Over the last few days, expectations of global growth have started to pick up, feels Udayan Mukherjee, managing editor, CNBC-TV18. According to him, although European investors have been cautious, US and Japanese investors have been more exposed to equities.
“We are seeing this very powerful risk-on in global markets. As long as that continues, equities should be okay,” he added. Meanwhile, he sees the Nifty hitting new highs of 6,150-6200 going ahead.
Below is the verbatim transcript of Udayan Mukherjee’s view on CNBC-TV18
FIIs on India
Over the last few days one can sense that expectations of global growth have started picking up. Earlier, there was a lot of apprehension but the cloud seems to have lifted a little bit.
He further says, the American investment houses have actually been deploying capital because from where they come, there has been much more confidence. The US and Japanese investors probably have been more exposed to equities over the last few months but European investors have been very cagey and cautious.
Since in the last few days, European markets have done quite well and given the US data, there is a little more confidence in the air. So, one is seeing a bit of risk-on that is throwing more money to work even in emerging markets (EMs) and that is the genesis of what is going on right now.
Even last month, the fear was that some of the data points that were coming from the US led people to believe that growth is falling off. However, in the last 10 days expectations of growth have been rekindled. Therefore we are seeing this very powerful risk-on in global markets. So, as long as that continues, equities should be okay.
A lot of people may have been left out from this rally in a sense and they have been disbelievers but some money incrementally on the margins is beginning to get to work in markets.
On India specifically, the kind of refrain that I keep hearing from most of these people is that a little bit of what has happened in the last few days in terms of the new money that we are getting is performance chasing.
According to a fund manager at 5,500 things were not looking great for India and it was leading to a vicious kind of mood spiral of its own. However, now with the markets having bounced back 10 percent over the last 15 odd days, more people are looking at India closely because the pullback has been as sharp as the fall had been.
People are a little baffled at these very sharp swings or mood swings in the market. Suddenly the market will go down 10 percent and then before you know it, in a fortnight the market is back where it fell from. This volatility in the Indian market seems to be baffling people a little bit. However, the recent performance has got India right back on the radar of most investors although some people are entering the party a bit late.
If you look at the performance of the last few days, some of the global plays have started doing well; IT has come back. Over the last many weeks, IT had been a bit of a dog post the results coming in. But stocks like Tata Consultancy Services (TCS), HCL Technologies had come down to very attractive levels.
Maybe the fall was because of these global concerns that we have been talking about. People did not want to be in some of these global exposures. There were also some immigration issues, which were not helping the IT story.
However, as soon as valuations became attractive for some of these high quality stocks with whom the global investors have been with for sometime, a lot of these people have topped up on IT over the last 10 days, using these corrections.
He feels, as long as the global mood remains in place, we will see some of the slack in the Bank Nifty being picked up by global IT plays. Also some of these commodity plays like Reliance Industries Ltd (RIL) coming back to Rs 825-830 and few of these other largecap names also tie-in with this global theme that has been invoked for the last few days.
It is no surprise that some of the export oriented plays have started doing quite well over these last few sessions.
Levels to watch out for
It is difficult to say where momentum can carry this market. For some of these tactical fund managers from the conversations that I have had with them over the last couple of days seem to indicate that if global markets remain as solid and I think it has not gone unnoticed the ease with which S&P 500 has cruised above 1,600, the way the Dow has been moving to new highs, it is quite possible that this market extends its lead to something like 6,200 in the near term which is not very far away after what we saw yesterday.
Some people are even talking about the possibility of getting back to the old highs for the Nifty. If that were to happen over next few weeks, people will sit back and take a hard look at valuations once again. And by then there will be more data points to assess the global growth situation.
I am not jumping the gun and saying 6,050 goes to 6,350 immediately over the next week or so. But a move to 6,150-6,200, which will be a new high for the year by the way for us, seems eminently possible because the mood is very good right now.
One can see that small wrinkles like the Reserve Bank of India (RBI) policy has got brushed off and the market is actually higher than where it was a day before the policy. Small disappointments are getting brushed off and that typically happens in patches where global mood and liquidity is abundant and strong, which is the patch we find ourselves in.
So, traders have no option but to stay with the market right now, they keep raising stop losses. If something ugly happens in the global space, you will get knocked out of your position. But that is okay if you are carrying trailing stop losses. For the moment, I guess traders will do well to stay with the momentum.
What happens to midcaps and smallcaps is a more interesting question because this is a global liquidity and mood led rally. So, one would expect some of these largecap names to do better as they have over the last couple of days. However, once market begins to consolidate, whether it is at 6,100 which is the high for the year or it goes beyond and stalls and then forms a range, then the interesting phenomenon would be to see how midcaps and smallcaps in the broader market starts to do.