Mkts getting into a rut; could have a flattish session

The markets have got into a bit of a sticky situation this week. The first couple of days have not been good and today it is just completely flat globally.

So once again the onus is on us to make something of it. Asia is mixed and flat, US hasn’t given us great cues this morning. So nothing major to switch us or tip us either way. But this week has not begun on a good note and it has been grinding down and now we are sub 4,900.

On the mood in the market:
 
The market is getting into a rut again. Ever since 5000 went, the market is grinding down and it looked like it was quite inevitable the kind of newsflow which was coming in for the last few weeks.  The hope was that in settlement week, maybe there would be a bit of short covering, the market was showing a bit of resilience, so we would keep our head above 5000.

But a lot of things have conspired together to weaken the market technically as well. So at best we will probably have flattish sessions. We have fallen for the last couple of days. So a mild bounceback can be attempted but it doesn’t look like it is going to be a ra-ra session for the market. Globally too, things are not looking great.

So we could probably have a couple of sticky sessions and then take it from there. But the markets might weaken technically after the break of 5000, and you can see it in the mood and the kind of internals which are coming in, that shorts are opening up once again with more confidence.
 
On Asian indices:

Not much to take out of Asia this morning. It is pretty flat. Some are down and some are up. The Nikkei is down a bit, Korea is down a bit, Taiwan is up a bit, Hang Seng is down a bit now and China is quite flat. So no great cues, all markets are in a bit of a state of limbo.

On the global market situation:

It has been a rough fortnight for global markets, and it is not very comforting to see the Dow once again at 12,500. We thought we might have buried that level, got over that thump of 12,600-12,700 and rallied onto more than 13,000. But in very quick time we have got back to 12,500 on the Dow.

It is hard to say what the breakdown for the Dow means, if it can be called that, but the news that is coming in from the US is still quite sticky. The Case-Shiller Index continues to plunge every month. There is still no sign of bottoming out there. Consumer confidence at 16-year lows is not very comforting. Crude has cooled down but it is like a drop in the ocean, USD 135-129/bbl is not exactly completely broken down. So we are still not out of the woods with the crude situation.

So at best we might have some amount of a pause after the recent retracement in global markets. But the feeling is we have come to the end of this summer once again where questions are being asked and we don’t know.

So even if global markets remain flat over the next few days, it could be good news for us because there is every chance that they may give up more of their recent rally. That’s what it has been indicating over the last few days.

On government cess on direct taxes and political situation:
 
If a cess does come about on direct taxes, the market might not take it very well, because the government is toying with many options barring the ones which are the obvious ones and which need to be taken, which are not politically acceptable. But if they put another cess on the back of corporate India – and corporate India was crying for a cut in the surcharge in the Budget which never came about – it will hurt profitability. In the Budget the only good thing that perhaps stood out was that there was more money in the hands of people, the income tax payers. Now if you put a cess, you take away a bit of it.

That might affect sentiment broadly for the markets more than the actual hit even if there is a 3%-4% cess. You do back of the envelope calculations, 3% cess on direct taxes which is corporate tax and individual income taxes it would be about Rs 10,000 crore and you are talking about Rs 2 lakh crore of underrecoveries for the oil companies what is 10,000 crore here and there. So you will not get much but you will affect sentiment. It is almost like the tinkering which the government did with STT, it did not get them a lot of money but it soured sentiment quite a bit.

So it is probably not a great move, it is actually quite regressive if you think about it. But the political situation is such that the government may not be able to do much.
 
Last week it was quite surprising to see the Petroleum Minister come in and speak about a Rs 10 and Rs 5 hike. They had just lost a Karnataka election and the government is in probably the worst kind of wicket, politically speaking, as it has been in the last five years with so many state election losses. In this kind of a backdrop for them to go out and do something which is not politically or which is not pro-masses, would be very difficult.
 
So it is hard to say whether people should be betting on any oil price hike leave alone major oil price hikes. It maybe on the back of the corporate and the individual taxpayer once again, which could be one more negative for the market.