Mar 04, 2013 10:50 PM IST | Source: CNBC-TV18

Global cues negative, stay cautious: Udayan

The Budget is done and dusted, and 48 hours later we‘re back to tackling global markets, which don't look too great, says Udayan Mukherjee, Managing Editor, CNBC-TV18.

The Budget is done and dusted, and 48 hours later we’re back to tracking global markets which don’t look too great, says Udayan Mukherjee, Managing Editor, CNBC TV-18. 

While US markets closed in the green, Asian markets are not looking good, with China being the worst hit. First, the Chinese property market curbed sentiment, which was followed by Chinese Purchasing Managers’ Index (PMI) data, which was quite shocking and soured mood.

What has to be kept in mind is that the US market closed before the decision taken by Obama to impose spending cuts of USD 85 billion over the next few months, which will slow growth in the US, was announced. So, we should not be lulled into complacency that the US market has discounted what has happened on Saturday.

Let us see how US and the Europe open up today. But for this morning, Asian market cues are not very supportive for our market opening. So, as of now, it’s better to take a cautious stand till we rediscover momentum. 

There are more spending cuts stacked up over the next few years. So, US is not looking in great shape, and how Europe opens this afternoon will be quite critical to watch. In Europe, things are not looking good because of the new allegations in Italy about Silvio Berlusconi, suggesting that he was part of a scam.I think that has generally set back expectations of forming some kind of a coalition government. The Italian market reacted quite a bit on Friday, with European markets remaining volatile and edgy.

So, it is a combination of sentiment in the US, Europe and China which is leading to the lull that we are seeing across global markets. Now, with the Budget is out of the way, these factors assume importance. They will probably decide what March turns out like, after what has been a very pedestrian February series for us.

The way the market reacted to the clarifications which came in on the FII or DTAA front makes you feel that maybe things are not on the right track, because we just about made a little bit of headway, and there was marginal short covering.

Also, it was disheartening that a lot of the shorts which have got piled up over the last few days leading up to the Budget from the FIIs did not get covered up. So, while we did get a little bit of money in the cash market, it was not a huge amount. The short covering on the Nifty futures has still not started, which tells you that many of these global traders believe that in the near term, we may not have exhausted the downside for our market.

I think the wind is not blowing in a great fashion for global markets as we enter March. Things could turn around but for now, it would be prudent to stay with a cautious view on the market till we rediscover some momentum on the way up, and that’s not visible as we start this week at all.

I heard a lot of people of on Thursday suggesting that a sell off was only on account of the DTAA problem. If that was the case, then the Nifty should have been up 100 points on Friday, but it was up only 20-odd points. I think, right now, the Budget’s out of the way, the market has fallen into some kind of a grove. Now, what that grove is, is difficult to determine because on the way up, if there is a pull back, I think 5800-5900 - these kinds of levels will become challenging to cross.

Part of the stock-specific short covering happened on Friday. There might well be more left in the system, but to trigger off that short covering, you need a good global construct. I am not sure that we have that in place this morning.

So, it does not appear that the downtrend which started and accelerated towards the end of last week is over, and 5700 ballpark is the floor that the Nifty is finding. So, it’s a trading call now on whether the Nifty is headed towards 5600 or 5500. But it would not be surprising if this downtrend carried us even lower over the course of the next few days.


There could be pull backs, as every downtrend is punctuated by some, and we did not get a big one on Friday. For some reason, if the global markets do strengthen, you will perhaps get that pullback to 5800 kind of levels. But I think the higher odds right now; the risk-reward from a trading perspective probably is still stacked against the market.


I think the finance minister’s clarifications were digested by the market, and will probably not be such a big factor this week. On the day of the Budget, it created some confusion. I think in the morning after the Budget, people came around to believing that it will get sorted out, which happened in the middle of the day.


Even then, the market did not make much headway. So I think the poison with regard to the DTAA clarification is probably out of the system, but I doubt very much if that means that the markets are on their way to somewhere special.


This is because two things remain unresolved.


Over the weekend, bulk diesel prices, petrol prices have gone up again. Generally, people believe that fuel price hikes will continue and that puts policy in a goodish light for India. But that’s not the problem. The problem is people are now fretting about this kind of growth numbers on India are coming in. What ramifications it has on earnings, the cyclical stocks on which there was a lot of hope at the start of the year and whether they will not perform in such a weak macro backdrop.


All this, compounded by the fact that global headwinds after a long time are beginning to mount from Europe, from the US and Asian shores, notably China. So I think these are the most important things to focus on now and are probably robbing the market of energy.


Flows have weakened, macro headwinds have started piling up here and global macro has also started looking a little dodgy after a clean run for the last five-six months. So I think the market’s problems are more to do with these factors rather than a DTAA clarification which may have impacted the market for 48 hours


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