Early signs of bearish talks emerge even as equities party
There is all around euphoria surrounding the market with many experts frantically giving out their next 100-150 point target and resistance levels on the upside.
Indian equities have been on a roll for quite sometime with the NSE Nifty taking out the all-important psychological level of 6000 on Wednesday after a gap of two years. There is all around euphoria surrounding the market with many experts frantically giving out their next 100-150 point target and resistance levels on the upside.
Brokers said apart from positive global cues after US fiscal cliff deal, expectations of a rate cut by the Reserve Bank of India later this month boosted the market sentiments. Nervous investors, sitting on the sidelines all this while, have started to dip their toes into the equity pound, hoping not to dive into a January trap.
A good way to judge market momentum is to look at the currency market. The dollar index currently is at the crucial 80-mark, which a lot of analyst watch carefully. The Asian sales desks have already started advising caution, citing the dollar index rise as an indication. Citi Asia expects a 10 percent tactical correction before second quarter starts. Citi says early inflows could see markets topping out soon. Remember, Japan and China have not yet reacted to the fiscal cliff news. Nikkei Futures is indicating a possible 5 percent upmove at start.
A view not shared by Sakthi Siva of Credit Suisse who expects equities in 2013 to stage second consecutive year of 20 percent returns. (Catch full interview) But general consensus is that the first half of the year will be good and the second half will be tough.
Another indication or worry is that central bank liquidity is expected to contract this quarter. A lot of the flows coming to India have been because of those benign liquidity conditions.
There are early signs of overheating in the Indian equity markets. Indian ADRs, particularly banks who are trading at a premium, are looking over bought. A lot of FIIs have already tired to participate in the Indian market, even overseas.
Also, a lot of underperformers are moving now, which is usually considered as the last leg or last phase of a market rally.
Things could get worse in terms of newsflow this quarter. PMI data from major market, both developed and emerging, is likely to be subdued at best. The US has averted the fiscal cliff for now but next up is the debt ceiling issue. The Republicans have an upper hand in the debt ceiling negotiations — so it will be tough time for Obama.