The cues from the global markets are pretty flattish; not terrible. We lost around 6% last week in our markets; we have been one of the worst performing markets among global peers. We are saddled with problems - the mood is not great, the capital flows are not supportive. The markets may not see a major comeback; they may not play for a major rebound.

Our markets:

Last week was a bad one for our markets; we lost 6% on the index, this morning we come in with not so terrible cues, the US economic data was bad, but the markets did not sell off there, so flat kind of cues from the global markets, so lets see whether we can recover after the whipping that we got last week.

It is official kick off of the earnings season; can we play for some green this week?

We play for it every week but sadly the markets don’t oblige us, we lost 6% last week that’s quite a big cut given that most global markets around us did pretty okay, so we must have been one of the worst performing markets in the world and to that extent, maybe there is a little bit of a rebound maybe a 1%-2% kind of a rebound which is possible.

These days it’s difficult to predict because we seem to be saddled with problems of our own. The mood is not great, flows are not very supportive at this point as you can see and we are entering earnings season as you said, so I don’t know whether we can play for major upsides or anything like that. At best, a technical rebound because we fell so much last week and then we sort of pause and wait for earnings and inflation data to come in, so maybe a bit of a rebound but no great shakes I imagine.

Asian Indices:

Asia is not doing too badly generally has opened up the week pretty okay, the Nikkei is up 1%, China is rebounding; it fell 11% last week and is rebounded 3% this morning so that’s a good news so other markets are holding 0.5-1% gain.

There are many other markets which are in the red but the big markets, the major markets seem to have opened up in the green some of them are just a bit in the red.

Though we are not very close to those Jan lows, is it taking off in different tangents what’s happening across global markets or is it still a very cohesive move for all of them?

 The way I see it is that it could have been worse if global markets were weak as well. we have fallen pretty much on our own strength or weakness over these last week, fortnight and so if global markets were also falling, I think we would have fallen much more so that is a bit of saving grace.

If one looks at any market, they have been okay. The Friday figures for the US market were not good, the non-farm payrolls at minus 80,000, unemployment data not looking good and yet the S&P did not fall at all. So I think they are showing signs of near-term bottoming out their in the US, all other markets did pretty okay with the exception of China which is down 11% and us.

Hang Seng was up nearly 5%, Brazil went up 6-7%, so things were okay for other global markets around us and that is one good thing because generally emerging markets as a class are not drifting down, so I am hoping that at some point people will say India has an inflation problem and we don’t know what Reserve Bank of India will do but we are generally in a recovering emerging market equity scenario and in that scenario India has got punished enough and  even if it does not rise too much it should not fall too much because other markets around are rising because at the end of the day we are part of a basket.

We have already under performed other emerging markets quite significantly this year but if the two continue to move in opposite directions like last week then at some point there would be some reconvergence again because these huge divergences don’t last beyond a point.

So the hope now has changed quite a bit, one month back we were all worrying about the global scenario and how much they would lead us down but right now that seems to be the only positive straw floating out there, the fact that the US has stopped falling, emerging markets are not falling too much and may be if this continues for a bit longer we can expect a little bit of a pull up effect in our markets as well. But these things all change very quickly, so we are just talking for the day and maybe for next few days. The brighter side of the picture is that the global markets are looking quite resilient.

How large does inflation still loom though, has the market come around to the fact that it’s a big problem or does it keep hitting sentiment each time?

It’s the biggest problem for our markets. If one goes back one year and see what was going on in the early part of 2007, I think everybody stopped thinking about or fearing anything else other than interest rate hikes. So from the stock market point of view the big problem was that interest rates were rising there and the market just refused to perform. I think we have come back to that situation again.

One month back we were worrying about the US housing problem and how much UBS was writing off but right now we are just worried about every Friday and what kind of inflation figure will come out and more importantly how long this problem will persist. I think everybody is extremely worried about what the Reserve Bank of India will do? It may have bought some time with the action of Friday but I think some action is expected at the end of this month.

The optimists are saying it may just be CRR, the hawks are saying maybe there will be overt rate hike on the 30th Aril. So one doesn’t know there the things will land up and if we indeed rate signals were to go up by the end of this month, it will be a terrible signal for the equity markets and there is no getting away from it.

Right now I think inflation, the kind of policy action which has already happened to control it, the fear of more policy action etc is the central problem on the markets back and in this kind of scenario where one knows that the next two-four weeks at least one will have to deal with that negative figure which is coming in every Friday. I doubt how we can strike out big out performance from here. At best we will be running hard to stay where we are. Small, modest pullback rallies when we get oversold those things will happen but to get out of the woods unless this big problem gets taken off or back seems like a bit of a struggle.        

Is that the way one should approach the market for the next few days or weeks?

Liquidity is a bit of problem right now and if the market needs to perform against sentiment like this it needs some dollops of liquidity. The last few days the Foreign Institutional Investors (FII) figures have not been very strong and on Friday they sold apparently 800-850 crore in the cash market and the figure day before was USD 130 million and that in a market of 40,000 crore trade is not insignificant. I think right now FII figures have trebled the impact of what they were doing, 2-3 months back when volumes where much higher and so one needs to understand that USD 200 million now probably has the impact of half million dollars either side buy or sell.

The tragedy is that insurance companies or the Domestic Institutional Investors (DDIs) have put in quite a bit of money in the last one month which is almost a USD 1 billion of cash but that has just come and gone, it was the best month from their perspective and that entire USD 1 billion has got absorbed by the market perhaps because of FII selling too, to neutralize it and the market has gone nowhere.

If one looks at the internals of the futures market, the put-call ratio has come back to about 1.12, there is typically where it does not bottom out if indeed the market is slipping. Our experiences over the last few weeks tell us that on the way up it goes up ot 1.25, on the way down it bottoms out closer to 0.8 and so one hopes that we haven’t started a process of retracement which will take the put call ratio back down to that level after the fall on Friday.

The signals are mixed, liquidity support is not there and which is why maybe 4,650 which is where we closed on Friday, one could get small bounces up to 4,700-4,750 but the bears are stronger now with the data which is coming in and  they would be looking to short those  kind of up moves. The way 4,800 calls have been written at, tells one that traders do not believe in the near-term given all the data which is coming in that the Nifty will be able to get back above 4,800 quite easily and so that probably remains the roof on our head from a trading perspective.

Hopefully we will not go back to the January lows in a hurry. We remain in a tight range maybe with a bit of drifting bias after the initial bounce happens.