Yesterday’s close was a nothing sort of close?

Yes, I suppose it might just be that way for a week or two because we have had that pullback. That has been good for a few weeks on the trot and nothing wrong with the markets spending some more time in a bit of a trading range before it figures out what to do next and that should not surprise people.

The only thing we should stay away from now is to give back a substantial portion of the gains of the last few weeks and as long as that does not happen because the history of May is not great if you look back over the years. So if you do not go back in a hurry below 5,000 and 4,800 kind of levels, then I think we should be okay as long as we potter around in a bit of a range. That looks like the most obvious and expected scenario but we will keep our fingers crossed. For the day or two I suspect we will have to be resigned to a slightly boring trade.

We have managed to swallow these levels in the past USD 70-90-100/bbl but this is like a system shock across the globe to see the way crude is traded?

What you say is correct that the market just shrugged off crude at USD 100-110-115-120-122/bbl but everybody is wondering make no mistake at what point does everybody wakeup and start sweating about crude because right now we are in a different kind of a situation; the market has been absorbed globally with many other things; recession-no recession, credit crises-no credit crises, write downs-no write downs. So I think the eye has been off crude and stock markets across the world have been surprisingly resilient about the price of crude and it’s almost become fashionable to laugh at crude and say “it doesn’t matter crude can go wherever it wants but it has no correlation with the stock market at all.”

In fact some have even put out reports suggesting that crude and emerging market equity performance will move in the same direction not in opposite direction because of liquidity analyses and stuff like that. So the fashionable trade is to laugh at crude and say, “this is old fogy thinking, you guys worrying yourself silly about crude because that doesn’t matter we just want to feel bearish when we talk about crude.” But the reality is that at some point it will begin if it is not already I think it will impact all financial markets in a way that could be quite dreadful.

I have with me the Goldman Sachs report of March 2005. When this report first came out a lot of people laughed it out. It is a 30th March 2005 report and crude then was at USD 55, and they predicted that there is a super spike period which lies ahead which could drive oil prices up to USD 105. On hindsight they look like seers; the authors of that report because at that point I don’t think anybody would have in their wildest imagination believed that crude would go so effortlessly to USD 105 and beyond that. The same author now says we are now going to USD 200 and who is to say that it doesn’t come right in the next 6-12 months.

Extrapolation admittedly is a dangerous thing to do in the markets as we have found out with many other markets like the rupee-dollar market as we are reading this morning. But even so I don’t know at what point the market just wake-up one morning and say, “enough is enough, we need to take serious note of what’s going on in the crude market and how it will impact companies, economies, inflation, deficits across the world”.

If crude does go to USD 200 we got to pay Rs 100 a litre in our market forget about how much they are paying per gallon in the US. If it’s passed down we are looking at Rs 100 note for a single litre of petrol on our country. Can we absorb that? Can we leave with that? Can stock markets be at all time highs with fuel at that kind of price? I don’t know. So I think at some point one would have to take serious look at what’s going on out there and assess what happens to the fiscal deficit if that is not passed down.

If it is passed down what happens to the economy? What happens to margins of companies? What happens to inflation; we are talking of wheat and rice today what about oil? We have forgotten that because we don’t pass it down. But at some point there is no free lunch somebody has to take a rap. How much can the government can take the rap for crude and absorb it below the line of its fiscal deficit picture and still talk glibly about 2.5% fiscal deficit.

It is a serious issue. I don’t know at what point the financial market will take a look at it but its time people started losing sleep about it.  

We have been oscillating around that 5,200 level for a little bit more?

Right now we are in a beautiful trading range, there is no obvious trigger, crude is not evidently for the market at this point and we are in that zone where we could probably spend some more time in that 5,100-5,200 zone for the Nifty, which is not huge amount of downside and not a huge amount of upside unless global markets do a big tumble and lead you either way upside or on the downside.

Right now we are trapped in a range and we maybe a bit volatile though within that range because if you talk to traders, I think there is a bit of divergence of opinion out there. Some actually believe that the market will sort of consolidate and head back to 5,300 that is the next move and some actually believe that we will have to give up a little bit more ground in the near-term and probably go to 5,000 in the near-term thereabouts. And you are at 5,150 so midpoint of that 5,000-5,300 kind of divergent opinion.

So there could be a bit of swinging around, the moment you approach 5,100 if you do there could be a pullback. If you go to 5,200 people might sell short, you could see a pull down. So I think we might see bit of two-way movement but essentially at least for the next day or two within a 100-150 point range for the Nifty.

On May series:

Tough to call, you do not know what global markets will do and we are now hostage to those movements again. It is difficult to say what is lurking ahead but steady state all things being equal, I think the chances of May being a range bound month seem higher than a big directional move. But that could change tomorrow morning if something goes right or goes wrong in the global space.

I know that does not help much to say that what they do, we will do as well but I think that is the kind of mode that the market is in. There is no fundamental reason for the market to just now either sell off majorly or to go up majorly from these kinds of levels. So I suspect a trading range could be the best case. As they say May is typically a month where you do not want to do much of by way of trading. The old saying is ‘sell in May and go away’ it could even be ‘buy in May and go away’ you could come back and find the market range bound but with a bit of a positive bias, so I suspect it is a bit of a holiday kind of mood building up in the markets right now.