Market Update 21/7/2013

The markets ended up marginally last week from the previous one (0.3%). Despite RBI' efforts at shoring up the Rupee, the markets seem to have found some support at 5900. These appear good levels to enter the market.

The fall in the Rupee has suddenly made everything in India 20% cheaper for everyone abroad. This analogy also plays out in the equity markets. We are seeing a lot of FII interest in the equity segment of the markets. Large caps, especially index scrips should do well in the interim as these are preferred for FII money.

Going forward, most market participants are already talking about the elections. It is therefore expected that the market will be range-bound at least till the elections are over. The up-side seems to be capped at 6150-6200.

Arbitrage Funds

Arbitrage is the practice of taking advantage of a price difference in two or more markets. For eg: if the price of rice in Mumbai is Rs 25/kg whereas in Chennai it is Rs 30/kg, then there is an opportunity to buy in Mumbai and sell in Chennai. This is a simple example of Arbitrage.

Arbitrage mutual funds are funds that take advantage of similar arbitrage opportunities between the equity spot and futures market. The spot market is where we purchase/sell shares. The futures market is where we trade in contracts to buy/sell shares at a future date.For eg: If one buys a 3 month futures contract to buy Reliance shares, then one is paying a rate today to take delivery of shares that will be delivered in 3 months.