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May 18, 2013 01:56 PM IST | Source: CNBC-TV18

All time highs for Nifty likely, if liquidity continues

The market momentum on the back of strong fund inflows is likely to continue, believes Udayan Mukherkjee.

Nifty is at a two year high, the market is moving up with no signs of fatigue. It seems to be riding on momentum along with strong flows, said Udayan Mukherkjee, managing editor, CNBC-TV18.

"Today will be the last day of what so far has been an exciting week. We had a big sell on Monday and then a massive rally on Wednesday. So, we wait see where this ride takes us," he added.

Also read: Structural reforms will push India growth story ahead: Morgan Stanley

The Nifty has done and will probably at some point in the day get to 6,200. So, talking about levels is not very meaningful. The next big level of course is the all time high which is not very far away at 6350 and liquidity can certainly take it there, said Udayan.

Below is the verbatim transcript of his analysis on the channel

The US and euro zone seem to be taking a breather; it could be because in the US a lot of people are re-stoking the debate on whether the Fed will start unwinding QE3 sooner than expected, although there is no concrete evidence or suggestion of that happening yet. However, the market keeps worrying that at some point the Fed will start pulling back its hand and that could trigger off a big correction there. So, this debate keeps coming back every time markets go up quite a lot.

We have seen some of these phases in the past; they crop up for a couple of days and then they are swallowed by the wall of liquidity, which is sloshing around in global markets. The only issue is that the dollar index has been marching up and it is now almost at 84 and that remains a bit of worry that one should be watching out for, particularly because it is also nudging the rupee on the way down. So, on the margin that is a bit of a wrinkle for our market.

However, the market will not fret about that too much, as long as these strong cash market flows from foreign institutional investors (FIIs) continue. There is a sense that there is not a lot of trading money, which is chasing market right now. That is surprising because we seemed to have had a breakout and ordinarily, if people believed that this market is headed a lot higher, there might have been a lot of Nifty Futures positions being added, a lot of Options being bought for the long side but we have not seen that kind of trading commitment from the FII basket.

Instead, we are seeing a wall of cash market money coming in over the last few days and maybe that money is coming from exchange traded funds (ETFs) or some such kind of funds, who are putting money into rate sensitives over the last few days.

Therefore, as long as this huge cash market commitment continues, prices will continue to move higher but one needs to trade with caution on the way up.

New clusters of leadership for our market

Reliance Industries was certainly quite impressive yesterday and banks have done their bit. There is a bit of sector rotation going on out here to figure out what can carry the Nifty to 6,350. So, one saw some new stocks do quite well and even the broader market was actually okay barring a handful of stocks.

Today, again there will see some excitement in the Non-Banking Financial Banking Company (NBFC) space because of the JM Financial developments, so that is another cluster again which will become quite lively as it has sometimes in the past.

So, the market seems to be okay and there is no way to say that the market will turn from here looking at the screen. It is doing all the right things, it had a massive rally. It consolidated and with a slight positive bias yesterday, flows are strong. So it is one of those markets, where you don’t want to over analyse and just say there is so much liquidity that I want to stay with it for the moment and once that liquidity dries up for some reason then one will take stock of the situation again.

So one need not make deep investment commitments at these kinds of prices but for the trading commitment you will need to keep your iron in the fire right now.

On the index

Market seems to have broken out and is certainly in a momentum groove of its own. If one looks at the stock futures action, lot of long positions are getting build up. So, one can sense that there is a certain momentum, which is there in the rate sensitives.

The Nifty has done very well, it will probably at some point in the day get to 6200. So talking about levels is not very meaningful. The next big level of course is the all time high which is not very far away at 6350 and liquidity can certainly take it there.

However, is it ahead of its time in getting there? - Perhaps yes, but I don’t think that will bother either the momentum chasers in the market because two-three percent is not a big deal in any case.

Right now, Nifty is still on a strong momentum uptrend. What will carry it higher - we will see over the next few days; whether rate sensitives have more in them or some of the other sectors like IT, which have taken a bit of a back seat or even some of the oil and gas stocks - they start to move higher and fire for the index.

Even if you are in the cautious camp, there is nothing which is coming out from the screen as such telling you that the tide has turned and therefore you need to take any short positions against the market or you need to book profits almost immediately.

So, this is not a market which you want to abandon as a trader. You would have to let the market tell you that the trend has turned without pre-empting or drawing any kind of line for yourself that 6200 is it. That line drawing might happen at the old highs of 6,350 at which point a lot of people will take a very hard look at this market. However, between now and then, unless the screen is turning, I don’t think traders will abandon the market.

On JM Financial

There will be the usual excitement in non-banking financial company (NBFC) stocks, JM Financials itself will probably shoot up quite a bit, more than what it did yesterday carrying on from there with that 16 percent move.

However, it does not have any great ramifications for the NBFC sector as such although it is true that Vikram Pandit has good pedigree in the banking space but the fact that he has picked up a 3 percent stake and will pump in some money into ‘A’ NBFC company means that the whole NBFC space should need to go up today.

There will be a lot of speculation about JM Financial being in poll position for a banking license - I am not terribly sure about that because JM is generally known in the market as a capital markets player and there are many other companies, which have put their hand up for a banking license, who probably will find much greater favour with the Reserve Bank of India (RBI) than a capital markets players like JM Financial.

So, will one man’s pedigree or career have such a big impression on the central bank that it will waive away other concerns to look at JM favourably for dispensing a license? I doubt that very much, but that is a judgement call  and one can argue with that.

So the short point is that JM probably goes up today. I think people would be well advised if the stock moves up a lot today, to think about what happened with Larsen and Toubro (L&T) Finance, it got overheated and a lot of people are stuck above Rs 90 on L&T Finance as well and it soaked in a fairly deep correction after running away.

So, valuations will expand but some of the other people like Ajay Piramal etc probably put their eggs in a better basket in that run for a banking license.

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