What a flat day it was yesterday. The Nifty did nothing and closed around 5900. It is a week where most global markets are shut across Asia, so generally the volumes are quite low. We may see another day here of very low volumes and the market grinding in a bit of a rage. Today we have Index of Industrial Production (IIP) and a string of important results to focus on.
There is nothing by way of momentum. Even flows seem to be dwindling off a little bit, volumes certainly were on the lower side yesterday. So, it is one of those phases in the market where the pre-Budget mood has not built-up adequately, so we are not in the phase where a pre-Budget rally is underway or anything like that.
Globally, markets are also pausing and taking stock of how much they have come up during the course of the year already. So, it is a wait and watch kind of phase in the market. Ofcourse there is stock specific action, because of results which continue to be coming in, but otherwise it is a market which has sapped off energy.
The big question is whether we will get off with a shallow correction which is around where we are now, 5850-5900. Or will we have a deeper correction through this February before any kind of a pre-Budget mood builds up.
I don't think the IIP figures are very important today because earlier the rational was that a weak IIP would mean that the Reserve Bank of India (RBI) will cut rates. However, having heard what the RBI had to say last time around and the fact that there is a Budget coming up in a couple of weeks, so the next meeting will focus much more on the Union Budget rather than any small changes in the IIP numbers.
From an RBI policy perspective, this IIP number has very little significance. The numbers maybe slightly better than the previous month's reading at 1-1.5 percent. However, its nothing to blow the lights out. All of us know how difficult things are on the ground with the investment cycle. So, a good number will not convince the street. A bad number will not tell the street anything that it does not know. Most importantly, I don't think the RBI will take away anything much from it. In any case, even after the RBI delivering both repo and cash reserve ratio (CRR) cuts, the Nifty has come off 200 points over the last couple of weeks, so I don't think the market is treating that as a major trigger anyway.
The market has slipped lower from its trading range. That much is visible from the price action of the last couple of days. Is it a breakdown? It looks like one. Whether it is a breakdown which will result in a massive sell off before the Budget or not, that is unclear because the Budget is still looming ahead and before that, things may suddenly turnaround. So, whether we are in for a big sell off in the market below the 5900 levels is something that one cannot say with any degree of certainty.
However, I think we have slipped down from that narrow trading range that the market was holding in. The immediate journey for the Nifty is a little unclear because sometimes, you will have these breakdowns, then you will get a pull back. That pull back gets sold into and the market eventually drifts lower – that is one pattern. Or, as is evident, the market is very tired. It may just continue to lose 20-30 points everyday and head towards 5750-5800 kind of levels that people have been talking about. So, I have no insight in the near term into what the market will do. However, it seems like it has slipped out of its trading range.
Now whether a pre-Budget rally can materialise or not, is something that one should not write off completely. Clearly, right now the mood is not for one. So, maybe the market in its wisdom is saying, 'okay, we have soaked in some information about the Budget, but right now, we want to just pause and consolidate here. If the Budget is great, then there will always be time to move up after that reaction but not in anticipation.'
That's the way the mood is stacked up right now. It could change in the next week or 10 days as we have seen with so many pre Budget phases in the past.