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Political, global concerns to retain volatility: Experts

Published on Tue, Aug 21, 2007 at 18:11 | Source : Moneycontrol.com

Updated at Wed, Aug 22, 2007 at 12:25

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Arnab Das, Head of Emerging Markets Research And Strategy , Dresdner Kleinwort Wasserstein

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Q: What is your sense, the way the midcaps sold off, do you think this political uncertainty has begin to bite into traders' sentiment or is that the key factor for the last couple of days or you think we are still hostage more to global cues?

Sushil Kedia: Both have their degree of relevance. But the very fact, that on Friday evening as market men picked up the signals that US markets are going to be flying up before the weekends and there was this sense of rejoice, to be immediately tampered down by the fact that we have a local concern here - so the extent of the upswing that we saw in the Indian indices could not really match up with the sort of percentage upswing we saw elsewhere. That answers your question as to if the local factor has that impact.

Now, while it has slipped down today, you might see a far steeper move on the downside over the next few days' timeframe. But it is not just about the midcaps and if I have to try and answer this, over a larger timeframe of say a week to 10 days to about a month, if you look at the history of all interim elections or unanticipated elections in India in the past or even for that matter, the expected ones. The election acts more like semi black hole in terms of invertors' sentiment where in a lot of weak hands, a lot of unconvinced hands, would end up selling prematurely. In any case, inside a strong robust democracy, you would eventually have the government that deserves to win at this moment, even if early elections happen. So this short-term panic, the short-term purging so to say is in many senses good for markets.

Q: Do you expect to see more bloodbaths in the global markets till the 18^th of September when the Fed meets next whichever way they move in that meeting?

Arnab Das: I think the likelihood of volatility between now and then, is high. Even after the Fed's first move, things are going to continue to go wrong, here and there in the system. I am not trying to suggest that there is going to be a major collapse or major crisis. But there are little explosions and some of them are not so little, taking place in various parts of the financial system in United States and in Germany and Europe. It is bound to affect the world and it is bound to affect risk appetite and the pricing of assets.

Q: What is your sense? The Nifty is down to 4,070 once again, where do we go from here you think?

Sushil Kedia: About 10-15 minutes before close today, we had suggested to institutional clients who do trade quite aggressively that it is not prudent to carry short-term trading positions with short positions overnight. Not that we can mix many markets together, but this has been working fine for us for quite some time in the last couple of months.

There is a tradable pattern in the S&P Futures overnight, where already an upside breakout is emanating. I think the bounce that started from the American markets on Friday has just consolidated last night and it is probably pending to go right up to 1511 on the S&P Futures. That is the maximum to which it can go to and probably that breakout is happening around the time India is closing.

Within the Indian Nifty's patterns, there was a fairly oversold tradable pattern over a two-day timeframe, with a fairly important reversal coming on the methods we follow. So, it is quite probable that we find the Nifty at 4,150 tomorrow.

So, it clearly feels like one should ask clients to go ahead and buy in so much uncertainty. But it should be more like a risk-controlled measure that if one is an aggressive trader and shorting heavily, one should close that now, there will be another opportunity to sell tomorrow again at higher levels or maybe much higher.

Q: What is your sense though for the intermediate term? Do you think these levels of 4,000, 4,050 will hold out eventually or are we going to find a bottom at lower levels?

Sushil Kedia: One, as a long-term philosophy, anybody who is trying to stick to any particular level is clearly risking far more. A very big bull of the markets today told me about a decade ago, that while markets are rising, money starts to grow at treetops. You don't find leaves on treetops but you find cash. And when the markets are in a downtrend and they are falling, you may find share certificates coming out of a graveyard.

So, there is no limit to where a market can move. But if I have to take a risk-adjusted call where I have my stocks in levels; that is where the levels come into play. Now looking at these levels that have been seen in the past and a bounce off has happened, and tomorrow again one is expecting a bounce off - at this moment, it, at best, looks like an intermediate bounce off point where the Nifty will probably still go back to those 4,300 areas and finally come back and even break these levels over the next week.

Now, whether it makes a final bottom at 3,800 or 3,900, and remains an intermediate bottom, is something that will be far more clearly answerable then. I think it is too early to predict the next two trading cycles over the next three days of an upmove and three days of downmove.

Q: Just a quick word on some of these large caps, are you still sensing that there is a lot of delivery based selling that is going on in some of the technology heavyweights, SBI, ICICI Bank, R Comm, the way some of these stocks tumbled today?

Sushil Kedia: I have tried to decipher this answer over the last 14 years of my career in the market, but I have failed to figure out anything beyond a point that all buying is equal to all selling. So, if there is delivery-based buying, somebody has taken the delivery as well. Whether one has taken the delivery and shorted against that in the Futures, earning a badla or a basis, is something that I cannot decide from the electronic screen we all get to watch.

But I think it is far easier and maybe more meaningful to look at the moves in prices, and obviously, volumes kept on happening at lower and lower prices. So, there were a lot of people willing to sell at lower prices and a lot of people willing to fight the tape and buy at lower prices.

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