Does Udayan see Infosys holding key to take market higher?

It’s the biggest quarter for Infosys because it’s not just the quarterly number, it’s the guidance for the full year and it’s always a very important event, he says. He says it is not least because of where the market was after the big rally on Wednesday. We are at an important juncture at 5,900 plus and out comes the very important Infosys guidance today.

Below is a verbatim transcript of his comments. For the complete interview watch the accompanying video.

Q: Wednesday’s rally had a bit of a ‘huh’ quality to it where people haven’t quite figured out what happened?

A: The extent of it would have surprised people. A lot of people would have played for a pullback from the 200 day moving average. We went there almost pat and bounced back from there but a pullback to say 5,800 kinds of levels would have been okay. People bought the dip and its fine, the markets stabilized once again.

The rally to 5,900 might have surprised a few people. Coming as it did without any attendant large inflows. There was no great cash market commitment from the big institutions which led to that rally. Maybe it was a bit of intraday shorts covering up or maybe pileup of trading positions so the extent of the rally might have surprised a few people.

Today is important because we are now getting close to that 5,960 level. There is Infosys, there is inflation today. At the end of the day we will have to see whether what we saw on Wednesday and it was backed by very large volumes, was another break out which takes us past 6,000.

Q: We also have an inflation number to deal with later today?

A: The good thing about the inflation number is that it’s not like the IIP numbers. You are not going to walk in expecting 8.3% and get 11.5%. It will be in a 10-20 basis points either way of 8.3%-8.4%. Is the market going to be surprised by that? Unlikely. Will it serve as a reiteration or a reminder that we are still trading in a very high inflation environment? Uncomfortably, perhaps so.

Are we going to get a rate hike on May 3? Almost inevitably yes. Is this in the price? I think so too. The market knows we will get close to 8.4% inflation and a rate hike coming on May 3. Banks have been holding up very well. This part of it is in the price.

What happens by June-July with inflation, none of us know. Those will be surprises for the market but for now if we get a reasonably high inflation number, I don’t think the market will selloff or will try to selloff just because of that trigger.

Q: A word on the index?

A: Tough call. We have raced so quickly to 5,900 plus and there are two events, Infosys and Inflation. If there is a surprise you could go past 5,960 but that’s the level which every trader will watch now. Last time we turned a bit from there, it’s an important level and then if that is crossed because you are getting into the psychologically important 6,000 plus zone.

This 100 point is interesting. There is momentum in the market, no question about that. Traders will be hugely emboldened by the comeback on Wednesday. It’s conceivable that if there is some kind of good news on either of the two events you can take a short at 6,000 over the next couple of days.

It’s not inconceivable at all but there are headwinds. The feeling on Wednesday was that crude had shown a topping pattern and its now going to rush back because Goldman Sachs says so. It’s still hanging in there at USD 122.50. The macro environment is challenging still. Earnings we don’t know, they are about to flag off, how they will be, patchy or solid.

The next 10-12 days is quite a heavy newsflow period and globally too things are a bit bumpy. It is best to wait. Maybe just hanging in here around the 5,800 kind of mark and soaking in the newsflow is the best course of action for the market because otherwise you will be racing ahead of the newsflow and the fundamentals which sometimes tend to cause a bit of heartburn.

Q: Even the money on Wednesday is a bit difficult to get your arm around?

A: You would have expected a different kind of data this morning but to say that there was no FII buying in the cash market, no FII buying in the futures market, I am a little confused. DIIs did nothing. One of the traders were telling us on Wednesday that maybe some people went short on Wednesday morning and that intraday position got covered up in the afternoon because of the ferocity of the rally.

That’s conceivable because the way it was racing towards the end seemed like people were caught or trapped. Stock futures also added quite a bit so I don’t know whether the local traders bought with a lot of gusto around that 5,750 level and because he was left out, that led to the index moving higher rather than any solid money coming into the index per se.

It’s a combination of these things - trader money coming in plus some intraday short covering which led the rally which is probably why the market is dithering or the Singapore Exchange (SGX) is pausing this morning - what led to that sudden 500 points Sensex rally and do we need to be a little cool now for a couple of days and see how things pan out.

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