Nifty EOD 09.12.2010

Nifty breaks down losing 137 points from yesterday's closing levels with enhanced volatility. Today is 2 std deviation day and closing level was exactly at 5766. This panic selling may be due to risk averse funds taking a view of extreme caution. The reasons can be

1. US Economy is showing signs of economic revival rendering dollar inherently strong.

2. X-mas profit booking. Last Dec 2009 also witnessed high volatility 

3. Fundamentally results are not as good as expected. Topline growth is good but bottomline is not up to the mark.
4. Inflation is cause for concern. Today's oil ministry statement indicating further increase in petrol and diesel will fuel further inflationary pressures. The cause for concern is becoming cause for worry with no action from RBI either on rate front or on liquidity to control inflation. (I do agree RBI cannot do anything at present juncture as banks are already reeling in liquidity constraints.)

5. Liquidity is drying up in a busy season. Though banks are given leeway to dip in to its SLR portfolio...practically it will be difficult for the banks to repo them to generate money as my guess is the securities must be in loss position as increase in yields would have resulted in price reduction. 

6. RBI Governor indicating future business path to banks expecting them to operate with low NIM. (real reason for bank nifty going down south....)
7. Scam after Scam with involvement of Multi Crores spoiling economic climate and making difficult to arrive at its implications on the financial results of respective companies.

8. Finally very important political risk associated with all these events...