India Market: Capitulation Underway

Sunday, October 19, 2008

Friday's sharp decline in the Nifty begins the final phase of this bust: investor capitulation. While I keep looking for a longer time frame, action is getting compressed into a shorter and shorter period of time.

A liquidity event could create the final blow-off...redemtions and forced liquidations from Hedge funds could come either side of the November 30th reporting date.

Arm yourself with cash; a V-shaped recovery will come as we rotate out of opportunistic to value investors. I continue to target 2550 as buy-in levels, although a blow-off could take it lower. I may not get the bottom, but when it hits 4000 by January 2010 a positive return of 60% will look great.

The spread between 91 day US treasury bills and the 90 day rate that banks lend to each other has declined nearly 1% to 3.63% on Friday. Is this a first sign that central banks actions are having the desired effect on credit markets?

FII flows continue negative with the bulk absorbed by Domestic Institutions.

FII & DII Turnover (BSE + NSE)
(Rs. crore)

Trade DateBuySalesNetBuySalesNet
Oct, 0829,568.5540,194.02-10,625.4716,291.019,697.636,593.38
Since 1/1/08 *611,554.57703,904.89-92,350.32246,734.44182,751.0763,983.37

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