Market should be feeling a lot more relaxed today after a Friday pullback. It was a smart pullback both on the index and on the beaten down mid-caps. Things have turned around a little bit. This week is the big one for the market because the eagerly awaited monetary policy is scheduled for tomorrow.
Just the last 10 days of this earning season are left and lots of interesting mid-cap companies will be reporting numbers today. It looks like the market is in for five interesting days of trading, said Udayan Mukherjee, managing editor, CNBC-TV18.
Friday was better than the rest of the week. Our market needed that comeback on Friday because markets were languishing. The Nifty was clearly under threat of breaking below that 6,000 level. Considerable damage had been done on the mid-cap universe. So, it was good to see that bounce back in the market breadth, the advance decline pullback. The Nifty also got back within shouting distance of 6,100 again.
I believe that today we will be knocking on the doors of 6,100 yet again contrary to expectations on last Wednesday-Thursday. So, the global markets have held up remarkably well. The S&P500 is above that crucial 1,500 level. Our market is in a good place this morning. The mood should certainly be better. But we need to see more evidence of a pullback. Friday, should not be just a one-off kind of a pullback on short covering after which the market resumes the mid-cap carnage that it saw last week.
We are into the last 10 days of this earnings season, so this week we will see lot of very important mid-caps reporting their numbers. In any case, this has been a mid-cap kind of market over the last five or six sessions. The focus has been far less on the Nifty than on individual stocks. Crompton Greaves, Lupin, Titan, Tata Global, Jet Airways, Balrampur Chini, and Arvind Mills - the list of very important mid-caps reporting numbers is long. So, one will see a lot of stock-specific action over the next five days.
From a macro perspective surely, the policy tomorrow is going to be important. But the street is far more receptive to the idea of 25 bps than 50 bps as it might have been the case even a couple of weeks back. It may not jar too much if the Reserve Bank of India (RBI) were just to give a 25 bps and sound not too hawkish about prospects going forward from here. If 50 bps come, I think the Nifty will probably take out 6,100. So tomorrow is probably not the policy, which becomes a nonevent though there has been intense speculation about what it will hold. But my guess is the market will do well to go in thinking 25 bps and 50 bps.
In the last couple of days, Wednesday and Thursday the market got pounded quite a bit. People were quite short on individual stocks, so one comeback was always on the cards and Friday often is the day when markets affect this kind of turnaround. So, it was as good a good close 6,075, very close to the recent highs. Today probably there is a case for getting past that 6,100 level once again.
The market is stalling a little bit out there and anyways it has been between that 6,000-6,100 zone. We are still a rangebound market at the level of the index. But it is good that 6,000 have held out despite the mid-cap carnage of last week. I still think it is the broader market, which will determine what market sentiment is like over the next few days. Even if the Nifty goes up 40-50 points from here what one needs to see this week is continuing recovery in many of the beaten mid-caps from last week.
If that happens for a couple of sessions, people will get the sense that there was a storm in the mid-cap space, which has now blown over. Stocks corrected 10-20 percent, but with that a lot of the maybe leverage positions in the market have got flushed away. The market is in a pretty good fettle with lots of flows still coming in. So, one could then enter the budget season with that kind of feeling in the market when the markets are a little bit more or healthier if you will because of some of the traders having got or the lighter hands having got chopped out.
The only worry sign is that in the Nifty Futures segment for two days running ther have been some sell figures. It is not a big number, but on both Thursday and Friday, we have seen numbers of around Rs 300 crore of net selling in the Nifty Futures segment. I hope that is just long unwinding because of the pressures that have come through in the broader market and not some signs of fresh shorting, which have started picking up.
But that’s a segment, which one wants to watch a little closely because that tells what Foreign Institutional Investor (FIIs) feel about the market from a tactical perspective in the near-term. Cash market flows are still coming in, but they have sort of ebbed off a little bit – both the buying from FIIs and the selling from domestic institutions. So, the numbers are lowering in magnitude – Rs 500-600 crore and not Rs 900-1000 crore any longer.
But the key thing, which drove the markets on Friday was a significant amount of short covering on names like JP Associates, Reliance Communications, and Housing Development and Infrastructure (HDIL) – the kind of names, which were getting pounded have sort of come back on a wave of short covering.
Today is a test of whether there is some more covering, which is required or after the covering is done where we see a bit of follow-up buying or follow-through buying, which takes these stocks a bit higher, closer to where they started their correction. Today’s mid-cap closing, the market breadth in the afternoon and how some of these vulnerable stocks do will be very important for determining sentiment for the rest of the week.