July Could be Jittery For the Markets

The month of July can cause real jitters for the Indian stock market and the party could end. Most of the top economists and market gurus have started saying that the year 2010 could be a mixture of two halves, the first half ending on a positive note and the second half leading to a sell off and a economic downturn.

There are 4 big events in the month of July because of which I believe markets may end lower in the month of July

• First which I had already discussed in my previous post is the $30 billion IPO, by the China AG bank, which could suck the liquidity out of the emerging markets and thus leading to a fall

• Second in July only, perhaps in the later half of the month the EU will come up with its bank stress test results and without any plan so as to how it would provide any kind of support to the ill banks the results may provide another reason to sell the financials and other related stocks around the world

• Third, from 17th July, Nifty futures will be traded on CME and this move is taken in order to facilitate US investors to take exposure in Indian markets without facing the hassles of cross border investing. This, I believe might lead to a liquidity crunched Indian markets

• On 27th July, is the RBI Q1 credit policy, with statements from the governor that inflation being the bigger concern than the EU crisis, and the recent fuel price hike, I believe it sets a strong case for the RBI to go for a rate hike (and I think it might come as a surprise well before the actual policy date). The Indian banking system which is already liquidity crunched because of the 3G and BWA auctions could take a serious hit if this happens. The Bank Nifty falling by around 3% on Friday just after the fuel price hike, signals the market expectations of a rate hike.

Thus, I believe that the best one could do in July, is to avoid long position and traders can also use low IVs as a tool to go short using the put options. Moreover, the currently going on G20 meet could again be a damp squib as has being the case in the past and can see some selling on Monday only.

Be Cautious & Happy Investing...!!!