Does it still look like a take each day as it comes for the global scenario or does the past week look like a bit of a silver bullet at least for the US markets?

It does; the US has done well. From the lows we have rallied about 5-6% and it’s been one of the better performing markets in the world; the US over the last week or so. The trillion dollar question with everybody is trying to grapple with is whether the Fed action of the last one week has given the market some confidence and is trying to put some amount of intermediate bottom in place. I don’t know whether it will hold or not, but the evidence of the last few days of trading in the US suggests that maybe the Fed action could have lent enough confidence to the market to for the moment put an intermediate bottom in place.

We will know with time whether there is more bad economic news not necessarily financial market news which comes in and engulfs or swallows this intermediate rally and we go down once again or this turns out to be little bit more durable of a pullback and things don’t go back to the January lows in a hurry.

The jury is out on that but for the moment one would have to say that policy action, some of the data points, some of the salvage operations of the last one week seemed to have lend some support to the global market and if the US market manages to strike out a bit over the next few days without any big shocks of 300-point down days and this is optimistic thinking right now because we don’t know whether that will happen there is a still lot of economic data to come, then it is conceivable that in the near-term global market stage some kind of an intermediate rally.

Maybe we speak too soon because we tend to get excited every time; there is a small 4-5% move up in global markets and then some bad news comes in and off goes the rally and we go to the lows where we came from, that is a possibility too. But right now if we ask traders and probably global traders and they will tell you that they are feeling little bit more optimistic just about the near-term and then they will take it as it comes over the next few weeks.          

4,500-4,600 that’s where action seems to have gotten squeezed into, but what’s the best-case scenario to work with for someone who is trading the Nifty?

It’s still going to be tough but I suspect in the near-term you would think that the Nifty will move up a little bit. It seems not to have broken that zone of sub 4,500 quite so easily. We have comeback to 4,600 plus last time too we made an attempt to get back to those 4,800 levels that’s your first port of call for the trader. I think the second port of call would be 5000-Nifty which we went a few weeks back and retraced very sharply from.

It all depends on how the world is moving now. We are completely coupled, so I don’t think that’s a very good idea to take a call on the Indian Nifty, pending what is going on in the global market.

I suspect will move with everybody else and if global markets are supportive in the near-term and there is truly an intermediate global pullback rally then it’s conceivable that the Nifty gets back first to 4,800 and if it manages to get past that maybe even to 5,000. But it’s one-day at a time it depends almost entirely on what the global situation is. So traders will also take it  one step at a time.

But for the moment I think there is a little bit of confidence for the near-term trader, shorts possibly have been covered up and now you will probably see some long positions with the expectation of 4,800 being breached by the Nifty, which would be the near-term trading call.

Is that the problem that’s making the midcap struggle so much or is still waves of capitulation happening in that universe?

There is some capitulation, which is visible over the last couple of days particularly in the trading end of the market but one doesn’t know what to make of it. If you are pessimistic about the market you will say that portfolios are doing badly and market cannot move up with such poor breadth, or the optimists would say that we had exactly the same situation post May 2006, where the Sensex would keep moving up because 5 stocks moved up or 4 stocks moved up but individual portfolios failed to reflect it for a very long time and through out that entire post May 2006 phase Mutual Fund portfolios continued to under perform the Sensex or Nifty and at the end of it we came out of the woods post that May 2006 situation.

It took many months for midcaps and retail confidence to come back but it did after 4-5-6 months. Could it happen this way that we have started the process of the largecaps bottoming out and then over a period of months confidence will build and midcaps will slowly catch up, so portfolios were languish and under perform for a while but they will eventually catch up. That will not be a bad scenario because I think a lot of base case scenario constructed on the market, right now are fairly bearish from here. So if you tell people that I’ll give you Sensex upsides of a little bit over the next 6 months and after that midcap slowly start catching up but overall for the market there is not too much of a downside, I think most people would take it with both hands.

Lets’ hope and keep our fingers crossed that the reconstruction period of largecaps have started and midcaps will eventually follow because that’s the pattern, which played out post May 2006 but it’s all too premature to come to these kind of conclusions right now it’s only two days into the largecap revival. May be we are jumping to conclusions. It’s still a long summer ahead and it’s only the first glimmer of hope in the last few days, which may or may not hold.