New theories emerge as the markets heads higher. Does M&A activities signal something? Will currencies play the spoilsport for this rally in medium to longer term? Does M&A (mergers and acquisitions) activities signal anything? Will currencies play the spoilsport for this equities rally? A weaker Indian Rupee going forward… The peculiar Chinese scenario…Wait and Watch

1. 1 New Theories leading markets higher; M&A activities signal, Will currencies play the spoilsport
New theories emerge as the markets heads higher. Does M&A activities signal something?
Will currencies play the spoilsport for this rally in medium to longer term?
Where is the actual news flow, on which global financial markets (including our markets) react,
and react on a daily basis? It actually flows from the United States. And I continue with my view
that Indian markets on the back of no or/and lack of news flow, will continue to react to global
news flow.
Markets all around the globe just wants to head higher but WHY? Every-time some amount of
pessimism starts occurring; some new theory starts emerging, which takes the market higher
than the previous high. This time around these theories apart from what we keeps on hearing
i.e., housing recovery, consumer spending, Stabilization in Banking sector as a whole, credit
flowing again, continuing low interest rates, liquidity, money on the sidelines, hedge fund
money coming back to the market etc., are IPO filing, M&A deals (US$ 60 Billion of deals
announced in last 5 weeks in United States) etc.
Does M&A (mergers and acquisitions) activities signal anything?
During the period Jan-Sep, in 2007, 2008, 2009 the total deals value (M&A) have amounted to
US$ 1.28 Trillion, 833 Billion and 492 Billion respectively (source: Thomas Reuters).
I believe yes, because when a corporation starts looking for utilizing shareholders money to
expand its footprint either by acquiring a competitor or in order to increase the product
portfolio or services, they first look at their businesses, and access their outlook for the next 12- 29th September, 2009
24 months at-least, before actually deciding on their course of action with respect to M&A. The
management/CEOs then try and access the risk involved in acquiring the company, and its
outlook after the deal is done. And until and unless, they would not find things to be rosy
enough going forward (in the longer term), I doubt in this environment, when there is more of
shareholders activism and more scrutiny on any deal which happens, they are going to go
ahead with the deal. And the stock prices of either company instantly provide a feedback on
the quality of the merger or the acquisition. And fortunately, most of the company which has
Vinit Tulsyan http://vinittulsyan.wordpress.com

2. 2 New Theories leading markets higher; M&A activities signal, Will currencies play the spoilsport
announced a merger or an acquisition, their stock prices in few days since announcement has
only gone up. So the management decision to get involve in M&A activities and the stock price
reaction in next couple of days of announcements provide a signal, which clearly states what
the management and the investors are thinking about the prospect the deal going forward. And
going by the activities taking place in M&A markets, this leads to a signal that going forward (in
2-3 years), the economic scenario should be significantly better than what it is today.
The optimism has such a superior edge over pessimism that US equity markets are having the
best quarter since 1998 i.e. best quarter in over a decade. And I believe this optimism will
further drive this M&A deal activities going forward in the rest of 2009 and in 2010; also helping
in stabilization of banking sector in some way (as revenue from this avenue starts picking up).
US markets have rallied (all three major indices) anywhere in between 55-60% since the march
lows (specifically since 9th March 2009), and I wrote an article on 10th March 2009 titled
“OPTIMISM PLAY: BULLS ARE BACK ATLEAST FOR NOW WITH MARKETS TRYTING TO FIND A
BOTTOM ON THE BACK OF HOPE”, and when things have kind of turned corners, I again now
believe that Bulls will try to find a higher high on the back of more stronger economic recovery
but will the currencies play a spoilsport. In this article I try and find an answer to this peculiar
question…
Will currencies play the spoilsport for this equities rally?
I actually expect the dollar to be lower for now, but will start stabilizing once FED reverses its
policy on Interest rates or on quantitative easing. At the same time I strongly believe, US will
have to support the dollar in order to attract debt investors, and when that happens, in my 29th September, 2009
view there is going to be a trade-off between equities, dollar, and interest rates. Money flowing
into dollar would simply mean, lower allocation for equities, interest rates moving northwards,
and in-turn treasury securities will start looking as a safe haven investment once again;
ultimately leading to a more inflationary environment (about which most of the experts on US
economy feel that Inflation will start kicking in starting next year).
Vinit Tulsyan http://vinittulsyan.wordpress.com

3. 3 New Theories leading markets higher; M&A activities signal, Will currencies play the spoilsport
A weaker Indian Rupee going forward…
A stronger dollar would mean a weaker Indian Rupee, and I am of view that going forward
Indian Currency will be in a tight range with a negative bias. This does not necessarily mean that
money (especially developed world) will start moving out of Indian equities market because of
rising dollar and a more lucrative risk-return proposition with respect to US treasuries, but I
definitely feel that the quantum of money supply to Indian equities will slow down. I also
believe that the money supply through either ways would only pick up when we have our GDP
numbers coming out and those are at-least at satisfactorily level, if not better.
The peculiar Chinese scenario…Wait and Watch
In China Money supply is going to the roof in order to stimulate the economy and the best
solution to actually balance this is to have a strong YUAN, and if it does not happen, I believe
that as the expectation which market participants worldwide have built in that China is going to
lead this world in coming out of the this economic turmoil, than that point in time, the larger
belief would be that China would be the country, which will lead the world in the inflationary
environment. A stronger YUAN would mean, more dollars in exchange of lesser YUAN;
subsequently meaning a lower value for Chinese Forex reserves (majority of which is in US
Dollar). Well, there is a set-off here, and which is that when US Fed/Treasury starts reversing its
policy on interest rates or/and quantitative easing, US Dollar will have a support, and which in-
turn could provide a set-off for Chinese investments in US Dollar. There is a caveat as well, a
stronger YUAN will start hurting competitiveness in Chinese exports, which has been
contributed as the biggest reason for the turmoil in Chinese economy and result being the
biggest stimulus package by Chinese authorities to help increase internal consumption and
make their economy less dependent on exports; so even I do not know, how Chinese 29th September, 2009
authorities are going to handle this scenario.
The Summary
Now the bears are trying to find new arguments as the September analogy has failed, but they
still cannot envision scenario that causes significant correction and so as me. I believe markets
Vinit Tulsyan http://vinittulsyan.wordpress.com

4. 4 New Theories leading markets higher; M&A activities signal, Will currencies play the spoilsport
all around the globe (including Indian markets) might not sustain the kind of moves (one way
move) it has seen since 9TH March 2009, but will try to find a sense from every news flow
coming out of the developed world, making the markets to turn highly volatile in shorter to
medium term, but with a positive bias.
***
Thanking You,
Warm Personal Regards,
Vinit Tulsyan
http://vinittulsyan.wordpress.com
29th September, 2009
Vinit Tulsyan http://vinittulsyan.wordpress.com