Mkts to grind in a bit of a range today

Asian Indices:

Asia is not looking particularly strong this morning; the Hang Seng is down nearly 400 points, Japan is down 200 points, China which started up is down 2%, Korea is down 1.2%. So most markets were in the green and they have all tumbled into the red these are not very good cues for us this morning.    

Any takeaways though from a week like this one?

 No, none. It is quiet inconclusive now, it is that kind of gray zone where you do not have a trend and you do not have conviction. Traders will not have conviction either on going long or on going short knowing that they can reasonably play surely for 150-200 points on the Nifty. So that is where we are stuck right now.

Even the guys who believe that the market might ease off a little bit are not quite convinced after what they have seen in the last few weeks that the market will go to 5,000, break 5,000 and seek lower levels. So they may think one way but I suspect they will not act with great conviction on the way down because of what has gone on over the last few weeks.

Equally on the way up I think having retraced-can the trader save his great conviction that of course I have got a dip, I will go out and buy now at 5,050 and ride the market back to 5,300 or 5,400. I think that conviction is also lacking, so we are in a gray kind of zone right now perhaps a reason why volumes have tapered off quite a bit in the last couple of days because there is just no conviction even from a trading perspective, leave alone an investment perspective.

It is not helping that global markets also have become very tepid over the last few days. You would note that those days of coming in the morning and seeing 2%-3% moves either way those are gone. Right now everything seems to be a slightly more stable keel. I suspect the call on the Nifty would have to be that we will spend the day unless there is any great surprise from inflation between that 5,000-5,100 mark, that 100 points range in the Nifty should hold for the day, closer to 5,000 if it gets there because of the early morning weakness you could see the shorts covering up or some initiation of longs but I think around 5,100 people will not have that conviction. So we may just be a bit volatile within a 100-point range on the Nifty today.

On internals:

What is discomforting is what is going on with the global flows. We just got the sense a couple of weeks back that FIIs might just be feeling a bit more relaxed about emerging markets in India  but yesterday’s provisional figures are quite disturbing . Nearly Rs 1.200 crore of Nifty Futures selling, Rs 700 crore of provisional cash market selling,  so forget the options but even those together account for half a billion dollars of Nifty Futures and cash market selling. That is quite a lot in the cash market selling which is Rs 45,000-50,000 crore of trade everyday.

One may not want to draw inferences from one day’s numbers but if we tie it over with what is going on with the rupee over the last couple of days and maybe there is a bit of niggling scare going there. Although I am not suggesting that because there is 4% depreciation or a sharp depreciation all FIIs are deserting India that is far from it but on the margin some players tend to get skittish because the depreciation is very sharp, 4% just a few days from 40 to around 41.70. So 4% knocked off the portfolio because of the currency with other rupee experts now extrapolating that trend to 43, in a  market which is not been generating quite a bit of return over the last few weeks or year-to-date  is something which is making few of the global investors nervous. I hope that is not the case but we will wait and watch because it seems too much of a coincidence that quite a bit of money went out, shorting happened around the time when the rupee depreciated quite a bit.

That is one internal that we need to monitor a bit too closely because the market as someone mentioned is shallow now and in a shallow market we don’t want to see a sudden reversal of flows at all.

When the mood is not quite intact is there damage that a bad inflation number can do?

It has to be really bad for that. It would have to be more than 8% for that and between 7.5-7.7%; the market is quite neutral to those kinds of numbers. I doubt whether the market will fall off because of inflation if it’s in the broad 7-8% zone because that’s pretty much expected in the price.

The two wildcard on inflation; I think now the cry for an oil price hike is getting louder and louder – I know its pre-election year and its very sensitive and there is inflation but no strange things happened USD 124-125/bbl who knows if the envelope might be pushed a bit on retail price hike at the retail level which is crazy for inflation. The other thing is its not cooling.

In the first week of April you heard a lot of people saying, “It’s bad.” But in another two-three weeks once the government fiscal steps comes into play, then in two-three weeks by the second-third week of April inflation will come off a bit. We heard the politicians saying, “In four weeks inflation will cool off, let the steps taken by the government take their weave into the system.” Six weeks have past; we are in the second week of May and if anything inflation has only ticked up not suggesting it will be this high forever but its not easing off and by this time seasonally one tends to see a bit of down tick in inflation which has not happened this time around. So who knows despite protestation from the government maybe this time is a more sticky variety.

Keep fingers crossed; this remains a big issue for the market though the market is dealing with it for the moment very well but if it persists for another four weeks and you get ten weeks of more than 7% inflation on the trot who knows a penny might drop.