Mkts may be less exuberant today

The US markets is collapsing, Dow and S&P are breaking down, which is not comforting. We can not ignore these global cues. Our markets have witnessed a little bit of disconnect with the global markets. It is possible that we start soft today and see a less exuberant day.

One positive takeaway is that not a lot of other markets are crumbling the way the US market did:

Its true but I do not think the market will completely ignore the US market. What we have seen for the last few sessions is a little bit of disconnect going on with global markets, and decoupling is a very strong word to use but we are not doing the same thing as Asian markets are doing on a particular day or not doing the same thing as the US market is doing on a particular day.

So given the context of yesterdays move and sentiment having improved a bit its possible that we may start soft and just give back a bit and then probably try and claw back in latter half of the day that possible but I still think it remains at the back of mind, the fact that the Dow is breaking down and the way it is going the levels of 10,000 are just looming large and the S&P the way its broken down is not comforting.

At some point we cannot ignore the US market completely all together and the more that market falls, I think risk aversion also tends to heighten. It’s a headwind; let’s not wish it away, so maybe today is a less exuberance day than what we saw yesterday for our market.   

Asian Indices:

The US had a really bad session overnight but Asia has not quite picked it up as you can see the Nikkei is actually in the green, Korea is flat, Taiwan is up in the green. So this is not what you usually see after a 200-point plus sell-off on the Dow, the Straits Times Index is down about 1% but the Hang Seng has cut most of its losses and China too is not down too much. So this is not a sell-off across Asia after what’s happened overnight.

How is the global market situation looking today?

Not good though of course Asia has not fallen too much and that’s the good bit so I do not think we should follow the US and standalone in the Asian pack maybe we get insulated; we had gone up quite a bit yesterday so give back a bit, just amble around in the morning and then try and pullback once again later in the day.

But I think the speed at which the US market is falling is not comforting at all because (a) psychologically ithas a huge impact on all other markets (b) it sort of mixes up the picture for the risk aversion because all that we are hoping right now is - at some point Foreign Institutional Investor (FII) flows will start resuming once again. But if the US keeps tumbling like it is doing everyday, I think risk aversion will still remain extremely high in the global system and one will not see any kind of meaningful flows coming in.

I think the US cannot be wished away; on a day or two we might snap that connection and say, “today we don’t do too badly.” but if the Dow starts trading at 10,000 something and the S&P plunges to 1,200 or below, I think we got problem on our hands. The thing is that things are not improving in the US; one is seeing more and more earnings downgrades, financial sector problems very high so that remains a serious headwind for us.

But more important global cue clearly has to be crude for us, the fact that that’s not gone back to USD 140 after it threatening to do that yesterday is a bit of a comfort for us. So between the two we will take crude softening more than the US markets coming off. So if crude remains in sub USD 140 for a bit, I think at least the market will try and hold out around 4,000 Nifty for the moment. 

Where from here?

Today I think we might give up a little bit of gains, we went up to 4,150 thereabouts yesterday, maybe we give back a little bit and softened down a little bit. But I think at some point of the day the market will try and claw back today because yesterday we had a rally generally the market mood seems to be sort of tilted towards a little bit more of a pullback rally.

Just today’s US market pullback may not be able to dent us back significantly, if over the next few days there is continued global weakness or crude goes up a little bit then you might have a little bit of a problem on our hands but otherwise we still probably will try and hold a range for a day or two and see how bad the global weakness is. If it is not too bad then we may actually come up again but the other point is that this market has gone up on the back of a bit of a short covering. I think the environmental factors need to support us to get us back to 4,350-4,400 on the Nifty. We do not need bad news at this point in time. If the news flow continues to be bad then I suspect that the kind of rally that we are thinking about may actually not materialize and we might get disappointed. But if however this turns out to be not such a bad patch for the global markets and the Dow just managed to hold out 11,000 for the moment then I think we do not write off the possibility of that yet.

I think the environmental factors are very important right now for a market, which is just about beginning a nascent pullback rally.