Inflation, IIP to keep mkts on toes

We have done our flip-flop through the week, but this is probably the day the market’s been most edgy about?

It is and yesterday was a bit disappointing the way we re-traced that 4800 mark on the Nifty, and we were discussing yesterday this range now which has got crunched down to 4650 to 4800, and we are bang in the middle of this range. It is 50% away from 4650 and 50% away from 4800, stuck right in that middle of that trading range, and there is a high probability today that depending on how the Macro numbers come in, you could move sharply to one end of the range and even break above or below that level.

None of us can predict what that macro numbers would be, I am no economist and economists themselves haven’t done a great job of predicting these numbers over the last many weeks, so we are all waiting for the data. If inflation and IIP numbers are good then there is a very good chance shored up by global sentiment that the Nifty at least in the near term, makes that journey to 4800 and tries to close above that. If the inflation and the IIP data is not good, the market is sulk once again, there is an equal chance that we go back to 4650 and maybe drift down below that level as well. So pivotal event at least in the near term and for the day, we are in the middle of the range, I suspect we will make to either at either end of the range and maybe even go above and below that today but yesterday’s closing just proved once again that the market’s not ready for a major up move because the mood in the morning should have been pretty good yesterday, but that was not enough for the market to get above 4800 and close above that. So today we have triggers and we will find out one hour in into trade which way the triggers are going to lead us today.

We sort of made that psychological journey to 7% last week but how much importance does all this data pointers have this week inflation, IIP, all of it?

I think 7 is the critical number for both those sets of data Inflation and IIP. Anything sub-7 soothes the nerves on inflation, anything sub-7 on IIP makes you worry quite a bit. So I think different answers for those two but 7 I think is the Plimsoll line for both those sets of data.

What is going on with inflation is that every week we get a shocker and we readjust our expectations to that shocking benchmark. 6% shocked us couple of weeks back, 7% shocked us last week so now we are saying okay inflation maybe 7%. Nobody has the foggiest clue what the inflation number would be, neither any economist. I have seen those polls somebody saying 6.2, somebody 7.8. They have no idea what the inflation number is going to be because if they did then they would have been within a mile of predicting it over the last couple of weeks, which they have not.

What will the market sulk at? - I think if you get to 7% plus that psychological number, I think that will be an area of discomfort for the market. Even if you get a little bit below 7 today, even if it is 6.75-6.8 at least there will be a feeling-it maybe a transient feeling-that maybe we have peaked somewhere at 7% and it is beginning to ease off a little bit. So what if it had not eased too much.

I think these are all psychological things and anything 6-point something probably just takes a sting of that 7% number a little bit. On IIP the numbers will almost certainly be better than the January shocker of 5.3%. We are expecting somewhere in the region of 7.5%. That is the broad ballpark expectation for IIP for February. If we get 7.5% at least psychologically the market will say, “oh no, okay we are not in that 5% zone so we have improved a little bit over last month and it is not too bad”.

I still think that 7.5% is not a great IIP number, March to January is 8.7 so if you come in at 7.5 the rate of change is still on the way down and you are still sleeping albeit a little bit more slowly than you did in January. So 7.5 is not the stuff that you should be rejoicing about, it will make you feel good though because it comes after 5.3 in January. So hopefully it will be 7.5. Aanything sub-7 I think will the market will be quite worried so if we get 6.5-6.8 on IIP I think that will make the markets quite uncomfortable as well but both those sets of data are important. They are unpredictable and I think they will probably be the reasons for the market moving today in either direction.