Q: What are you reading on crude at this point in time and how are you correlating that with the chart of the euro-dollar?

Jadeja: Momentum on crude has been down since USD 147-149 per barrel. Over the last several weeks, we should be really looking at USD 115 per barrel level. We are trading below that and in today’s trading session we are actually trading at USD 112 per barrel. The next support level comes in on the September contract at USD 108 per barrel. Longer-term, we are probably looking at USD 97-98 per barrel. Most of the traders will always trade towards the round numbers as a major target area and talk is that we are likely to see it go down to USD 100 per barrel anyway but ties in quite nicely on fibonacci retracement side. It ties in quite nicely with the patterns as well.

With euro we are seeing some weakness coming in there. We are not going to stabilise at current levels. The intermediate trend on the euro is still down, so we are going to see further weakness over the next two-three weeks or so. So, there are short plays on oil as well as the euro.

Q: What's your take on the markets not reacting on the recent triggers or events?

Vaidyanathan: You are kind of over generalizing there. The market did react. The entire move from 3,800 to 4,600 was almost a one-to-one correlation to the oil correction in the opposite direction, so the markets did react. But the context of that reaction is a market, which was extremely oversold doing immense level of short covering. The market is still oversold from the FII standpoint though it is not as much oversold as it was four-six-weeks ago when we had that rally happen. There is nothing in the markets, which can give you another kicker on upside. There could be certain headwinds if one has continued bad news coming in on inflation and interest rates.

One could have continued backside or downside potential on the market. So you are possibly in a range in the market, volume kind of reducing is not a good sign but it is sign to kind of show that the last low that one saw was an indication of the bottom formation. So, you are going to be trapped in a range in the market. Stocks are a different story all together but as a market, one is going to see it in a range of possibly 3,900-4,000 on the lower side and to about 4,500-4,600 on the higher side and it will kind of get stuck there till you have something significant happen. I am giving that perspective not just for the next couple of weeks. That’s the kind of position you would have for the next six to nine months.

Q: Come in on the entire emerging market pack, if you have correlated and studied our market, there has been a one-to-one correlation with crude falling and markets rising which essentially means that sensitivity to the commodities is way higher than what other markets are experiencing. What is it looking like, how well or how weak are we looking compared to the other emerging market economies?
 
Jadeja: If you take into perspective the percentages of decline from the highs, you can’t find it. The markets have had a very good run-up in the last two years and we actually had a bull market. So, we would expect some decline.
 
In the emerging markets, in South America for example, a lot of money is flowing in right now. There is always a shift in economies. There are times when Europe or the Asian economies are doing very well. We have had this factor of India and China as the biggest leaders in the Asian markets.
 
What we are seeing right now is a healthy correction. I wouldn’t really get fearful in the current market declines. The question is, do you really want to invest in emerging markets, or do you have an appetite for that kind of risk? If the declines are scary in India right now, then the volatility certainly in the emerging markets especially in the South American markets are 2.5 times that of India. So, that is certainly something you have to think about.

Longer term, if you take a look at the global perspective, we have still got growth. Everyone is talking about recession, but let us talk about cycles. We always have these short and long-term cycles. If we do head into a downturn market, it could be that we could be heading down to the next 4-5 years or so.

We are going to start seeing the short rallies coming up and then headed by longer-term declines. The key levels to watch especially on the Nifty are 3,700 for the short term, and possibly 3,500 in the medium-term.

On the Bombay Stock Exchange, around 14,000 is a very key level. But if we start seeing major declines in the emerging markets, Asian as well as the European markets, we could possibly head down to 12,500. These are based on the monthly cycles rather than based on the daily and weekly. It is important to look at the longer-term picture rather than just the daily time frame.

Q: How did you sum up what happened in the oil and telecom sectors today? 
 

Vaidyanathan: Petroleum was the more important one from a macroeconomic standpoint, as the other one is more restricted to that industry and doesn’t have very much ramifications on the macro.

It’s a healthy development on the petroleum front. This is not the first time we have spoken about the fact that we need to have a better crack at how we manage the oil prices, and how much is passed on to the consumer.

We had a situation five years ago in 2002-03. We had a similar kind of a move to woo away from this Administrative Price Mechanism to a more market-driven mechanism. As the first pressure point we pulled back from there.

So, as they say history repeats itself.

So, it is important to wait for it to actually get implemented when there are pressure situations. We have gone through a very high-pressure situation with great reluctance. We have seen a 10% increase in oil price in the local market, pushed back to March 2009 and thereafter from a policy standpoint because we know that we are in the midst of an election year.
 
So, the crux in all of these announcements is how well they can stand the pressures of that point in time. If it can survive that then we would have done a great thing from a longer-term macroeconomic standpoint.

About telecom, you would have it as more industry-specific where you have certain biases expressed. The markets find their own way of reacting. There is some equilibrium brought in and I don’t think that has as much macroeconomic impact as the first one relating to petroleum.