No great cues to swing mkts either way

There are no great cues to swing the markets substantially either way today. Crude is pausing at USD 137 per barrel; there is not too much change for the stock markets. The start should be flat.

Another day but no great cues to swing the market either way substantially today, so we will have to look outside of the global cues which are coming in. US markets were very quiet, Asia is very quiet as well, crude is pausing at USD 137 per barrel; so not too much has changed in the landscape as such for the stock market. So let us see what we can do as we head into the expiry for the June series. No overwhelming cues, so the start should be flat but after that let us see if there are any surprises.

Q: And the hope will be that we mitigate or minimize some of the damage we have seen in the past few trading sessions?

A: That is the best that one can hope for, because we are in a weak market -that doesn’t require a rocket scientist to figure that out. So generally the tendency of stock prices is right now to grind lower and lower; at best hold sideways kind of pattern on the good days. But having lost so much ground from that 4,700 attempt all the way down to 4,250, every morning we walk in with the hope that at some point there will be a bit of a pullback because we haven’t even got anything substantial by way of a technical pull back on the way down only weak 50-60-100 points maximum on the Nifty, on the way back.

So may be one of these days as we get closer to the settlement, we will have a bit of a short squeeze in the market, which takes us up 100-150 points - that’s hope, more than conviction speaking. Maybe that could happen but aside of that, I think we are still in a fairly weak kind of a market and all the problems that are surrounding us today which is crude, global equities, flows, inflation - none of them have gone away overnight. So there is no reason as such to be fundamentally very bullish about the market right now but those technical pull backs can come anytime.

Not much is happening across Asia this morning. The Nikkei has got back into the green, Korea is down, Hang Seng is down and Taiwan is down about half a percent apiece. So more red than green and average cuts range between 0.25% and 0.50% so no great depression across Asia but just mildly subdued this morning.

Q: Sounds so scary that these Foreign Institutional Investor (FII) flows have been fought almost dollar for dollar by the Domestic Institutional Investor (DII). How much longer could that last?

A: I think DIIs are coming to the end of their capital support but the FII figure is more than USD 6 billion; USD 6.2 billion for the year. So it blipped up since the end of May but even so, it’s an average of a billion dollars for the first six months of the year that’s been taken out. I do not remember in recent history when we had a situation when in six months we lose USD 6 billion and still there is no sign of recovery with flows on hand.

I think a lot of people are also beginning to talk about the prospect of what happens at the end of the June quarter. I think it’s important or interesting that since May 20, FIIs have sold about USD 3.5 billion. I do not know whether some of this is in preparation of the kind of redemption pressures that hedge funds are expecting once this quarter closes at the end of June because the first week of July they might have to dole out some cash to people who are redeeming from their funds because some of these absolute return funds - what would have hurt them is that month after month they are showing red on the screen. So every first week of the month, their investors call them or send out a letter, “What do you get from India? Sorry; 4% down this month.” Next month "What do you have from India? 5% down this month and the rupee is not helping on margin whatever losses we have in our market the rupee only tops it up.”

So it’s not been a good situation for absolute return funds at all. I think Funds of Funds will also start having problem soon if they are not facing it already in terms of redemptions. So now first week of July assumes some importance on how much cash will be taken out from the hedge fund fraternity.

The only silver lining - not insurance because most of their money probably is been deployed already and the big hope now is USD 5 billion-odd which is lying with cash for the mutual funds. Talking to Mr. Madhusudan Kela of Reliance Capital Asset Management who is still running USD 1.5 billion - when I spoke to him, he had USD 1.5 billion of cash on his equity portfolio and he said, “You put a gun to my head and I will tell you that at 4000 Nifty, I will drop that USD 1.5 billion into the market. We are not very far away from there; 4,200-4,000 is 4-5% here or there.”

So I am hoping that he actually meant it and if the market were to lose a bit more then that kind of money will come into the market to support it. So let’s see; it’s an interesting situation of how much money needs to go out at the start of July versus how much can come in if the market losses a bit more from the cash which is lying with mutual funds.