We are into last week of January. More clarity is emerging as days pass by. The events of the past fifteen days, are indicative of direction of the markets.

China and India are no more the fancy of fund managers for obvious reasons.China a taboo for the time being for it's excessive credit to real estate and a fear of bubble as well as dependence on exports.

 Fund managers reluctance to increase allocation to India is for all the wrong doings in issues of Governance and cancer of corruption plaguing the country. What a pity!!!!
The first week saw a huge amount of about two billion dollars flowing into India.Most of it came to Debt markets, and a minuscule amount to share markets. 

Obviously the rupee is showing signs of recovery. The rupee may continue to rise through the year, thanks to various steps taken by RBI to prevent collapse of Rupee.
The slow flow of FII money entering the stock markets is mainly to en cash the appreciation of Rupee, a smart move of smart money managers.
The deregulation on interest rates on NRI deposits is a new year's Gift to NRI community. Now NRI can borrow cheap dollar loans and enjoy the arbitrage on NRI deposits, all tax free and repatriable. When Rupee appreciates you have a chance to earn more dollars. The route will sure be encashed to push a lot of black money held abroad back to India. A strong case of Rupee strength is emerging.
The markets are finding support for two reasons. The trend of appreciation in Rupee which may bring in FII flows. The strength is also due to third quarterly season starting this week. Barring the IT sector which may declare good results due to rupee depreciation in the last quarter, all other sectors will for sure disappoint the markets.
The banks may have worst quarterly results in their life time and owing to their heavy weightage in Index may drag the Sensex down post results.
There are no reforms, no decision making in the country for the time being. Bills on FDI , Pensions, Lokpal , raising of FII limit in Insurance sector, land acquisition bill have all taken back seat. Government is too eager to get through a suicidal food security bill.
In the absence of clear policy directions from government, cash rich businesses are expanding outside India, an opportunity loss for India.
The mess in Europe and domestic problems back home will prove to be big hurdles for the markets in 2012. In the absence of clear solutions to both these problems, every attempt of market to move up will bring  in selling pressure.
The sustained fall in inflation beyond March, and lowering of interest rates by RBI may give boost to markets in second half of 2012.
Till then markets may remain range bound in a broad range of 14,000 to 18000 and a narrow range of 15000 to 16500. The range of the market will be decided by the news flow and third quarter results.

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