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HUMPTY DUMPTY . . . . THEY ALL FALL DOWN!

When we analyse the markets a few weeks from now, we may look back and apprehend February 20th as the day when it all started. On this day, the worlds most indebted country the US realised suddenly (oops!) that there was too much liquidity in the system and that this madness must stop. The US Federal Reserve realised , yet again, that most of the excess funds infusion goes in to the financial markets via the big funds / hedge funds and hence in the FOMC meeting on 20th Feb, it gave a hint that no further money would be injected ( by quantitative easing). Many times I salute these Americans for giving such exotic and convincing names to things which are primarily not right in the first place! And these jargons make them sound so very legitimate that one forgets to question the real issue! The world currency markets and commodities markets took a huge beating after the announcement by the US Fed. Hot money (read Hedge funds) started to pull out from commodities like Gold, Silver, Crude Oil et al and also from the stock markets. Indian Stock markets, which only saving grace was the excess liquidity from FIIs, too came tumbling down and gave up more than 300 points as many Biggies realised that their game was up ! In reflection, was it not a few days back when our TV channel experts were predicting a pre-budget rally? While they would have gone in hiding, a new breed would come up suggesting the gullible and confused investor that every fall is a buying opportunity (i.e. if investors are left with money to invest). Hmmm may be the best way to watch the business news channels is, well, to just watch them (in mute mode) While simple price analysis was telling us to book profit and exit the markets, the slow sideway movements kept most investors guessing about the direction. However one thing was clear since a long time. Whenever the liquidity driven world markets witness exits from big players, Indian stock markets were in for trouble. In fact, if you observe closely, a series of bad news- low IIP/ low GDP/ inflation / interest rates / higher NPA of banks etc were being wished away by players or was it an intentional thing? One major learning yet again, is that markets cannot be pushed up artificially for a long time. A rising market can sustain only if the fundamentals follow. One cannot continuously play the greater fool theory endlessly! The coming budget may have its own silver lining, but unless structural issues are address, any upmove will be short lived. My own perception is that if the widely tracked Nifty touches sub-5700 levels before the budget, one can expect a relief rally. Till that time, may be you are well off taking intraday trades (assuming you know the tools and techniques!). The world market may well be providing signals to us on the time to come. With GBP (Pound Sterling), Gold and Silver breaking their multiple week supports and the Euro readying itself for a further fall the only words that come to mind are CAVEAT EMPTOR (Buyers Beware)!

CA Rajiv D Khatlawala