The market ended April series on a fabulous note. The Nifty closed above 5900 on Thrusday with a gain of around 80 points, Rs 3,700 crore was bought on the Nifty Futures and Rs 1400 crore in the cash market. Almost a USD one billion of net money came in from the cash and futures segment, which led the market higher.
However, it looks like this rally is done with. It was a very powerful rally with the Nifty going up 400 points in the last seven days. Now it might be time for the market to pause. Most of the money seems to have been made. Traders should now trade with very strict trailing stop losses if they are chasing the last bit of the rally, CNBC-TV18's managing editor Udayan Mukherjee said.
On the earnings front, ICICI Bank has not put a foot wrong in the last few quarterly earnings. So this quarter should be 20 percent plus on most parameters as well. However, the stock has captured most of the upside in its recent move up to Rs 1,180 or so.
Below is the verbatim transcript of his comments on the channel
A large part of what we saw yesterday was because of the adjustments that foreign institutional investors (FIIs) needed to do. Rs 3,700 crore was bought on the Nifty Futures and some Rs 1,400 crore in the cash market. So, a lot of the intra cash Futures kind of adjustment that needed to be done yesterday was perhaps a reason why some of the largecaps tore out like they did. It is almost a billion dollar of net money which came in yesterday, if you add cash and the Futures numbers. So, that was the impulse, which led the market higher.
It looks like we are mostly done with this rally. It is difficult to call how much more the index will go up in the near-term but the technical positioning which was very bearish maybe ten days into April has changed around completely and most of the repositioning has happened. We have had the Nifty going up 400 points nearly in the last seven days. That is a powerful rally that we have had.
Now with the way commodity seems to have stabilised after the initial fall and the power of the rally that we have had already over the last seven-eight sessions, it is time for the market to pause. The market may not choose to pause because market does not usually do what is the right thing to do. So you could get an extension of another 100-150 points easily on the way up in this move, However, most of the money has been made and traders should now trade with very strict trailing stop losses if they are chasing the last bit of the rally. Most of it seems to have probably played out from a technical positioning point of view.
The market is in a mood right now because of the new found momentum where it will probably read either/or as a good thing for India, given that we have had a 400 point rally on the index. So if global markets are doing well and commodities ride along with them as they have in the last few days, then we will talk about risk on in global markets. If commodities fall and global markets fall, then one would say fall in the commodity market is actually good for India. When the price performance is strong then you look at everything with rose tinted glasses, although there is a bit of a risk in doing so right now especially with what is going on with global markets.
Commodities have pulled back, crude too has bounced back five percent over the last few days, gold is close to USD 1,500 per ounce again, so there seems to be a bit of recalibration in the commodity complex. However, stock markets have continued to move higher and that could be a function of how bearish people had become in the first part of April, which has led to the ferocity of the pullback that we have seen.
We will have to see how global markets move from here but for people who have been lucky enough to catch at least part of this phenomenal pullback rally, it is time now to at least preserve most of the profits and not extend or push your luck too much.
There could be a bit more in terms of a thrust up for the market but I wouldn’t bet on it because sometimes, these climactic finishes on the expiry day tend to reverse in a day or two. This time though things are complicated because we have RBI policy on next Friday, and there are wide expectations of rate cuts and the rate sensitives have been chugging along quite nicely. I don’t know whether the market in this trading move may top out before that or if it will continue to extend itself a little bit on the way up by another 100-125 points on the index. But looking at the nature of the move which has happened, and the distance traversed by many of these rate sensitives, if I were trading, I would turn a bit cautious now. That doesn’t mean that the market cannot go up another couple of percentage points but sometimes trading is a matter of discipline and markets have gone up quite a bit already.
Although there is no sign of a break of momentum yet to be sure but some of the factors which led the market rally to begin with like the big fall in commodities etc, the simmering expectation after the inflation number at that point, 10 days back when the WPI came in, that maybe we will get an interest rate cut, all of that has been priced in by the market in the rally of last seven-eight days.
The question that can we get to 5950-6000 which maybe a significant resistance for the market or can we push past it by another 50-60 points is a game of probability. One cannot be sure about where this trading move ends but we are pretty much done more or less with this trading move because of the way some of these factors have got priced in. So, I don’t think the market will get surprised next week if we get 25 basis points cut from RBI.
Therefore, maybe a little bit of caution after the significant rally which has unwound not only the underperformance of the initial part of April but has led to the series being up some four-five percent, a little bit of a pause would be desirable and called for.
On India Meteorological Department (MET) forecast and RBI policy
I don’t think the market takes the MET department seriously. There are hopes this time that we will probably not have a very bad monsoon. The weather is even more difficult to predict than the market. So, I don’t think that is a near-term major driver unless there is some explicit bad news but the wind doesn’t seem to be blowing in that direction from the little that we have heard so far.
The market also does not set too much store by what the Reserve Bank of India says in terms of its guidance because the RBI says one thing but does another and actions should mean more than the words for the market. Therefore the market will just focus on the action and just omit all the talk about how RBI is feeling very hawkish about the future. Therefore, all that commentary won’t matter too much. The decision is on whether we get 25 basis points or 50 because some part of the market is beginning to talk about 50 basis points as well.
ICICI Bank should deliver, given the kind of rise that we have seen in the stock. ICICI Bank is a strange kind of stock because every quarter it beats the market expectations but with the first sign of trouble in the market and the stock goes back to Rs 950 kind of levels. So, I think something bothers the market about ICICI Bank and it almost chases it reluctantly before results and then post results it just happens to top out and does not quite do as well as some of its peers.
ICICI Bank has not put a foot wrong in the last few quarters with its quarterly earnings. This quarter should be 20 percent plus on most parameters as well but the stock has captured most of the upside in the recent move up to Rs 1,180 or so.
The autos will be interesting today because Maruti, despite weak volume growth, should be better than Hero MotoCorp. Although Hero MotoCorp too has gone up about 10 percent over the last few days since the rally began but the numbers will be reminder that things are very weak on the topline front, they are losing market share, margins are under pressure. I don’t know whether Hero MotoCorp post results can stay above Rs 1,600 despite expectations of a rate cut.
For Maruti the numbers, should be better because of the product mix and the currency, margins should be protected and improved. Therefore they will probably put in a 10 percent kind of a growth number when numbers come out.
There are also smaller numbers coming out today like Vijaya Bank and that will probably underscore the divergence in performance and the reason for it between private sector and public sector banks because ICICI Bank and Vijaya Bank could well be a study in contrast today.
Then there is LIC Housing Finance which told us last quarter that they will try and turn things around this quarter onwards because last quarter was quite poor like the quarter before that. So, this is a stock where the markets are waiting to see the recovery promised by the management.