The week ahead: Strong US growth, dollar vs. weak emerging markets, rupee - NDTV

The week ahead should see the market break out of the short-term range with the Nifty either breaking below 5700 or over 5900. The weakness in the rupee, global fund flows and results are expected to dictate the trend going forward. The strength in the US recovery was vindicated by stronger-than-expected jobs data which saw the dollar hit new near term highs and 10-year bond yields hit nearly 2 year highs and close at 2.74 per cent. This again reinforced the argument of earlier than expected withdrawal of easing by the Federal Reserve and reduction in bond buying as early as September. The markets now are at crossroads with strong growth momentum returning in the developed economies with the US leading from the front. This has led to hardening of the US bond yields which have spurted to 2-year highs. The rise in cost of money will see money exit the other investment destinations with emerging markets equities, bonds, currencies and precious meta ls bearing the brunt of the stronger dollar. We already saw a precursor to the above in June when globally we saw all asset classes see a sharp selloff. The outperformance of the US equity market and the strong dollar, has already seen huge underperformance from emerging markets with money exiting equities and bonds, and seeing a ripple effect on the currencies of most of those countries. Add to that the weakness in the Chinese economy with the Shanghai Composite Index coming very close to a 'bear market' down almost 18 per cent from its recent highs and at near 2009 levels. The other much touted Brazilian economy, which saw record foreign inflows over the past three fourth years, is now in a confirmed 'bear market' with equity indices down over 25 per cent year to date. Also, bond yields and currencies are at near-term lows. For the Indian markets, the Nifty has still held out and has been one of the better performers with the real casualty being the rupee hitting new all-time lows at 60.5. We should see this dichotomy get resolved sooner rather than later as growth at the cost of higher cost of money being the new reality. This will see some more fund flows adjustment with most global fund managers readjusting the higher global bond yields and more allocation to the developed economies being the short term trend. However, as with all asset classes, mispricing in developed and emerging markets already is seeming evident with valuations now in most emerging markets again in the comfort zone and the developed markets looking over bought. Technically the Nifty managed to end the week with gains of 0.46 per cent, while the junior Nifty was up 1.17per cent, the real laggard in the pack is the high beta 'Bank Nifty' which ended the week down 1.57 per cent. The Nifty now finds support at 5,720 while resistance comes at 5,930. The Bank Nifty finds support at 11,100 and resistance at 11,750. The rupee now finds support at 59.7 a nd resistance at 61, which should be very crucial in the coming week. The next week will also see results season play out with bell weather Infosys reporting on Friday. The other factor would be how foreign flows play out as most of the 'carry trade' reversal in the short term has already taken place. The other point of concern would definitely be the rupee and will the 60 level be the new reality as it stays firmly entrenched over that level. Globally we had positive comments from European Central Bank president Mario Draghi again reiterate that rates would be at low levels for more time which on Thursday saw the European stocks Indices at near 3 month highs. The uproar in Egypt led to a surge in Oil Prices as fears of supply disruption saw the best price gains in crude of over 5 per cent seen in the last year. Gold prices continued to seek lower levels as the best asset class in the last 3 years is now being shunned from most portfolios as defensives seem the worst place to hide in a resumption of growth environment. Tracking the 'A' group stocks, top three gainers of the week were Jaypee Infratech and United Breweries up by 25.30 per cent, and TTK Prestige up by 19.04 per cent. Top three losers of the week were Gitanjali Gems, down 30.29 per cent; MMTC, down 26.33 per cent, and Wockhardt, down 9.47 per cent. The markets being forward looking indicators tend to discount both negative and positive news flow before. The rupee weakness, global growth green shoots, bottoming out of Indian economy and the uncertainty an election year, all seem to being priced in the Indian context. We would recommend equity investments with a half-year horizon as with gold losing its sheen and bond yields having peaked out equities as an asset class should outperform. Disclaimer: Sanjeev Bhasin is an independent market analyst. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for t he accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNF9VtMankoiNYTUkoSpmWRktAducw&url=http://profit.ndtv.com/news/market/article-the-week-ahead-strong-us-growth-dollar-vs-weak-emerging-markets-rupee-324155

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