Feb 18, 2013 08:30 AM IST | Source: CNBC-TV18

Budget expectations, liquidity keep market afloat: Udayan

The market has a terrible day yesterday. Just when the market looked like it was creeping back a little bit with two days of upmove, it got hammered once again.

The market performed terribly yesterday. Just when the market looked like it was creeping back a little bit with two days of upmove, it got hammered once again. The Nifty does not do justice to the kind of hammering that we saw on the broader market yesterday. There was complete carnage going on in the last one hour of trade. It was a terrible day from the earnings calendar as well. Now, all that has been behind us. Let's see, with not too many earnings today, whether the market can attempt a little bit of a recovery and close on a respectable note for the week.

The day was quite terrible for the midcaps, but the afternoon was especially bad. There was an element of breakdown in the market. Whether that means in the near-term we have probably got oversold is yet to be seen, because the way some of the non-index stocks were falling off in infrastructure, real estate like Adani Group, ADAG Group. There was almost a cathartic kind of purging going on in the market.

Sometimes, when there is a sell off of that magnitude, markets often attempt technical bounces. The market did get a little oversold yesterday just in the near-term. However, it looked quite horrific. It just reinforced that the market's short-term trend is probably still on the way down. The closing below 5900 does not board very well.

The screen is looking quite shaky. There is no other way to describe it. For the last few days, it has been that way. I don't know whether the Budget will revive sentiment and before it, the market will not correct too much but looking at the earnings, the macro data and also how the screen has looked over the last two weeks, one can't but get a pretty bad feeling at the pit of the stomach. The only thing which is holding the market up, is expectation of that event which lies ahead of it. That and ofcourse flows and global trends which still haven't still looked quite strong. So, liquidity and expectation is probably keeping the market afloat, else it may have corrected more significantly for the largecaps.

The market getting hit on a broader basis is disturbing, but now, the way the non-index market has started crumbling, it is reaching alarming proportions. Also, it is disturbing that the Nifty attempts on a rally. These small rallies keep pulling it back closer to 5900. It is almost like 8-10 stocks are being moved to create the impression that the market is still at a healthy level and it has not broken down. I don't know what exactly is going on, but yesterday, I was a bit disappointed that the market did not respond to the inflation number at all.

It is usually not a great sign when a market starts ignoring good news which comes in and the inflation data was good news unequivocally. It was a number which was much lower than what the street was expecting. The reaction lasted five minutes and then it fizzled out as if it never happened. Also, to just tie that in with the way the market has moved after the last Reserve Bank policy, it has come off 200-250 points. So, I don’t know whether it is market’s way of saying that one or two more rate cuts are not going to fix this problem or the fundamental problem that we are evading through and therefore, we don’t find reason to rejoice on the inflation number.

That was a disappointing metric and the way the market moved yesterday. Just in the near-term, because yesterday's sell off was quite severe, this morning, everybody will be bearish saying market has broken now, let's go and short it. It is possible that one doesn't get an intraday kind of a spike. That's usually a bounce from an oversold level. I don't know whether it lasts because the recent evidence of this kind of a bounce back has not been great. Two small rallies, two small up moves and then the third day the market got hammered once again. So, we are in a shaky market. Keep your mind open for a small pull back possibility because of the oversold nature from yesterday.

However, I think the chances now or the risks of a breakdown are increasing with every passing day. A break down has happened in the broader market already, but even for the Nifty, if flows are not going to pick up at the pace at which they have been for the last six weeks then I think even the Nifty has a good chance of breaking down particularly because some of the Nifty components have also started disappointing big time on earnings.

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