Japanese Interest Rates

Japan for long was a low interest market, serving as a source for low interest loans for Japanese funds. These huge funds kept on using "carry in" trade strategy where they borrowed funds at low rates and then invested it overseas in markets where the return is high (Emerging markets). About a month ago when the Japanese increased the interest rates, it was expected that the Yen would start appreciating and most probably accompanied by flight of funds from the Emerging markets.

In the past few weeks close to $4-5 billion was taken out by the top Japanese funds. Out of this more than $1 billion was sold off from the Indian market. And about $5 billion from Emerging market excluding Asia (Brazil, Russia etc.)

Morgan Stanley had earlier predicted that there would be a huge flight of foreign funds from the Indian markets. It is clear that Indian markets are having the most impact from the global market. But long term optimism is still there; few days ago one of the Japanese Bank announced close to $1 billion for Indian dedicated fund. This clearly shows that long term optimism is still intact for the Indian markets.

FDI in Capital Markets

Arround the world a trend of consolidation can be seen in the stock and commodity exchanges arround the world. Just recently the Merchantile Exchange acquired the C-Boof(Chicago board fo trade). Also NASDAQ is trying out for a hostile takeover of LSE (London Stock Exchange) with valuations reaching as high as $ 5 billion.

Just yesterday Goldman and Sachs and NYSE showed their interest in acquiring the 5% each stake in NSE. National stock exchange has not formally declared anything regading this matter. Goldman and sachs already acquired a 5% stake in MCX, (multi commodity exchange).

The lawsforeign only 49% foriegn investment in stock exchages with a limit of 26% in case of FDI and 23% FII. Also no one investor can invindividuallyan 5% individualy, this last limitaion is placed by the SEBI any in future this could be relaxed.

All this means more funds and techniforeignport from foriegn player, which will make the exchanges more efficient. Also we are still long way to witness something like the LSE takeover or the Euronext tforeign, where a foriegn firms tried to gain control of regionally strong exchanges.


 

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Infosys Performs Well

Infosys touched a high of 2,024 in the intraday trading and closed at 1,980 up 73.80 or 3.87%. The net profit of the company increase by 17%. The Operating margin of the company was at 32.13% an increase of over the previous quarter due to the economy of scale. Infosys is clearly able to outperform competitors like TCS, Satyam, and Wipro. Karvy is giving a target for Infosys at 2500. Foreign investors expect 20% to 25% increase in price. For Infosys 50% of revenue comes from US and 33% Europe. Also it was able to attract more Foutune 500 clients.

The FII invested close to $ 20 million in the Indian market today compared to $ 8 million yesterday. Low oil prices were a reason for the current market rally. But today OPEC decides to cut down on oil production by 1 million barrels per day. This means that the crude oil prices may rise above the $ 60, current brent crude is trading at arround $ 58.27 per barrel.

Sensex today started up with 213 point on back of infosys numbers. At the end down by 10 point to 12,353 steel and motor stocks fell close to 3%.

Sensex on Year's Lowest

The stock markets openned low on Monday this was another day of selling with no buyers having courage to hold on to their investments. The Sensex was hit by close to 420 points and the Nifty by 120 points. This Mid-cap and the small caps were the worst hit in todays markets, with many companies falling close to 10% and falling to their 6 month lows. This selling preasure is said to be created by the selling of the Mutual Funds by investors (both HNI
's and retail) who entered the market late or were slow at booking their profits at 12,000 levels. When they saw a fall of close to 20-30% in their investment they started to liquidate.

Global Fall

Globally the stock markets have all gone down in the past one month in both emerging as well as global markets. In the developed markets like USA markets have had a 10% correction compared to gains made during the bull run this is very substantial. Markets like Japan have also fallen heavly, with Nikkei falling close to 4%. In other asian markets like Korea Foriegn investor have net sold as much as $ 1 billion.In India last few trading sessions shows that they are net buyers in the indian share markets the FII have been the net buyers. And the Mutual Funds the Net sellers.

Selling Preasure

(A) The main selling is comming from the Mutual Fund companys that are heavily invested in the Mid-Cap sector. Because of redemption of MF's by HNI's and Retail investors the Fund is trying its best to sell off its shares. The problem is that the Mid-Caps are very illiquid and because of that they have ot selloff their core investments.

(B) The investors who followed the principle of buying into cheap low price shares afters doing value research are also the culprits. These investors who follow share markets analysts like Mr. Rakesh Jhunjhunwala purchase heavily in companies that undervalued through margin trade. Now they face the problem of meeting the settlement of their accounts. So, the Brokers are selling off the collateral shares or selling the share held by the investors in liew of the cash obligations.

Let us hope that the markets do not plunge further and the bull rally of the indian economy would continue.

Down on Monday

The markets plunged further on Monday, with all sectoral indexes falling sharply. The Sensex was down 2.28% (237.9) at 10,213.4 and the NSE Nifty down 2.4% (74.7) at 3061.6 at the close of the trading hours.

Quick Look at Market

	Percentage Decline
BSE Metal Index	style="text-align: right">3.68 %
Oil $ Gas	style="text-align: right">2.68 %
FMCG	style="text-align: right">2.5 %
Hindustan Zinc	style="text-align: right">7.68 %
Sterlite	style="text-align: right">5.6 %
Tisco	style="text-align: right">4.32 %

It is clear the markets are still in the phase of deep correction that started with the fall in May. It seems that the markets will continue their bad run for a while, and the month of June will be either rage bound or the makets may further correct to the levels of 9,000 - 10,000.

Most analysts belive that this current phase is temporary and the long term prespective of the markets is still very much intact. Some even predict at the end of the year we may end up at 15,000 for the Sensex! So let us just keep our fingers crossed and hope that the FII's would understand this and bring their money back to our markets.

FII Outlook of Indian Markets

Everyone knows that the FII are quick at selling off their position in the indian stock markets. Up till now everone only had anecdotal evidence of this. Now we have the latest report on FII movements of the Japaneese Fund Managers in the Indian stock market.

Reports of 31st May shows that the Japanesse investors sold net $ 200 mill to $ 300 mill. The major FII seller were Nomura Capital, HSBC Japan and Meryll Lynch Emerging markets fund. When asked the reason for this selling they said that the Fund is reducing its positions and holding cash for a while. This could be induced by the Global correction witnessed arround the globe from Latin America, Europe to Asia.