IRAQ issue: Is it really impacting Indian equity markets?

Nifty has shown unprecedented movement from the lows of 5980 to the highs of 7700 just last week.

This strong rally was supposed to be on hopes or expectations of change in central government. The market was proved correct and BJP won with clear majority. Post election outcome as well the index continued to move higher – this time the reason given was execution of projects, Budgetary expectations and Mr. Modi slogan of “Ache Din AA Gaye”.  But try to digest this: Nifty and Sensexclosed circuit up in 2009 post UPA came to power with majority. There has been lot of scandals and scams revealed over their tenure but still Nifty managed to protect the Gap up area. Now a radical change in central government is being perceived as good for economy. But irrespective of the government at the center Indian markets have continued its decade’s long rally since 1979.

Now coming to Iraq news:

“Growing unrest in Iraq threatens to put the brakes on the post-election rally in India, as investors weigh the potential impact of higher energy prices on economies across Asia – Financial Times

India is one of the most vulnerable countries in Asia to rising prices because it relies on imports to meet about 75 per cent of its oil needs.”

If IRAQ issue is responsible for higher Crude oil prices which in turn impacts our economy negatively then please go ahead and explain the below movement of Sensex and Crude. It does not need statistics to see more positive correlation rather than negative:

Sensex and Crude chart:

Things that seem logical are not always true. Take a step ahead and you will know the fact. The following is published in today’s morning research report “The Financial Waves short term update”

Yesterday’s move had been crazy with all blame going to Iraq issue which is widely known for quite sometime and it also seems like impacting only India let alone rest of the world markets. Another major issue being talked about is Oil prices but Nymex Crude was relatively stablewhen the sharp selloff on Nifty started and MCX Crude rose due to depreciation in INR rather than any external event. Such news sound logical but are not necessarily the reason for sharp movements. Also there has been lot of talks about fiscal deficit due to rising Crude prices but a simply math of percentage change over past many years will show that Nifty and Crude actually has very high positive correlation rather than negative. Crude prices rose along with Indian markets all the while but media emphasizes on news without much statistical justification!

It is therefore necessary to use other methods that can provide logical reasoning to the movements of market: Below is a small gist of Elliott wave – An advanced technical analysisconcept explained:

Looking at the Elliott wave pattern it seems the correction that started from 7700 is still ongoing in the form of wave iv. This wave is probably developing as a double corrective pattern as shown on short term chart. Sharp movement within a range can also indicate a triangle formation but as of now double corrective pattern looks more probable. Once the correction is complete the major trend should resume!

To see yourself why we still think some steam is left in Indian Equity markets amid the Iraq crisis subscribe to“The Financial Waves short term update” and see the patterns yourself. For subscription options visit http://www.wavesstrategy.com/index.php/store.html