Over the last few weeks most of the variables in the markets have behaved in a manner in which we expected. Crude oil prices have fallen sharply and continue to be week, most of other commodities have also cooled off and steel prices internationally have fallen by 20-30% internationally over the last few weeks. Inflation momentum has slowed down and inflation is likely to start falling sharply going forward. Infact the new RBI governor has sounded reasonably less hawkish and as such it is more or less a certainty now that there is going to be no more interest rate hikes and the next move whenever it happens will be a cut in rates. The Nuclear Suppliers Group has also cleared the deal and the US government is also pushing for an early clearance. As per out expectations gold prices have also corrected down to USD 740 per ounce levels.
However the stock markets have continued to be weak. So, if most negative factors are out of the picture now why are the markets still weak. The major reason for this is the weakness in the currency due to the sharp rally in the US dollar vis a vis most other currencies in the world. This is leading to a sharp deleveraging cycle which has led to money being pulled out of most asset classes and flowing into US Treasuries. As such given the way the rupee has fallen most foreign investors are waiting for a stability to return on the currency before they put in money into the markets. The rupee has fallen to 45.6 to the dollar.
The US dollar rally seems to be coming to an end for the near term as the rally has been very sharp and the currency is heavily overbought. As such our expectation is that by next week there would be the start of a reversal in relative currency movements which will again lead to money flowing into risky assets. We do not expect the rupee to weaken much beyond 46 levels. As such the downside in the rupee is extremely limit from the current levels. This will put into place the last variable required for the markets to move up. We continue to hold the view that the markets are likely to see a rally of 20-30% over the next 6-9 months.
However the stock markets have continued to be weak. So, if most negative factors are out of the picture now why are the markets still weak. The major reason for this is the weakness in the currency due to the sharp rally in the US dollar vis a vis most other currencies in the world. This is leading to a sharp deleveraging cycle which has led to money being pulled out of most asset classes and flowing into US Treasuries. As such given the way the rupee has fallen most foreign investors are waiting for a stability to return on the currency before they put in money into the markets. The rupee has fallen to 45.6 to the dollar.
The US dollar rally seems to be coming to an end for the near term as the rally has been very sharp and the currency is heavily overbought. As such our expectation is that by next week there would be the start of a reversal in relative currency movements which will again lead to money flowing into risky assets. We do not expect the rupee to weaken much beyond 46 levels. As such the downside in the rupee is extremely limit from the current levels. This will put into place the last variable required for the markets to move up. We continue to hold the view that the markets are likely to see a rally of 20-30% over the next 6-9 months.
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