Jul 16, 2013 12:11 AM IST | Source: CNBC-TV18

Don't be fooled by rallies, mkt weak on poor macros: Udayan

In his analysis of the market Udayan Mukherjee, managing editor, CNBC-TV18 says the Nifty is above 6000 but the big question is whether we can carry on this good work in the face of increasingly bad news on the macro front.

Nifty may open flat today despite Infosys giving lift to the market by its better-than-expected results, says Udayan Mukherjee, managing editor, CNBC-TV18.

In his analysis of the market Mukherjee says the Nifty is above 6000 but the big question is whether we can carry on this good work in the face of increasingly bad news on the macro front.

“A lot of companies’ Q1 earnings are expected, so let’s hope they will be as good as the first couple that we have seen last week,” he adds.

Below is the edited transcript of Mukherjee’s interview to CNBC-TV18.

On global markets

The global markets have pulled back quite a bit after Fed chairman Ben Bernanke’s reassurance that the monetary stimulus tapering is not going to happen soon, but some things in the global space are still not looking very comfortable. One may have expected the US bond yield to come below 2.5 that is still lingering around 2.6, of the highs but still hanging in there, crude is still uncomfortably high for us at almost USD 109.

People were expecting bad data from China that came at 7.5 percent unlike expectations of 7.2 percent. That has not happened but it is not comfortable data and the industrial data frankly is quite bad in China. It is a wishy-washy kind of global environment again. I think after the pullback, people will once again sit back and take note of whether the markets need to rally even further from what they have done from last week. So, it is not as bad as it was 10-days back, but one needs to keep in mind that some amount of recalibration has happened already.

On Nifty rallying

This recalibration is the only thing which has changed. That is the reason we are not at 5700 and at 6000 and people are breathing a little bit more easily on the foreign flows front. Yes, outflows have stopped for the moment but I think the market needs to pause now because we have had a 300-points plus rally. The inflation data on Friday was not comforting at all. Yes, we have had a couple of good results but as we wait deeper into the earnings season we will see far more warts from the earning season.

The macro is a reminder that things are still very difficult for India. One may occasionally have these bouts of pessimism and optimism because of the way foreign institutional investor (FII) flows are moving, because that is pretty much the one thing which drives the market. However, the underlying is still quite weak and that does not go away with rallies or busts in the markets. So, I think it is still a very challenging kind of trough for the market and therefore at 6000 plus, one would tend to think that the market needs to pause here.

A part of the market never participated in Friday’s rally. It was just a few stocks. Infosys did its bit on Friday. So, a few largecap names are attracting some global capital and that is keeping the Nifty up. But I think the broader market is pretty much reflecting what the underlying economic reality is, because one might see a handful of high quality names still delivering good earnings but with the kind of macro that we are working with now, it is very difficult for the larger basket of companies to deliver any kind of growth. I think the market is doing the right thing, when it gets flows, it goes into 10-high quality names, the Nifty optically looks high, but the broader market is still exhibiting a lot of stress and pain and that is why it is just not participating.

The market did cover a lot of ground and it has got to do of course with the FII numbers which have turned positive for the last three days. So, it has been a good run but now the market can go up another 100-150 points easily if the FII buying continues. However, fundamentally, one should start getting a little cautious out here because beyond a point,  there is no reason for the market to move up significantly from here. The macros are still quite shaky.


A global pullback was probably warranted and that has happened. India was not unique last week, most global markets went up 2.5-4 percent and we did the same. So, this has been a global recalibration in which we have played our part as well. But now to suggest that the Nifty will move up significantly from these levels is probably pushing it fundamentally. So technicals might still lead to a continuation of this move but I think fundamentally one would want to start getting a bit cautious out here because things look still quite challenging fundamentally.

On the macro data

The IIP numbers are a volatile set of data but even if one takes the average of the last two months, it is zero growth for IIP which does not sit well with all the talk of gradual recovery happening in the economy. I have been saying for some time that GDP numbers for this current quarter might actually throw in some kind of negative surprise. People are not pulling down their full year GDP numbers yet but they could probably come in lower than the lowered estimates that we are talking about.

Exports are very weak for the second month running, 4.5 percent drop in exports. So, once we get past our fixation with what happened to gold for a particular month, we will figure out that there are other things which are hurting the trade deficit. So, with this kind of export growth and this kind of industrial growth I think we are looking at a fairly challenging kind of macro growth picture out here. CPI remains quite elevated so that will probably stay the Reserve Bank of India (RBI’s) hand.

Also, the government should not do these childish things that they are doing of putting out the good data during market hours, putting out the bad data after market closes. That is so defensive that it gets very easily picked up by the market.

A few days back RBI advanced data so that the rupee could be defended and suddenly surprised the market with a set of positive data. One doesn’t want to be doing these kind of things. It betrays too much of sensitivity to what financial markets are doing and you cannot hide by a bad data beyond a point. So that’s as an aside but the macro data on Friday was frankly quite discouraging.

On July rate cut

The macros are against us. I cannot see how the RBI will cut rates not just in July, but it would frankly be a surprise if they went ahead and cut rates. If they did, they will warn the market sternly that that is the last of it because there is no reason for them to cut rates though I believe that they probably will not later this month.

So, the macro is difficult and it will show up in the micro as well. It did show up in the last quarter earnings calendar and one will see more of it as the weeks roll by in this quarters earnings as well. The macro and micro are not very divorced at this point in time and that remains a fundamental headwind for the market.

Markets usually do not revalue themselves on the way up when none of the driving factors barring liquidity are in place. Liquidity is questionable. Last week was atleast good but none of the other factors are there. One is not seeing any kind of earnings pickup, macro is weak, currency is bad. This is not typically the time when the market can move to a higher P/E multiple which is why I am saying that once you get past 6000, a lot of stock prices get fairly difficult to justify.

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