India Stocks Outlook: Look a little Subdued in this week; fate of US bailout Package will determine the next move of the bourses:

Excerpts from the Sunday Report to the Paid Groups: Sector outlook only to the Paid Members:

· Uncertainty over the fate of the $700-bln U.S. bailout package for the financial sector will continue to haunt the world-wide bourses in this week.

· Mirroring the Asian peers, the Indian indices took off in a weak note in the beginning of the week and from thereon, the indices continued their dismal performance, as selling pressure intensified. Incidentally, FIIs remained net sellers in the cash market but were net buyers in the derivatives segment. Mutual Funds, too, were net sellers during the week.

· Though few days back the market seemed a bit more optimistic as Nifty shot up to 4300 after the bailout package announced by the US Government, but unfortunately it has lost nearly 7-8% from those levels. The debate over the proposed $700 billion bailout of the financial system continued in Washington. All eyes are now on this “Great Debate” in the US. My gut feeling is that it will get backing of both the Republicans and the Democrats as the situation is so worse in the US, that without the immediate implementation of the financial package, the world-wide bourses could sink to some abnormal levels. However, the $700 billion bailout package does not guarantee anything.

But what it would do is bring back confidence and reestablish the badly pummeled faith of the world back into the system. So basically the bailout is a confidence building exercise. If this bail out package is passed then we could see sustained strength of the bourses and we could see strong rally going forward.

· Meanwhile, the Indian Government is going ahead with its promised eye on reforms. May be in the current scenario, where even companies with a strong balance sheet might find it difficult to get funding, for the long term, relaxation in External Commercial Borrowings (ECBs) norms is a positive move. The companies engaged in infrastructure projects which can borrow only up to $100 million a year for rupee spending in India till date can now borrow 5 times more – the limit having been increased to $500 million per year. For ECBs of three to seven years tenure, the borrowing rate has been left unchanged at 200 to 350 bps plus LIBOR. For borrowings between five-seven years, the all-in-cost ceiling has also been left unchanged at 350 bps while for those above seven years; the rate has been relaxed from 350 to 450 bps above LIBOR.

· Surprisingly, Chinese stock market emerged as a silver line among dark clouds. The benchmark Shanghai Composite Index rose more than 9%, after stake purchase rules for major shareholders were eased in another bid to prop up the markets. Moreover, there are some hopes that margin trading will be given the go-ahead soon in Shanghai stock exchange. Now the million-dollar question is, whether this unexpected rise in China will act as a drowning man's straws and will prop up the falling world markets. The ongoing uncertainty is taking its toll on the markets. On the contrary, gold and silver are performing better in such times. Nifty faces resistance between 4250 – 4300 and Sensex between 14000 – 14500. Until markets are below these levels one should remain cautious.

· There is no buoyancy in US economy and thus expect more fund flow in bullions (from equities) as investors will continue to seek safe-haven buying in gold. Gold is still lucrative. Strength in bullions may spill over into other commodities like Coke and Steel. Crude appears strong, however, any delay in the bailout plan may result in range bound movements in crude prices. Millers await the domestic sale quota of sugar to be announced for the October-December quarter which will further direct the prices of sugar. Pepper is likely to continue its upward trend.

· But there is something good and to talk loud in the US as well, in the midst of doom and gloom theories going merry-go-round. The US exports are growing at the rate of 9%, which is 12% of the total GDP of the US---that’s pretty large contribution. In fact its surprising that the media cameras are only focused on the US housing market and have ignored till date this good point in terms of exports. The point that needs to be highlighted is that, housing sector in the US has been falling at the rate of 20%--22%, but housing is only 4% of the GDP of the US. So something that is falling 20% and is only 4% of the GDP is given more fanning by the media than something that is rising 9% and which is 12% of the GDP. So there are still some very strong sectors in the economy. However, the Bush administration wants to use this ...................................Hence I am very bullish on the US economy in the medium term perspective.

· At the moment the U.S. bailout package plan is the biggest factor which will decide the short term trend of the markets worldwide.

· If the outcome of the bailout package is favourable, then short covering might emerge at lower levels. Whatever bad things that have occurred in the last two-three months, like surge in (global) crude oil prices, rupee depreciation, decline in commodity prices, inflation and interest rate peaking, will reflect in the Jul-Sep results, adding investors would take a "wait and watch" approach next week.

· The Indian investors have matured over the years and I am happy to see that in the last few months, especially during the crisis period. More importantly, our markets behaved maturely when FIIs have been net sellers to the tune of Rs.7,182 Cr in September, 2008 with net selling of Rs.4,246 Cr in just last five trading sessions. Whatever support in terms of buying has come, it has been from the domestic institutions, which shows the capability to support the Indian markets. Secondly, compared to other emerging markets, our markets are less volatile. Then, again, while Brazil and Russia are dependent on crude and commodities, we have well-spread ratio of services and manufacturing. Also, we are not just an export-oriented country but have a domestic consumption story which is driving the growth. Lastly, despite the fact hat FII have been net sellers, India is still the second referred destination for the FDI after China. So we can say to certain extent that the Indian markets have to some extent decoupled from the Asian Peers.

· Though the Indian markets are aping the global sentiments which in any case are not very good, but the $700 billion bail-out package planned by US Fed and the collective efforts taken by most of the leading central banks to pump more money in system, has prevented most of the global markets from tumbling.

In addition, the $ 5 billion invested by the world’s biggest investor Warren Buffet may not have done much in monetary terms......

· For the near term, markets are going to be range-bound as the immediate trigger will be H1 results which will start flowing in the first week of October, 2008. So, rather than taking a short-term term view, start investing for the long-term.

· Among rate-sensitive sectors, real estate is likely to remain subdued in the coming week on lack of positive triggers in the near term. Realty stocks are a complete no-no at present. They are likely to witness a sharp correction soon and a bounce back is also not seen sustainable.

· The investors could take cautious approach on stocks of information technology firms as their business prospects are hanging in the balance due to worsening financial scenario in U.S. Though the valuations are attractive for these companies one should wait till Infosys results to take positions in the sector.