Mkts may see small trading upmove

Over the weekend have we only carried over all the concerns of last week?

Yes, things are not getting better. I think one would need to be a real optimist to think that the markets would suddenly give you a great bounce from here. At best, technicals could come in to play, the possibility of those short covering bounces always remain in a market, which is heavily short but that aside the environment is just not improving. Crude remains at all time highs, global markets remain extremely sticky out there, we have got our political problems which are coming to the fore again and fundamental news flow is not great once again.

So yes, we have fallen quite a lot; do parts of the market look oversold, they do. But still you are not getting sense at the pit of your stomach that this market is going to do anything great in the near-term. At best those short covering rallies, which keep coming from time to time but we still remain in a weak and in a fairly distressing kind of a market situation.

Asian Indices: 

Asia is very quite this morning. It started in the green then went into the red but the cuts are not big China is down 1.2% but the other markets are just about flat, Hang Seng is barely down 12-points, Korea is down fifth of a percent, Taiwan is down fifth of a percent and Nikkei is just about in the green but no great cues from there they are just subdued and very quite today.

The problem is with the big macros the global situation and crude; last week was almost an amplified version of all these concerns?

Crude particular because crude has become such a big poster thing for the market right now, so like in the bull market every morning people use to watch for the Foreign Institutional Investor (FII) number was- right now everybody is watching what is crude is doing and crude may still be within the range of what we have seen in the recent past USD 140-141/bbl. But the fact that it spent such a lot of time in USD 132-138/bbl zone and has made a move higher than that range; I think is distressing a lot of people in the equity market because it could have worked out both ways.

After than consolidation phase crude could have broken down indicating that that was a distribution phase rather now on hindsight it looks like it was just building a base in that USD 132-138/bbl zone and is probably taking off from there. So that the very disturbing thought for equity markets across the world as they go into trade this week that crude probably is moving to a higher platform.

Even globally things are not looking great from here; the Dow breaking down to 11,300 and the fundamental news flow which is coming from that market. I was reading the S&P Q2 earnings expected to drop more than 11% and that’s a disturbing statistics. I think the market’s focus is now shifted from those macroeconomic numbers to the earnings numbers and back to the financial sector once again and there is probably is a bit of a selling which is happening from disappointed investors in the western markets as well.

So yes, they have fallen quickly to 11,300; could they give little bit of a bounce sometime in the near future it’s possible not inconceivable but we are living with bad cues from the global markets now and the fact that Volatility Index (VIX) has gone back to almost 24 from its low of around 16-17 is also quite disturbing because now its threatening to get back to get back to those 30 plus zone once again.

Does the political situation weigh a bit heavier on us or are we a bit immune after all this bad news?

If indeed in the next ten-days or couple of weeks it support is really withdrawn from the government. My sense is that you will probably see one knee jerk and that might be a very good trigger for the market to form some kind of a panic bottom because when one thinks about it, it is not such a bad situation and if indeed there is some resolution to this lingering political uncertainty, whichever way. I think after the initial knee jerk, my guess is that the market wills say, “Okay we have got an end to this lingering uncertainty. We will have elections sooner than expected by the end of 2008 and be done with it.”

I think it’s actually a good kind of solution or resolution for the market if indeed we have elections by the end of this year or maybe by January latest, inflation all things being equal will probably cool down a little bit. Coinciding with that if we have a post election scenario and if it is not the dire scenario, which we all know which it is and is one of the two main combinations, I think the market is pretty neutral between the two combinations and therefore it will say certainty on politics plus our big inflation off our back it’s time for the markets to bottom out and move forward from there.

I think the markets will probably like it in a perverse way if indeed elections happen sooner because it will just be preponing that long stretch out of the agony that one is expecting if it does not happen anytime soon. This Government has not exactly reaped great bounty or sunshine on this markets or the economy so it’s not like the markets will sulk very much saying- oh our dream team is going away if it does after the elections and therefore we need to be very worried about it. I think the markets quite neutral. Any stable coalition which comes on in the Centre is fine as long as the event is out of the way.