Indian mkts may ride on good cues from Asia

Q: Yesterday we did a lot of (pullback) on our own steam as well?

A: We seem to be in the midst of nice little relief rally; it looks good when this relief rally happens because the attendant short covering, and oversold stocks when they bounce back - they give an impression that all is well with the market once again.

Not quite sure that is the case. But in the near-term the kind of pullback that everybody was expecting and talking about seems to be fructifying finally. So the target was set at about 4,750; we are 100 points away from there. We may easily take another small step towards it this morning - who knows how the second half will pan out. But so far so good for the Nifty and it seems like it will continue the upward journey just yet. We will watch at higher levels if we get pass 4,700 whether the bears are coming back into play or whether the bulls are getting cautious and taking their profits. It would be interesting to see how both the bulls and the bears position themselves if the Nifty is above 4,700 and from thereon.     

Asia started weak on the back of the US cues but they have all rebounded and the biggest rebound is happening in the weakest market of them all, which is China. China sold off yesterday, it sold down 2% this morning for starters and is now up 2.7%, so that is looking good. Hang Seng bounced about 170 points, Korea is up half a percent, Japanese market is up half a percent all leading to hopes that we will also strike out a positive opening which should take us closer to that 4,700 mark.  

Q: What about the Nifty itself, the action is slowly gravitating towards 4,600 now? Can we move higher?

A: We did cross 4,600 quite decisively yesterday - 4,650. So now we are getting to 4,700 and more than 4,700. The only thing is that as we were discussing yesterday there is quite a bit of consensus around that 4,700-4,750 kind of levels. So every trader has got his eye at 4,750, around that I think one will see quite a bit of action happening in the market.

When there is so much consensus about a trading level I do not know one of two things look likely either we will not get to 4,750-but that looks a little unlikely because we are going to start the day probably close to 4,700 already and we are almost there-so if that does not hold then the other option is whether we stop at 4,750 or overshoot it. I think that is quite a possibility if in the next few days global markets are supportive and crude continue to be slightly on the southward side. One could see this rally extend that is certainly a possibility because if everybody is drawing the line at 4,700-4,750 then who knows can the Nifty surprise go to 4,800-4,900 in this run and just clean up some more of the shorts? It is quite possible.

One should keep his eyes open for any kind of surprise on the way up, it is still looking very much like a relief pullback from oversold ground. But as we have seen in the past in the last pullback as well, wherever people draw the first line of resistance on the way up, sometimes the market pierces those levels and go up to slightly higher levels even if they have to correct after that they do go and surprise a bit on the way up. So I think the extent of short covering might still continue and one may get to higher levels. But let us take it one step at a time. As we started by saying, let us get to 4,700-4,750 first and then see whether the bulls are stronger or the bears are at that point.

Q: How much are we leaning towards or against the global cues right now?

A: We are not exactly following what the world is doing everyday. I think to that extent, the correlation is a little weak, yesterday we pretty much did our own thing and if we just look at the last 7-8-10 days, yes in the morning there is some impact but India is actually moving in a slightly different fashion. The big sell-off which happened a fortnight back - we underperform most global markets quite substantially. Last week in our bounce back we did better than most other Asian markets, so there is a loose correlation over a period of time but I think that day-to-day correlation has been snapped a little bit.

Having said that I think the Federal Open Market Committee (FOMC) meeting will assume some importance, I frankly think with the kind of economic data which is coming in, all the talk of an interest rate hike at this point is quite wishful. You saw the numbers which came in yesterday industrial production weak, housing starts at 17-years low, the only thing was that the Producer Price Index (PPI) number was a bit higher but it would be a big surprise for the market if indeed the Fed were to do anything on the rate hike front that is just not going to happen so soon. So if that does not happen could there be a bit of a relief, I suspect that might but I don’t think global markets beyond a point are swinging us too much. The big market all of us are watching every morning is clearly the crude market that needs to cool down, not to USD 130/bbl or USD132/bbl or USD 129/bbl, I think we need to see USD 110/bbl kind of levels. 

Q: In the near-term it will be relief to see a green tick against the FII number and for individual stocks it seems activity is still quite high?

A: I think traders are still trading with a positive bias. The volumes may not be great but you saw in the last hour the way open interest built up in RPL, RNRL, Ispat, NTPC and that’s being happening for the last few days. You are almost getting the sense that trades believe that there is a little bit more upside to play in the near-term and they want to play that. More than the Nifty futures discount which has become very volatile, the stock futures is suggesting that traders are still trading with a bit of an upward bias in the market.

It was good to see a little small green tick from the FIIs, also good to see that they bought about Rs 600-700 crore in the Nifty futures suggesting that the short covering process is on and that’s what you need to pin your hopes on. There are still quite a bit of shorts in the market- the first port of call for those shorts, some have been covered but if the market can keep its head above 4,700 today, I suspect you will see more by way of short covering.

If we cross that hump or stay around that hump my guess is that the short covering rally could actually catch on and take the Nifty to levels slightly higher than what we most traders are predicting at this point in time. But for that the bulls will try and will have to keep the market going above 4,700-4,750 to give people the feeling that this pullback rally is not fizzling out just yet.