Crude at alarming levels, RBI may not cut rates: Udayan

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Crude at alarming levels, RBI may not cut rates: Udayan

Yesterday was a dramatic session for the market as the Nifty slipped 1% to close at 5340, as global markets failed to rally post the LTRO-II as was expected. There was lots of newsflow from Delhi and the flip-flops on the ONGC auction.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other CNBC-TV18 anchors have to say

Yesterday was a dramatic session for the market as the Nifty slipped 1% to close at 5,340, as global markets failed to rally post the LTRO-II as was expected. There was lots of newsflow from Delhi and the flip-flops on the ONGC auction.

CNBC-TV18's managing editor Udayan Mukherjee hopes this morning the market will stabilise after yesterdays pull down because global markets are quite stable. He suggests waiting and seeing what the three sessions leading up to the UP election results turn out to be and whether we can hold a respectable range for the Nifty out here.

Below is an edited transcript. Watch the accompanying video for more.

Q: It's pretty steady for global equity but it's quite disturbing the way crude is moving?

A: That's the big worry or it should be now because yesterday we saw USD 128 per barrel on crude, this morning it's USD 126 per barrel. That is now reaching an alarming level. Contrary to expectations of tensions subsiding in Iran they are actually flaring up now. Then there were reports of a Saudi Oil pipeline blast yesterday and the way Israel is readying for some kind of retaliation, there is a lot of uncomfortable newsflow out there.

None of us are geopolitical experts. We don't know how things will pan out but you hope and pray that something really bad does not happen out there. Crude is already high enough at USD 130 per barrel plus and I don't see how the RBI can talk about easing in March and April. That will be a big set back for the market and whatever else it does to the government's plans and projections for the Budget.

So far fed by liquidity, the market is ready to ignore crude but it's ignoring it at its own peril because it's been USD 120 per barrel plus for a few weeks now and showing no signs of subsiding. This is making me quite nervous out there. I know the bulls today are ignoring it saying it's an old way of thinking to start worrying about crude because the world has moved on but that's liquidity talking and at some point it will bite us. May be not this morning but you would need to worry about this aspect for sure.

Q: The market was quite sticky. This been a rather volatile week for the market - up again down again, very sticky kind of situation?

A: It may continue to be that over the next few days because you have seen usual volatility over the last three days. Something has changed in the nature of this screen. From the start of the year it was a terrific looking screen. The market was doing all the right things that bulls would like to see. But over the last three-seven sessions, things have gotten far choppier, midcaps have done one thing, the leader Bank Nifty has become certainly weaker than it has been since the start of the year.

It's not suggesting that the market is breaking down or has broken down yet but that volatility and the nature of the screen has changed or coloured somewhat since the start of the rally at the start of the year. Also, the first sign of exhaustion in global liquidity is also manifesting itself maybe because money is going out into other avenues. Much of it didn't go to ONGC admittedly but you did see a negative FII number, a small one in both the cash and the futures market.

It's not something to loose sleep over yet but still it is a negative number and that comes a day after LTRO2 which was supposed to unleash a lot of liquidity into emerging markets. So there are some problem straws which are floating around but there are too many events ahead of us to make any kind of directional call. You may want to compress the range further, you can say it's a 250 point or even a 200 point band between 5,250 and 5,450 and within that you will see some frothing until some of the cues which are stacked up over the next few days lead us out of this narrow trading range and volatility.

Q: What remains the underlying hope? Sometimes around events there is a lot of noise but no real impact on the market. For example what may happen in terms of the election results, etc?

A: It depends also on liquidity. I am getting a little worried about the market right now because on one side there is liquidity which is admittedly a very powerful force but on the other side the fundamental triggers are weakening once again. GDP growth is lower than what one would have expected. Even forward looking indicators like the HSBC PMI and some of the core sector numbers which happened last month are not very encouraging. The other fundamentals are that the Reserve Bank starts cutting rates but there is a serious impairment to that with the way oil prices have moved.

The other expected driver for the market is that the government in the Budget will do something to salvage the fizz but with the way crude prices are and that's such an important plank of the deficit target, you might have a situation where the government talks about a target but the market starts thinking that it is wishful thinking and will not be delivered. So from a macro and fundamental perspective, in the last couple of weeks, things are looking like they are getting unstuck a little bit.

But you know in this kind of a liquidity environment, if in the next few weeks you are telling me that a couple of billion dollars more will come in post LTRO2, then all this gets pushed under the carpet and sort of gets shelved for the moment. It's that kind of zone where the market fed by liquidity just wants to bounce off positive takeaways from individual events rather than focusing on some of the macro's which might have worsened.