It was a disappointing day fore the markets yesterday; they gave up their gains during the course of the day. Today, the markets might experience a lingering disappointment. The global cues are bad, the latest IIP numbers don’t look good. It looks as if we may soon retest the 4800 levels again. There is no bullish sentiment at the moment.

Where might we go today after all that?

Lingering disappointment this morning once again. We gave up all those gains quite so easily yesterday. This morning again the global cues are bad, I think the IIP numbers blaring on the front pages of the papers this morning will not help sentiment. We are pretty much stuck in that trading range now hopefully with not great downside because this morning it looks like we are going back to revisit if not break 4,800 again. I do not think traders will be very encouraged or enthusiastic or bullish about trade this morning. We may not lose too much by the end of the day have to see that but at least for starters I do not think we have got great bullish sentiment here.

Asian Indices:

It’s quite dismal across Asia. Cuts are getting bigger 600 points down on the Hang Seng now, Shanghai is down 2%, Nikkei is down 2.5%, Straits Times getting there about 2%, average cuts of 2% in the region diametrically opposite of what was happening yesterday, so the mood is bad again.

Short doses of help externally but otherwise the markets don’t seem to be picking up?

That’s the operative word, short doses, global screen is not looking convincing at all, and this is what you don’t like to see or do not expect to see if you are a bullish kind of an investor or a trader. Markets grinding down, small euphoric rallies because of news flow, which get sold into quickly and the market turn-tail extremely quickly. This is the worse thing that you can expect, because these are classic downtrend kind of signals that the global markets are showing in.

The global economic problems are over analyzed now and many experts have spoken about it but if you just look at the global screen, you are not getting that comforting feeling that they have consolidated at a particular level. On the contrary what you are seeing is very sharp downsides open up, 20% markets go down very quickly, then some bit of news comes in, which leads to a very sharp recovery 3%-4% in two days and then that gets sold into.

These are classic downtrend signals and you need to get out of this kind of a situation. The volatility needs to subside, which is not subsiding. We are seeing small recoveries and then sharper falls which mean that the downtrend is probably not over, so whatever news flow is coming in from the west, one is still not getting that comforting feeling at the pit of your stomach that global markets are ready to get out of the woods. It may still happen but it’s not happened yet and that is why confidence is not building at all, people are just over analyzing the global problematic data and finding reasons to be out of the market or sell the market down, because nothing that the global screen is flashing for the last many days regardless of the rally that you saw in the last 2 days is smacking of any kind of confidence which is built yet.

It’s also all-over the place in terms of the money interest?

It is and there is a clear lack of leadership out here. This market is not going to get out of the woods because you see short covering for a couple of days because we have had a big fall in the market. You need a sustained dose of buying to take the market out of the woods. So it’s one thing to be excited about two technical levels and say 4,600-support, 5,000-resistance again support, resistance that’s one thing that’s a trading view. But markets don’t get out of the woods so easily because of small doses of short covering. It can lead you up a little bit as you have seen yesterday and the last few days. But then it needs sustained cash to prop up stock prices. You also need leadership in that cash, not just opportunistic buying, which buys Rs 200 crore of stocks when the market goes to 4,600. The moment it gets to 5,000, you take your hands off the table and say in the prices are not good enough.

That’s typically how mutual fund kind of investor seems to be buying because they are not price setters they are not leaders. They don’t put a large dollop of money and say okay here is the money; I am in the market to buy stock. That’s typically how FIIs buy and there is no FII buying which is happening in the system, which is why there is no momentum, which is getting created and which is why at every higher level we are literally struggling to find momentum; it’s like every step you climb it gets more difficult to get oxygen and that’s what’s going on because the only set of buyers who buy aggressively are staying out of the market.

The other set is a following set, which is the traders and ofcourse they don’t have sentiment right now to go out and create any momentum. You can see how skittish momentum is become even on a day like yesterday, which is just two days into the rally you lost 1.5 crore shares if you take REC out and in stock futures.

Even the trader is saying I get one day of an upmove and I am happy to take and cut my stock futures positions and run because I don’t know whether this will last. That’s the problem with a market we have got acute problem of liquidity leadership out here, which is why upmoves are not lasting at all. Look at these yesterday FIIs covered up Rs 1,400 crore of their Nifty futures short positions. That is the extent of the covering and we ended the day at 4,870. So this is quite dismal whatever little shorts were there in the system from the institutional side they have all got covered up or in the process of getting up but the markets hardly made any headway even after that bout of short covering.

I think that’s quite disappointing what happened yesterday the fact that you saw almost USD 350 million of short covering from the FIIs yet the market was just not been able to make any headway after that.           

To be fair these capital goods numbers have been the biggest variable in the past but how does the market deal with the IIP numbers now as a data quirk or will there be an overhang in the system for a while?

I think there will be an overhang much that everybody would agree that the capital goods number seems to be an aberration. I seriously doubt weather capital goods are growing at 2% right now but this is a market where the psychology has turned completely, it’s a market, which wants to wallow in bad news. So every morning you wake up and because people are bearish or cynical about the markets, they love to see bad news and every time there is any kind of bad news they love to factor that into the stock prices that’s the frame the market is in and in that kind of the mind frame you are getting bad news from the IIP numbers.

Four months back if this kind of numbers had come in November or December people would have just taken one hour to discount this news and move on, they’ll say 2% capital goods not happening, not possible it’s a one month aberration and next month IIP will bounce back and would have had many reasons for the markets to climb back up after their initial set back. But in this kind of a mind frame 5% kind of industrial number does not sit well, in any case I don’t think it’s a good idea to ignore those numbers completely. Capital goods might be an aberration but there are other pockets in those numbers, which don’t look very comforting and the big question one needs to ask their self now is whether industrial production and economic activity slowing down at a rate which is unexpectedly higher, which is at a rate which is higher than what the market that it is pricing in and that certainly remains a risk which you cannot wish away.

But bad news is what the market loves at this point, so no, I doubt whether the market will discount and move on quite so easily.

What is the best or worst-case scenario to work with now for someone who is tracking the Nifty?

I think mood would be set back a little bit again. One-to-one correlations with global markets need not be made but even so I suspect that the Nifty gets back to 4,800 and sub 4,800 this morning again and that will come as a set back. You just were coming out of the woods, you have got a bounce from 4,650-4,620 and then you went up to 4,900-5,000 and so quickly you will get back to sub 4,800 levels which is a level which the bullish traders would love to see the Nifty trading above.

I do not know whether at lower levels again some people might have got short in the market at more than 5,000 plus levels and if today we go below 4,800 which looks likely some of the shorts may cover up because they would also not want to stick their necks out and carry profits home. So we might get little bit of a short covering bounce from there again profit preservation no more. So we will limber on and I do not think we have got a firm trend in place and if there is one trend, which traders are trading now, I suspect that they would look southwards rather than northwards because the formations are not great. We are giving up these gains far too easily for the comfort of bulls.