I was grossly wrong on my assessment of Nifty on 14/01/2008. (I still expect the markets will continue to show strength and there will no major correction in the front line Indices. Although market may consolidate at these levels for this current week and resume the upward journey form the next week. From Nifty weekly Review as on 14/01/2008) On the contrary markets lost more than 10% in that week and the fall was even worse in the next week. But my assessment of the global scenario was fairly right and Dowjone Index fell to 12000 and made of low of 11640 levels before bouncing back to 12764. Currently it is trading into range form 12800- 12000. As per my expectation there was global sell of in equities in all the major markets of the world. (Refer to my last blog on Will Dowjone Spoil the party on 14/01/2008). If I got the global situation right than what went wrong with my analysis of Nifty. I underestimated the impact of global sell of on Indian markets. Since Indian markets were showing extreme resilience till then, I expected that to continue in the face of adverse global situation which was contrary to my own expectation that money will flow out form Emerging markets at lightening speed. This was a valuable lesson to be learnt. But as Warren Buffet says "The market like Lords helps those who helps themselves, but unlike Lord the market don’t forgive those who don’t know what they are doing."

Current Scenario:-

I am pasting long term quarterly chart of nifty. From the chart we can observe that the markets are trading at the most important support zone since the rally started in 2003. And if this uptrend has to continue the market must not trade below 4800 levels for considerable period of time. Now the question arises will this happen. The answer lies in Dow Jones and American economy. I am afraid that Dow chart is still looking very scary and if the down trend has to reverse Dow Jones must not break below 12000 levels. I am expecting a relief rally in US markets sooner or latter. We should also remember the fact that US markets had already fallen by 20% form its recent peak and now are trading at a P/E of 14 -15. Which don’t look terribly over valued. Although I accept that there are very serious problems with US economy and the recession is unavoidable and it will be good for the world economy in long term. But the short term pain is inevitable and we have to bear with that. We should also remember that US companies generates revenues not only form US but form across the globe. Companies like Qualcom or Intel which generates 50-75% of revenue form outside of US are available are really attractive levels.

The short term scenairo is very much uncertain. What I feel that there is a higher probability of a relief rally in US and that will give a relief to Indian as well as global markets. But on the contrary if 4800 is broken on Nifty than there can be a further fall upto 3700 levels. Now only time can tell the markets will turn.

Small caps and mid caps had washed out of all the gains they have made since last one year. And fundamentally good stocks are also available at attractive prices. But looking at the global uncertainty I will advise traders and short to medium term investors to stay away from them. Even long term investor should consider keeping their 25% of portfolio in Cash to take benefit form a potential fall in the markets.