Can positive global cues counter CRR hike setback?

Last week was a strong rally:

Yes it looked like we are in the midst of a fairly strong relief rally. But I don’t know how long it will last and to what extent it will carry us. But for the moment the screen is strong and its being looking strong not just yesterday or last trading day, but for a last couple of weeks aided on by what’s going on globally.

The global tidings are good all markets seem to be in the midst of April or summer rally. The durability is not known but the direction clearly is up and despite the cash reserve ratio (CRR) blip which came in which might restrain some segments of the market. I still think the market is not looking terribly weak. Any reaction on CRR might be a temporary knee-jerk at best. But earnings have been okay so far there is a global pull up and I think people are feeling a little bit better about the market right now specially looking at how much strength we have seen globally.

So things look okay as we go into this week of course earnings to a large part might determine the extent of the upmove and global markets. But I don’t think as it looked on Friday after the CRR move that the markets might sulk a whole lot, this morning I think the markets are breathing a little bit more easy.    

Asian Indices:

Asia is having a good this morning because of the US rally most markets are up and are up pretty well. Japanese markets up 1.5%, Korea is up nearly or more than 1.5%, China was up quite a bit in the morning and has given up quite a bit of it’s gains it was up 6% in the morning now is up less than 2%, Hang Seng is up 2.5%, Straits Times 2%. So good gains across Asia some of them have just come off a little bit from their highs.  

How is life after the CRR Hike? Is the market still waiting for the policy?

I think it would but the bond market reaction is not very big knee jerk. So I think the stock market will probably take a leaf out of it, its 8.12 the yield and if you asked people on Friday or Thursday, then they would have told u 8.25 and then we will see but its not gone there at all.

My sense is that the stock market reaction will be at best muted, it may not be a big reaction at all because we had 3 days to digest it, think about it and toss it over in our minds, if so, its not coming in the morning and reacting to a CRR hike to that extent I think time would have healed a bit of the sting of the CRR move. It was a long weekend and a lot of opinion has also been expressed about whether there will be another move on the 29  th or not. For the moment, the markets will probably say we were expecting it in any case, so its happened, should we react meagerly, maybe not lets move on, the hopeful scenario as we have been discussing is that this is it and we don’t see any other policy action on the April 29 . If that were to come through I think there is a case for the market to move up rather than move down because its an event risk which was there and instead of it lingering and festering till April 29, its out of the way so the market will probably discount it.

One can see that now a days the market’s mood is that if bad news is delivered, the markets actually rally rather than go down, so it tells you something about how the markets are feeling, the mood is changed a bit so you get bad news in the markets, they say its okay, its out of the way and lets move ahead, that’s pretty much how its happening with global earnings as well. I think there is a good chance that the market continues, there might be a small blip here or there on early openings, but there is a good chance that the market actually moves ahead, and moves higher despite the CRR hike.

The only one concern is that there is still a lingering feeling in the market there might be a repo move on the April 29 and everything that you are seeing across around the world right now, is not helping the inflation case. One might take the view that there will be no other policy action on the April 29 but then you find crude at an all time high, corn and rice have gone and hit new highs and the last couple of days, so the global inflation picture and particularly fueled by commodity prices is still looking quite dim and bleak and in that backdrop, you will keep wondering whether the Reserve Bank of India (RBI), will have more of those commodity pressures on their mind rather than what the stock or the bond market will react like. I still keep fingers crossed on the inflation front, but the market might take a more relief kind of a view this morning.

As we have been discussing through last week, it has been constant to calm for the whole global situation actually?

That is the best thing. Last twenty days we have been talking about the prospect of an April rally in global markets, it has been a stop-start it has not been a clean rally. So you have tended to go up and then give back a bit and then go back again but I think the Dow’s close above 12.600-12,700 is quite convincing, it might even technically be called a breakout that is what I hear and the S&P is back to 1,390, which is an important level as well.

Global markets are looking very good over the last many weeks. When the situation is such or the backdrop is such that all markets are tending to move up and are discounting bad news and moving higher then it is not impossible but unlikely that Indian market will continue to drift down.

We may not outperform in a big way though we have underperformed over the last three months but it is unlikely if all other markets go up we will fall though China has done that but that is the best thing which is going for us. The fact that we are finding confidence from all other markets which seem to be moving against bad news and moving higher and backdrop actually puts us in a very good situation. This is a relief rally, which is on, and it seems like if the global markets are more supportive from here we may even edge higher.

How is our market being looking and what do we play for then over the next few days?

There ha being some liquidity support as well. The last provisional figure from FIIs is about more than Rs 600 crore and they bought nearly Rs 3,000 crore on the futures market split between futures options etc. But that’s a fairly handy number between cash and futures and you can understand why the market did so well last week.

I think the mood is improved a bit people over. Last couple of weeks has refound some bit of confidence. Everybody is not just watching behind his back or over his shoulder to see whether 4,500 and is breaking or not. Now I think we have drifted quite a bit away from that mark and more people are asking the 5,000 and 5,100 question rather than the 4,500 question.

Traders are bit more confident. It is how much leg this rally has because we are just coming out of a fairly bearish quarter in the market. The first signs of a fair amount of optimism are visible on the screen. So whether it rallied stops at 5,100 or 5,300 or 5,500 is difficult to say. Conditions -there are headwinds in terms of earnings, macros, global worries, inflation all of them are still around.

It’s not like fundamentally everything is gone all the problems which are taking in the market. But markets seldom move in a single line, as they have tended to do over the last three-months we haven’t had any meaningful rally. So probably after three-months of despair this is the first attempt at an upmove and it certainly looks like it has more legs left. I am no chartist so I don’t know whether it will top out 200 or 400 or 600-points from here but would be very surprised if we don’t some more upside in the near-term.