Holding firm challenging for mkts now; global cues crucial

USD 135/bbl on crude before you knows, these USD 10/bbl moves are just happening with such ferocity?

Its crazy the way it has moved up but when you see a move like that when crude was moving about a couple of weeks back, it was a nice bull market happening there, so it would go up USD 5/bbl to USD 7/bbl, give back about USD 2/bbl to USD 3/bbl and then go up again USD 5/bbl to USD 7/bbl once again. It was doing pretty much what our stock market was doing for the last 3 years. What it has done in the last 10 days is what our stock market was doing in the last couple of months of 2007.

Its parabolic, its just going up as if there is no tomorrow, its just ignoring everything, so it was like power stocks at the end of 2007-08 and you knew that had to end, it was just a question of when it would end. So now looking at how crude has moved over the last 7-8 days, one is feeling a little bit more comfortable that this rally will end at some point, and this is probably the last stage of this leg of the rally, medium term again probably it will rise, because its hard to build a case against crude. However in the near term it is a blowout situation and maybe the next week, 10 days or the next month, at some point it will run out of steam and you will see a fairly precipitous fall because these kinds of rises always end with a fairly shattering kind of a fall and that’s to take a silver lining out of that grey cloud out there and at some point you will get a sucker for the stock market the way this crude price has been escalating.

Every body is talking about what it will do to our market, its pointless talking about the oil stocks because who cares about HPCL, BPCL and IOC in our markets and what impact does it have in the stock market. They have forgotten their debt, they are absolute dustbin stocks now, so just forget about that. The bigger problem for our market and that’s the thing to focus on squarely is what this crude price is doing because of the lack of a pass through to our fiscal situation and to our current account deficit and that’s the big problem for India as a stock market right now because more and more there is the consensus in the world that in this kind of a global environment, countries with very bad fiscal situations and very large current account deficits are going to be equity markets which will under perform rather than out perform and that is the big fear for us, the macro situation, not what’s going to happen with the oil marketing companies.

From a stock market perspective, we are getting to a point where a lot of even big top down investors into India will take a murky view of what this kind of an oil price is going to do to our fiscal situation and those numbers are quite fearful once you look at it without green eyeshades. 

On Fed minutes:

I don’t think it could have looked worse that report from the Fed. They said pretty much everything, they scaled down GDP forecast, hiked inflation forecast, hiked unemployment expectations and almost said that the Fed is not very keen on cutting rate any more. So from a stock market perspective I don’t think the Fed report could have been any worse, which is why the stock market reacted the way it did.

It is not a good situation and the key thing to watch out now is what happens to the Volatility Index (CBOE VIX) because as I was telling you at the start of the week the big comforting factor for all global market investors have been the cooling down of VIX over the last one month and one and a half month. That is something which really soothes nerves across the Fund management fraternity and sort of facilitates money flow into emerging markets again when the huge level of volatility dies down.

Now crude fell to almost to all time lows and over the last couple of days have started darting up, so from 16 we are back up close to 19. Now have we started a leg up on volatility once again, which takes VIX back to 25-27-30, if the answer to that is yes then you have got problem situation coming up in global markets and this may be the next leg down, which people have been talking about. So just look at that volatility picture very closely, it’s not very comforting.

It is a very uneasy situation and we may still get through with it because global markets have been quite resilient in the last couple of months but what one has seen over the last couple of days, all the indicators which are coming in certainly bound to make people or investors quite uncomfortable.

The other problem we are going to have to deal with is our internals, specifically the kind of money outflows we have got over the past two days?

Yes, not comforting at all, nearly Rs 800 crore of selling in the cash market yesterday and that is a couple of USD 100 million. The FIIs sold quite a bit about Rs 550-600 crore on Nifty futures which is not good and the attendant thing which is happening with this small FII pull outs happening for the last couple of days is that there has been some futures build up in our F&O market, so the market is not terribly light either.

Yesterday too more than 2,000 crore of futures positions got added. I think in stock futures we added about 6 crore shares. At a situation when there is lots of bad news and there are headwinds globally to be more leveraged on the F&O side is not necessarily comforting. I think we are not exactly light, if the global markets were to correct I think the internals over the last few days have shaped in a way where you could shed some weight. It is not like there is no weight to shed on the way down, if the situation turns bad.

Now this is not to paint a dire picture but just to alert people to the fact that you are in a situation that in a technical sense where there is a little bit of selling on the side and futures shorting, which is happening from global guys and on the local front some of the traders, operators have built up positions on the futures side hoping perhaps spurred on by yesterday’s recovery that we will not go down below that 5,000-5,050 mark.

I just hope that things actually turn out that way because if it does not then we could see some unwinding pressures from the futures market as well.