For Indian Stock market crash is inevitable…

For Indian Stock market crash is inevitable…

Indian equity has outperformed the global peers and became best performing market for the year by giving 6% return till august 2010 and this performance came up due to the consistent pumping of money by foreign funds .Global investment managers were in search of growth pockets to invest the money after the financial crisis to find best geography for the growth. The obvious choice was emerging markets however in emerging markets India was certainly the winner due to its growing GDP and consumption story so Indian market have received 60,329 crores of fund till September 2010.

Month	FII	DII
Jan	-302.9	-1,311.10
Feb	2,113.50	-697.4
Mar	18,833.60	3,806.40
Apr	9,764.50	1,616.50
May	-8,629.90	98.7
Jun	10,244.60	-1,092.50
Jul	17,120.60	-4,404.80
Aug	11,185.30	-3,169.60

The domestic mutual funds were the net seller in same tome by taking out 5151 crore between Januarys to September in the same period may was the only month when domestic funds were buyer by putting mere 98 crore in market however FII investment was positive in every month except January and may

Significant amount of money finds their way in developed market economy however those markets are flat or negative at this point of time.

FIG: FII and DII investment

Festive seasons are around the corner and funds have habit to reward their investors near Christmas so the FII profit booking is bound to come .Fundamentally Indian market is standing on the one leg because domestic funds and retail investors are sitting sideline while FII are consistent in the buying side when they turn negative the scenario will be bearish .Foreign funds don’t have option because only in emerging market they are in profit so they will sell some of their holdings in coming month precisely by October 2010.

Global perspective:

Following big losses for developed world equities in August, the rally was to be expected, because global markets were technically oversold. We are now entering what are normally the worst two months for markets and we will see new lows hit in October, at which point the market will discount the prospect of the mid-term elections in US ,in euro zone credit problem is still persisting Ireland is looking to spread their problem soon .

The indication has been coming from the bond market, which last month began to tell us there is really bad news out there. Following substantial buying in August, we have seen some selling but this will not last long enough.