Yesterday, despite poor index of industrial production (IIP) numbers, the Sensex rose 194.79 points or 1.17% and closed at 16,862.80. Meanwhile, the Nifty ended above the 5,100 mark for the first time since May 7, 2012, it moved up 61.80 points or 1.22% to 5,115.90.
Many important events are lined-up over the next one week. Udayan Mukherjee, managing editor, CNBC-TV18 says, the global markets are stable for now, but certainly with an edgy bias.
The Nifty, he says, could be in a 5,000-5,200 range for the next few days. “It looks like the Nifty wants to hold 5,000 for now, before the events play out,” he adds.
Below is the edited transcript of his comments on CNBC-TV18. Also watch the accompanying video.
We had a good pullback yesterday, back to 5,100 on the Nifty. Today, while US markets are strong, Asian markets have not picked up those global cues. So, it looks like we are about to start off flattish today. But atleast we got back on even keel yesterday leading up to all the important events stacked up over the next one week. So, maybe some ranging movement, but it looks like the Nifty wants to hold 5,000 for now, before the events play out.
It is unclear what is going on out there with global markets. For now, equity market seems to be holding out. I don’t know where things will head one week from now. But the money markets are not giving you any sign of any great relief because the Spanish and Italian bond yields continue to rise higher. There is unrelenting pressure on that side. That is one key monitorable for all markets now.
If you look at the currency complex, the euro is not relenting. It’s stuck there around 1.24-1.25. The dollar index is not weakening. You would like to see some of these things happen. The only good thing is in the commodity complex. It is showing continuous weakness, even on days when global markets, equity markets are doing well. So that is good news.
But if you look at the currencies in the other money market indicators, they are still indicating there is not a period of any great risk-on or any great relief before the big events of next week. So, equity markets might be positioning themselves for a bit of relief, but the other cues are not quite that sanguine. So, the global markets are stable for now, but certainly with an edgy bias.
FIIs have not been committing too much money on the long or on the short side for the last couple of days, indeed for the last week or 10 days. There is not too much activity, infact volumes have dipped quite a bit. So, it’s that grey zone where global guys do not want to stick their neck out and get caught on the wrong side of a big 8-10% move in the market.
In the absence of their activity, it’s the local punters who are probably taking markets up and down every alternate day. So, it’s a little bit of speculative positioning before the events. But I think tomorrow’s inflation event will be an important decider in determining whether people will play aggressively for the rate cuts on Monday because that seems to be the game for the equity market investors or punters at this point in time.
On the Nifty:
It still seems to be on rally into the event mode. Next week, a set of circumstances could actually workout quite favorably, relatively speaking, for the market. That is the reason why the Nifty is reluctant to give up on its recent gains because you probably get a rate cut on Monday, maybe the Greek elections will not give an outright negative signal as has been feared in certain quarters. And that might be the building block for a little bit extension of this rally that the market is in. So, you slipped to about 5,000 kind of levels yesterday, bounced back immediately to 5,100, but as I said it’s probably positioning from the local operators and traders and not so much from the global investors. So, the market could easily be in 5,000-5,200 kind of range for the next few days, maybe closer to the higher end even, unless inflation disappoints tomorrow as we go into the events of the weekend.
But in doing that, I suspect a lot of the good news is probably getting priced in by the market. So, as and when, we do get what the street is expecting on Monday both from Greece and from the RBI, you might see some opportunistic selling then emerging from a lot of the local guys.
I don’t know what the global guys will do, if risk on comes on globally in a big way after those events pan out. But I think you will probably see selling pressure too above 5,200-5,250, if we do get there at some point on Monday. But this is a trading rally which people are playing locally because they have an eye on how things might pan out on Monday.
On the RBI meet:
Almost everybody is talking about the rate cut. Everybody is got a recipe for what the RBI Governor should do. So, with expectations riding so high, it will be difficult for him to disappoint, especially when bond markets and stock markets have priced in atleast one hike, if not something more aggressive like CRR plus repo or a very fairly largish CRR cut on Monday. So, some rate cut will probably need to happen. Tomorrow’s inflation number ofcourse is an important one to monitor.
While a rate cut is desired and all of us want it and think it will do a little bit to nudge sagging sentiment, you fail to understand why people think that’s the only cure for all the ills that plague the Indian economy today. I frankly believe don’t believe for a second it is.
I guess a lot of people who need to address the supply side issues, which I think is the bigger cause for structural inflation, those are not getting addressed. People are just passing the buck onto the Reserve Bank of India. So, I hope inflation cools down. If it does not over the next few weeks and months, I hope we don’t end up making policy errors because of the clamour all around for interest rate cuts.
The Reserve Bank is probably not being mulish in not cutting rates more than the street would like. But I don’t think the street is a good guide of where interest rates should be because if you ask stock markets and bond markets, they will ask for a rate cut everyday of the week with scant regard to inflation.
I think the RBI is doing the right thing by worrying about inflation and not getting led by this clamour for rate cuts into making some grave policy errors, which will probably have more lasting repercussions for the economy and for the markets in the medium-term, even if it can spark of a trading rally in the near-term.