No signs of major reversal or massive sell-off

Asian Indices:

Asia is okay this morning, though the Hang Seng is slipping a bit more into the red now, the Nikkei has been for a while, China is the only market which is standing out but the other markets on an average are holding up losses of just under 1%.

On global markets:

They have been sort of tepid but there has been no major sell off. Yesterday there was the first significant crack or pullback in the US markets and that too because of regulatory action. They are asking for more disclosures out there nothing wrong with that at all. But we saw a little bit of a reversal out there.

I still think crude is a bit of a wild card out there, commodities are not showing any signs of cooling down globally and that remains a bit of an issue and the economic data is a bit mixed. Some data points have been okay, some have not been so okay.

I think the big call for global markets is that whether there is a bit of a correction which is looming there after the recent rally or this will just be a sideways to drifting kind of phase after which the markets will try to edge up once again.

I think people are a little confused on which one it is-whether it is going to be a pullback, some serious give up of the gains posted in the last few weeks or we can just amble along through this period of May and still not get dented too much.

That gray phase of uncertainty that global markets are going through. I still think commodities is a bit of a discomfort factor, which might be the joker in the pack and lead markets down but otherwise I do not think serious cracks have opened up yet, we wait and watch. I think we will all move in a synchronized fashion; give or take a little bit I think, all global equities will probably head northward or southward depending on what the outcome finally is in May but it is just not very clear yet.

We have been range bound not overly nervous like we were in the first few months of this year?

I think to that extent we are not seeing those kinds of huge knee jerk kind of moves. When mood gets little skittish one suddenly see a 500 point sell off in the Sensex. That mood is not there right now because we have come a long way from the lows. I don’t think we are skating on that thin ice just for the moment.

The call for the near-term trader is whether we get away with around 5,100 kind of range on the way down if this is a mild pullback or we get tested to 5,000 and sub-5,000 levels on the Nifty. Don’t know the answer to that but what was going on even a week back was that the breadth was improving quite a bit. So it didn’t matter so much whether the Nifty put on 50-60-70 points everyday, lots of individual stocks have given extremely meaningful pullback from their lows, 25 to 40% pullbacks in many good quality midcaps have happened.

The question going forward is not whether the Nifty can dart to 5,500 immediately but whether this kind of constructive movement for the broader market can continue? Last couple of days the breadth has weakened a bit. So that’s the question for a lot of people whether after this pullback from the lows, the midcaps need to retrace and give back some of their recent gains too or whether they will still hold pretty strong? I don’t know the answer to that and I think the cues still would be quite global.

But just for the near-term, for the Nifty trader I think everybody would be watching the next 100 points on the way down if it drifts down that is 5,100-5,050 and whether we can find support around those levels and not go any further south.       

In the meanwhile the policy fire on commodities remains?

Yes and I think we are making policy mistakes here. Thankfully most of it I don’t think affects the stock market in its current frame of mind in a very big way; steel has already got punished quite a bit in terms of stock prices, what happened with steel yesterday, the bulling of the sector to cut prices not encouraging. But what is even more shocking and that we don’t talk about so much because it doesn’t affect the equity market universe directly is what’s going on in the commodity universe?

I think the government is toying with that nascent segment and it’s a very important market, the commodities market and the kind of moves which have been coming in over the last few weeks and months is so discouraging for somebody who is trying to become a player in the commodities business.

First, the Commodity Transaction Tax, which is extremely retrograde and wrong in my eyes. Rice, wheat futures getting banned because of the knee jerk reaction and then extending that to four more commodities; yesterday soy oil, chana, rubber etc. I think these are all wrong moves. What are you trying to establish by banning futures trade in a particular commodity and what is this hue and cry that prices are going up because of futures trading.

I think it’s an established fact that commodities in India have gone up less than global commodities have. This is a global issue. We heard the Finance Minister on the floor of the Parliament say, “it’s a global commodity issue” and then to go out and ban futures, pointing to that as a culprit for prices going up is just something which defeats commonsense.

My sympathy is for commodities traders suddenly they suddenly wake up one morning and say, “these four commodities will not trade futures from tomorrow.” Imagine what would have happened if suddenly the government or suddenly you woke up in the stock market one morning and say, “today Reliance, Infosys, SBI and Bharti futures will stop trading because their prices have gone up far too soon far too quickly.” That is what is going on in the commodities market, inflation or not.

I think we have got serious policy mistakes that we are making here, all of it might not have material impact on the stock market as such.