4700 may not be the final low, says Udayan

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Yesterday was a volatile session on Dalal Street. The Nifty recovered over 80 points from the day's lows, but still closed 32 points in the red. The Sensex ended 111 points lower.

Today, the global cues are good. The US markets closed near session highs. Asian markets are trading higher.

CNBC-TV18's managing editor Udayan Mukherjee says, retracement trade has played out globally. He expects the Indian markets to rebound. "There could be couple of days pullback."

According to him, 4,700 is an important floor. However, Udayan says, it is still early to say that 4,700 is a durable and final low.

Also read: Nifty may bottom out at 4600-4700, says IL&FS' Vibhav Kapoor

Below is the edited transcript of his comments on CNBC-TV18. Also watch the accompanying video.

Our market saw it coming yesterday, a recovery for global markets and that's what we have in on our hands this morning. The US has given you a nice bounce, Europe bounced yesterday as well. Gold has slipped off, crude has bounced back and the dollar index is down as well. So, it seems like a retracement trade has played out globally, after all the pessimism of the last few days. We did a bit of a pullback yesterday, but there is more in store.

On global markets:

I think globally things probably got a bit overdone on the bearish side. There has been some murmur of a European financial stability fund. And that's probably lifted hopes. There is a lot of newsflow in the horizon, you will see these bursts of volatility, utter depression. And then a lot of hope playing out on short covering rallies because newsflow coming in through from Europe.

I don't think it's prudent to extrapolate any day's trend to the next day because depending on the newsflow you will get whipsawed around quite a bit. The pullback in crude, the slip off on the dollar index to 78 and the fact that the S&P is still not broken down below that 1,100 floor tells you that probably the markets are in a bit of a reversion to mean kind of mode. That could change in a couple of days. But for now it seems like we could have a couple of days of a bit of a pullback from the falls of the last few sessions.

On the Nifty:

4,700 is an important floor. The market went down close to that yesterday and bounced off. So, it's possible that we have a few more forays into that region and then pullbacks. So, you will have to learn to live with this kind of volatility. The market going down to retest previous lows and then maybe because of some global news or short covering, we bounce off quite sharply. And then just when you begin to believe that the worst is behind you, you get hit once again. So, you keep toing and froing and that's the kind of phase that we seem to be in.

The index can close up the series at some respectable level, if global markets remain stable because of the European news over the next few days. But this should not come as a surprise. If we just go back and see what happened with the 5,200 experience, the repeated pullbacks from 5,200 back to that 5,600-5,700 zone, that kind of trading pattern actually held out for a good six-seven months, before 5,200 finally broke.

We are fairly early in this 4,700 kind of a trading base formation, trading pattern. And it's possible that we make two or three forays into that region and then get tossed back into that 5,200 level. We were talking about this yesterday that the possibility of another rally coming before 4,700 gets taken out, if it has to, is fairly significant. And we went down to 4,750 and from there we saw a significant pullback to 4,850.

Can it extend over the next few days from the level of 4,900? It's entirely possible if the global markets remain supportive, you get a bit more of short covering and the global selling subsides somewhat.

And you could get a pullback may be to 5,000 kinds of level or slightly above 5,000. If all things are good, maybe even to that 5,250 kind of level. These things will keep on happening.

Does that mean that 4,700 is the final low? That's the difficult call for a lot of people to take. It may well be a trading low for the moment because it's a significant level. We have gone and tested against it a couple of times. There will be a talk of a double bottom etc. from a technical perspective. It might well hold out for a few weeks even. But with an eye on the bigger picture, I think it's still early to say that that is the durable low and we will not violate it going forward.

The good thing is that atleast before expiry we are not getting hit by a wave of global panic. And that means that this expiry can be in a slightly more orderly fashion. After that, we will have to see in October how the news flow pans out.