics its hard to see, how growth can be delivered by cheaper code writers that India Offers, or how this country could sustain itself on a global scale, from self sufficiency the country today is a net importer, its deficits are evidence on the Indian Rupee.

So after this trip on the day out, at the airport departure terminal, we headed to the smoking room of the airport. In Airports smoking room's, usually tips can be obtained on how the country looks in the eyes of departing travelers and more often than not, it's a worthy observation. A gentleman travelling back to the middle east asked us what we did. And we highlighted we made a quick study of the situation on the ground and believe that the up move of India is over, {we were short, a good size at 6000 areas}!.

This gentleman quickly became agitated and highlighted how the whole world was in Shit, including the middle east and how India will rise up to become a super power in the years ahead. We held back and gave him a grin and walked away. If it acts like a duck, quacks like a duck, then it is a duck.

Now if indeed we are right, how will it play out!

The debt exposures of the government and corporate's, which is hurting, especially those who borrowed FCCB's and in various foreign instruments will come to roost, devaluing the Indian Rupee even further, technically our charts indicate the region of 62-64 before any meaningful correction on the INR, while on the first phrase of devaluation the noise from government officials and verbal interventions will provide initial level support to the currency, but verbal interventions can only do so much.

Once additional momentum picks up to the downside and political dissents ramp up their voice on inflationary pressures, the stock markets will start to recognize and high frequency bots will be unable to continue providing the fake liquidity that is currently present, propping up markets is a strategy and belief shared by greenspan and bernanke, they believe higher stock valuations, provide a feel good factor and eventually reflect the true extend of the economy, this is indeed false.

India's RBI governor is also trying to act like them too, which will make Inflation easily accessible.

Their theory is flawed, it doesnt reflect anything near the true extend of the economy, in reality the economy is suffering, real estate values are held up as in stocks, due to the weaker rupee, which effectively makes the nifty trading at 4000 levels in real value terms, since the INR is almost 20% weaker than before.

Does anyone think, The same level of security and safe keeping as in gold, real estate or any other asset class that holds it value, than fiat currencies and shares will be in for a surprise.

The situation on the ground today is amplified ten times than 1991, as growth levels expanded to the upside, similarly their corrections and problems are also amplified. For those, who want to know better, are advised to take a look at Malaysia, Thailand, and Singapore (1997-2002) stock market charts vs Fx devaluations to reach their own conclusions on India.

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