Jul 24, 2013 08:34 AM IST | Source: CNBC-TV18

Gold import curb to lift rupee; Nifty to see 6100: Udayan

Global liquidity and the mood leading up to expiry could probably strike out a few more points on the Nifty, said CNBC-TV18's managing editor, Udayan Mukherjee.

There are chances that positivity in global markets could push our market closer to 6,100 levels because otherwise the micros and macros are not too many reasons for the market to move higher. However, global liquidity and the mood leading up to expiry could probably strike out a few more points on the Nifty, said CNBC-TV18's managing editor, Udayan Mukherjee.

On Monday, both Larsen and Toubro and Asian Paints numbers dissappointed. So, earnings disappointments have started kicking in for us, but the global peace seems to be in one place; the US had been quiet but Aisan  markets were looking good today morning, he added.

The gold import tightening measures by RBI should have some kind of a sentiment lift this morning.

Also read: Gold regains some luster, but can it keep shining?

Below is the verbatim transcript of his market commentary

Broader market

Our market has been drifting for the last few days but this morning Asia seems to be in a good place. So, I am just wondering whether it is a case of whether some of the emerging markets believe at this point that they could strike out a bit more of a trading move having consolidated in the last few days. Some of Asian markets have opened up well and that is reason why the SGX is up this morning

It seems like a little bit of an emerging market push that we could be playing for otherwise there is not a whole lot to recommend the market at this point in time.

The earnings downgrades have started for the season so when you look at the micro and the macro there are not too many reasons for the market to move higher but because of global liquidity and the mood leading up to expiry we could probably strike out a few more points on the Nifty.

On gold import announcements by the Reserve Bank of India (RBI)

Potentially, they are powerful moves but one will just have to wait and see how this plays out because there will be some more fine print which will follow. We could be looking at cutting down our gold imports bill by something close to USD 20 billion for this year. That would be a fairly powerful move if that were to happen.

That means good things for the rupee, which should have some kind of a sentiment lift this morning. It means bad things obviously for many of the jewellery companies like Titan Industries etc. I am not even mentioning Gitanjali Gems because they have been bashed out of shape. However, reasons for Titan to move up in any significant fashion are getting robbed every month. So this remains in a difficult trajectory.

The bigger takeaway of course is the macro. Of course there could be a lot of gold which comes in through unofficial channels because to expect that 900 tonnes of gold consumption will suddenly drop to 300 tonnes in the course of a year seems like a bit of a stretch to me but it could be the start of a potentially significant recalibration of our gold consumption and has very positive ramifications for current account deficit (CAD) and therefore the rupee this morning.

Will this move of tightening gold imports help  CAD situation

Government does not have a lot to play with. The other moves that you are mentioning which is augmenting exports, manufacturing etc that is a much more difficult switch to turn on by the government. Not that it is trying very hard to do that but even if it tried the mood in industry is such at this point that those kind of fixes will take time and the government does not have time at this juncture.

If we wait for three more months the rupee could be at 63 before some of those measures start kicking in.

So, although these measures are restrictive, they will probably find some kind of opposition from a lot of consumers of gold. It is an unpopular decision for Indians too. However, hard times warrant hard measures, so there is some fundamental logic to what the government is trying to do. It is true that the measures are restrictive and we will have to see whether through the cracks a lot of stuff comes in and they do not achieve this kind of objective that they are starting to work with.

However, even if you save 300-400 tonnes of gold import this year that is a big starting point in bridging some of the CAD hole. I can't say that I argue with what the government is trying to do, whether they will be successful or not we will find out.

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On Nifty

It is a strange kind of market where the underlying fundamentals are quite weak, we have already started seeing the earnings start to rollover yesterday, and I guess you will see a lot more negative surprises in coming weeks. The broader market has also been languishing for the last few days. So, it is a very narrow market which continues to inch higher and that is because of a general expectation that may be about a couple of weeks back this wave of correction in emerging markets entered some kind of a phase of respite and that phase has not ended out yet.

One can see that some of the Asian markets which too also don't have great fundamentals at this point, they have started to do quite well. This rebound trade or tactical trade can carry on for a bit longer. I think the first haul is about 6100, where people will just take stock of the situation again. However, it could extend to 6,200 plus kind of levels too which we are not very far away from. 150 points is not a big deal for the index to cover especially with the expiry, which tends to do strange things to our stock prices.

It is a narrow market, it is a reprieve trade that we are all witnessing out here aided in part by a little bit of repair work, which has happened towards the currency strengthening not that the currency has gone away from 60 by a long shot but some repair work is happening there. That also is giving the stock market a little bit more comfort that 60 will not be taken out in the near term.

With those constructs in place; a little bit more ease on the rupee because of the RBIs aggression of late and a little bit of tailwind from other emerging markets which are still playing that respite trade, the Nifty is also trying to claw higher in a very narrow fashion without market breadth and support of fundamentals micro or macro.

Therefore, it is a strange kind of market. One thinks that the market probably is getting a bit ahead of itself but it may just well go on to do that over the next few sessions.

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