INDIA: Prior to the finance minister's budget speech, Currency Corner had argued that Indian equities are all set for a short-term correction irrespective of what Arun Jaitley delivers on the reform front. Markets have had an almost parabolic up move since April and profit booking around these price levels was inevitable. Markets still look overbought as current valuations are pricing in a substantial earnings upgrade in coming quarters. However, one can look at adding quality mid-cap and small-cap names as well as PSU banks which have witnessed a deep correction due to their higher betas in the last week while the Nifty has just fallen only a couple of percentage points.

During last week's sell off, global crude prices corrected about $5-$6 as the Libyan prime minister declared that the "oil crisis was over". So that's one positive for Indian markets which should provide support if there is further downside pressure.

But the major action is out of U.S. and Europe next week and Indian markets will be closely watching out for macro developments on this front. Central bankers around the world expressed concerns about low volatility and if there is an opportunity for bigger moves in currencies, it could occur in the coming week. The recent decline in Treasury yields put pressure on the dollar but given the lack of market moving U.S. data, the decline has been relatively shallow according to BK Asset Management.

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