Mkts may retrace a bit following global cues

The rally that we saw over the last few days was strong but not conclusive:

No, it is not but we were hoping that at least for the next few days, we would get a little bit more by way of help from global markets which pushes us over the hump of 5,000, which is psychologically important. But it seems now that we'll have to do more work around these levels. We'll probably retrace a little bit and no great damage has been done to be fair to global markets.

The US market has rallied 7% and it has just given up 1-1.5% that much retracemet you would expect, not to get overly pessimistic about the near-term trading trend. But I think that clean run up is not going to happen and it was not expected. So this morning too we will fallen in line, give back a bit of our gains posted over the last few days and then hope that global markets recover over the next few days. But this morning, probably a bit of red once again.

Asian Indices:

It is a bit subdued across the global markets. The Dow was down a 100-points. The Nikkei is down 1.5%. China is down 4%. Taiwan is down 2% and Hang Seng has recovered from the lows of the day but down about 180 points. Kospi is down nearly 1%. Average cuts between 1% and 2% across the Asian screen this morning.  

Has the gloom doom situation abated a bit and people are more or less reconciling to the fact that the US is in a recession or would be into a recession?

Too early to say we have had a nice little pullback in global market and so everybody is breathing a little easier. But I think the jury is still out on whether this will be stable and durable constructive phase for global markets, we don’t know that. We have seen one week of relative strength for global market and so it is entirely possible that after rallying 7% from the lows. The US market gives back 1-2%, consolidates and then tries to move higher which would be a great scenario for all global markets.

It is equally possible that because of the consistently weak economic data, somewhere around these levels the US market find it’s difficult to forge ahead and probably lose most of its gain, which will not be a great scenario for most global markets because that will dent confidence.

These things are very difficult to predict because everyday a new set of data is coming out. The data of the last couple of days has not been encouraging. Day before yesterday’s data was almost uniformly bad. Even yesterday home sales and durable data is not good. On financial markets people have stopped worrying about the bail out of Bear Stearns but there are more down grades happening, Deutsche Bank's warning is not great news. So some of it is priced in but if this data continues to be bad and today there is some data which is coming in, the final GDP data etc. So let’s see over the next few days, one is not convinced that we are atleast in the near-term completely out of woods. The data is not supporting it.

It is also discouraging to see commodities bounce back quite so easily. We thought for the movement commodities rallies over, they pulled back 15-20% but crude has got back to USD 106/bbl, gold has bounced back as well. These are not great potent, so we wait and watch, keep our fingers crossed, and watch for the next few days but I think the answer to whether we can also build on our rally lies squarely with where global markets are headed.

I won’t be presumptuous right now, at best one can hopeful that intermediate bottoms are being tried to put in place by global markets but won’t come to any conclusion just yet.

What does that mean for the current liquidity situation, the risk appetite for various asset classes particularly for our market given that this is the new series is the lightest that we have seen in a year?

Anecdotally, we heard over the last couple of days that some of the funds might have switched a bit of money from commodities to equities, which is why I said that commodity pullbacks are not great news for equity markets once again. But we have seen reasonable foreign insitutional investors (FII Flows) over the last couple of days. Even yesterday provisional figure is nearly a USD 100 million, which is great. It is  very encouraging seeing mutual funds having bought Rs 500 crore of stock after a long time, so may be there is buying which is resumed from the larger institutions and that will certainly hold part of the key if the market has to build on this base.

On the futures market rollovers are not indicating any great convictions so the one way to look at it is that, the next series is only about Rs 29,000 crore OI right now. If after today's rollover you get to Rs 40,000-45,000 crore, which is likely, that would still be a very low point to start the April series, which is typically a big series on account of earnings season. So one could say that the market is under leveraged right now and therefore light, so technical risks are much lower.

On the other hand one could say that there is no momentum or conviction in the market because people are so reluctant to rollover positions to the next series. We are standing on the last day and the Nifty is barely 50% done in terms of rollovers - that’s about the lowest we have seen in a long while. So there is clear lack of conviction among domestic participants in futures and a little bit of buying has resumed from FIIs and Mutual Fund (MF) but we need to wait and watch. Internals are again the same thing like global the scenario, a bit more hopeful but not quite conclusive.   

How do the investors look at the market?

We will be made to do a little bit more work around here because the hope for the market was that we made a clean leap from 4,600 to 4,900 Nifty, so we got a couple of goods days on the Dow under our belt then we could have probably attempt at 5,000+ and may be even stayed above that for a day or two which would have helped confidence quite a bit. But sadly that is not happening. We have had a red tick yesterday. We have got probably a red tick coming up today as well, so around that 4,800 mark we might have to do a little bit more work for a day or two.