CNBC-TV18 managing editor Udayan Mukherjee says that the global scenario which has been stable over the last 24 hours is positive for the market which looked wobbly on Monday. "The cues are not too negative from the US, Asia looks comfortable though the SGX Nifty is just a few points up. The market will probably start the day on a stable note and try and work around the damage over the last few days."
Udayan adds that unless India performs and the rupee turns stable, FIIs will begin to lose interest and there might be some pull-back of investments into India.
Below is the edited transcript of the analysis on CNBC-TV18
Q: Was it the Chinese slowdown that bogged the market and the global economy down?
A: That remains the important factor for the region but I think the US dealt with the sequester problems quite well last time with global markets starting off wobbly and then managing to recover later and that’s not too bad. Global markets are still holding up and are not cracking completely and that’s the silver lining.
The Dow Jones index is not very far from touching its all-time high despite the dismal turn of events over the last few days in Europe and the US. The global markets maintaining stability may have been key in preventing some of the complete risk-off sentiment which otherwise would have prevailed.
But across Asia, the mood is not great because of China. Monday witnessed damage to the Chinese property stocks which remains an overhang in this part of the world. So right now, I guess investors are waiting to see the course of global risk over the next few days.
Q: Regarding liquidity, flows have dwindled to a drop with much churn in the derivatives segment. What is the outlook of the institutional investors in Singapore? Will FIIs withdraw investments or at least put then on hold for India?
A: The India-dedicated funds in Singapore say that they have not received any considerable flows in the last six-to-eight months. Money managers says that this heavy inflow of dollars every month into India is not a function of funds from India-dedicated funds.
I think it is quite clear that the inflows are from global emerging markets which in 2012 upped their weightage on India. The inflows also include a lot of the retail funds via exchange-traded funds (ETFs). Now that puts India in a slightly precarious position because the weightages have gone up quite significantly last year and India has started underperforming most global markets over the last couple of months.
And the rupee has started weakening versus the dollar. So on both counts investors who have upped their weightage on India have started to hurt a bit over the last 60 days. If this continues to be a trend for the next three-to four weeks, investor-patience will run out. Nobody wants to hold on to an underperformer beyond a point so those overweight positions in India might begin to start getting trimmed if the rupee does not turn around dramatically and markets don’t reverse their underperformance over the next two-to-three weeks.
So far, there hasn’t been much selling but it is just a matter of time before some of the global emerging market funds examine their Indian exposure which went up quite dramatically during 2012.
Until India reverses its underperformance, there will probably be some cuts in investment that would result in money flowing out. Though retail investors have been patient, retail investments via ETFs are also beginning to go under water with the way the currency is trading and stocks have moved. All these factors render India slightly vulnerable if the situation does not change for the better in the next three-to-four weeks.
Q: Will the market become quiet after everything it has been through?
A: That is possible. There are some signs of exhaustion on the selling front with the market having spent itself after the February series My best guess is that unless there is a major change in the global markets which is difficult to predict, the markets might just fall or try and establish a bit of a trading range in the near term.
On Monday it fell to about 5,650 and then rebounded a bit from there. I think that could well be the near-term low for the range. On the way up, the level of 5,800 will be probably difficult to take out given the way options are panning out.
So the range should be a 100-150 points for a few days with volumes dropping off. But I think that should not be read as the end of the pain for the market but merely a temporary reprieve in the continuous selling
seen over the last four-to-five weeks. But I think there needs to see be stabilisation in the broader market as well.
Though there is little to suggesting that the a movement that the market might initiate will be a major rally, it would at best a modest pull back with some signs of a range-bound consolidation for a few days. However, there is enough apprehension and fear of the downside resuming once this consolidation phase ends.