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Review - October, 2010

It's been a while since I updated this page, as I was involved with my new venture: Being an entrepreneur beats the thrills of being a trader! Anyway, back to the subject.
End Sep 2010, and the following things are beginning to emerge:
Europe looks dicey, and the U.S wobbly. Hence, emerging markets remain the cynosure of all FIIs. Whether this party will continue, depends upon 2 key factors:

1.  Will the yield play remain in favour of emerging markets i.e. interest differentials and thereby carry trades benefit markets like India?

2.  Will the growth rates in emerging markets falter because of Europe and U.S?

Well the answer to 1. is surely YES, given the QE 2, etc.; as for 2. - don't think so, as India especially is being driven by the domestic consumption story.

Given this, what do we do?
1. Short USD/INR :That is pretty much a no-brainer, even at these levels.
2. Long Bonds: We are approaching the peak of the interest rate cycle, another 100 bps even by the most hawkish analysts. Wait for dips and buy bonds. You will need to wait till end of year, but it will be worth the wait.

Targets for March 2011:
USD/INR 43.20
EUR/USD 1.4100
EUR/INR 61.00
10 year benchmark : 7.5%

Any comments? Mail

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