Mkts to see clearer picture by next weekend

On our markets:

It is the last trading day of the week and the first trading day of the May series; April is history and it’s not been a cruel April. We have gone up on the Nifty; we have gone up quite a bit on midcaps and smallcaps in the last series. What will this series be like? There are so many trigger; more earnings, lots of policy statements, lots of global cues stacked up in the May series and today we have got quite a few earnings and the inflation number to watch as well. So let’s see whether we can keep our head above 5,000 on the Nifty.

Do we step in with hope or caution or both?

I suppose a bit of both, I think by the end of next week we will have a clearer picture because by Friday I think you will know pretty much everything. The policy triggers would have played out but most of the important numbers on which you can take a reasonable call on earning season will also be out. So I think by next Friday this time we will probably have a fairer picture of what the May series could look like.

Triggers could take us both ways so we would step in with some hope because April has been a constructive series. We hope that the Nifty can continue its journey above 5,000 but keep fingers crossed because traders seem to be a bit unsure and as you saw yesterday about life above 5,000. A bit confusing but just for another week and we have seen one full quarter of uncertainty I think we can bear another week of it.

Asian Indices

Asia is having a bit of mixed kind of day. Nikkei is strong, Korea is strong as well and couple of markets like Hang Seng in the red, China is flat. So no overwhelming cues from the Asian markets.

We have closed the April series okay, how does May open up?

With a bit of hope but loaded with triggers once again as we were discussing, so you don’t know where we will go and in the near-erm, it looks like the market’s dithering a little bit, it wants to spend a bit of time, next 4-5 sessions before it takes out 5,100. Now the trading call is that whether we stop here around 5000 or 5100 or we go up to 5400-5500, that decision people do not want to take with conviction till they hear out all the triggers of next week.

May could be an interesting series from the market but what I suspect will happen in the month of May is that, we will remain quite stock specific. The lesson from April is quite clear, and at least for the near term, pending fresh  bad news, the markets seems to have stabilized in a bit of a range and the action is shifted to midcaps and small caps which got butchered in the fall earlier, so people have started saying,” the market is not falling, has stopped falling, so let me go out and look  at the stocks which are down 60% to 70%, from their peaks”, many good stocks are still available at those kinds of valuations and those have been traded up. That might well be the case in May, if there is no great  breakout.

We keep talking about trading and even if the Nifty stays in the broad range on say on Panic, 4,500 on the way down and on great optimism the way up say 5,400 on the Nifty, even if you say in 4500 to 5400, the better opportunities might still be in specific stocks outside the index. So may be May turns out to be another month like that. Nobody seems to be in a great hurry in this market, catch it now else suddenly 25% up and the stock is gone, I don’t think its that kind of a market. People have time and patience now, its best to see what’s going to happen in the next 7 days which is not a very long time and then take a call for the May series, right now if you stick your neck out and take a big directional bet, the triggers which lie ahead from the next week from a policy perspective or even from an earnings perspective might just wrong foot you.

I suspect given the expectation is that the Nifty will to and fro in a range, they are better off waiting and taking at least a trading call for the series by next Friday.  

Today is inflation day as well; the last time we shrugged it off?

I think everybody knows more than 7% is coming once again and that’s the expectation. So it would need something to surprise the market and I don’t think it will be 10-20 bps here or there. If it’s a bit lower than last week sentimentally it might be construed as a positive okay, two week on the trot inflation has eased a bit but the expectation is today might be closer to 7.25-7.3%; it might edge a bit. Will that lead to a sell off? I doubt it very much.

The room for surprise is more than 7.5%; the market might worry a bit because you have got a snap back in inflation. To surprise it on the positive side it needs to be psychologically below the 7% mark and if it’s even 6.95 or something like but none of us know what the inflation beast is all about? It could be 6%, it could be 7%. So we all are throwing darts in the dark. It would need a six point something number to surprise it on the way up. It would need more than 7.5% to spook the market. But I suspect the market now expects high inflation and will deal with it.

The big inflation related trigger is next week when the Reserve Bank of India speaks. That one cannot predict, so wait and see. If this week’s inflation number is not good and is more than 7% then people will worry once again on what Dr. YV Reddy will say next week.