Global markets sluggish; October may be tough month: Udayan

Some sluggishness is creeping in, it is evident in the currency markets and the volatility indicators have also started rising. So, October true to its history is proving to be a slightly difficult month for global markets to negotiate. We have got to figure out whether here we are entering a corrective phase or we will just hang around 5,700 without getting hurt too badly through this series, said CNBC-TV18’s managing editor Udayan Mukherjee.

I do not think any trigger particularly is very important. Yesterday, one could have pegged your hat on many triggers; one the weakness in technology stocks in the US, the fact that Greece is beginning to look like a bit of a problem, which has been not fully resolved. Some people also pointed towards the IMF report, which sort of underscored the underlying weakness in global economies. In themselves none of those factors seem like they are big enough to usher in a deep correction.

The simple fact is that some of the liquidity induced euphoria which was sloshing around in global markets is for the moment beginning to fade a bit because market look little exhausted globally, they have had a big run - QE3, ECB all of that news has led it. After almost three-four months of a big risk on trade it appears that markets want a bit of a respite.

I do not think these factors in themselves are big enough to break the back of the market, but because of the strength of the rally and the fact that its been a non-stop kind of a rally globally, it is possible that all these factors might come together to just usher in a 4-5 percent dropdown in global markets over the course of the next three-four weeks. It looks like a likely outcome the way the markets have been tiring globally.

So today one can see that the volatility index (VIX) has gone up and the euro dollar has retraced a bit. All of that is reflecting that we might be in for a bit of a correction, nothing too alarming, but maybe a typical October kind of correction might be unfolding.

It is important to see how India does relative to other markets right now because in the last three-four weeks, India has emerged as one of the favorite markets in the emerging space because of obvious reasons. In that, the way crude moved yesterday is a little discomforting because, because of this global weakness crude must cool down so that people find even more reasons to buy India now. Okay reforms are happening, policy impetus is picking up, crude is also under control so let’s flock into India while the other markets correct.

October will be quite interesting to see if indeed India continues to outperform some of the other markets because of what's going on locally and the government will do well to just throw in bits and pieces of good news periodically, so that the mood which has changed over the last four weeks remains quite warm.

I don’t think India will move in a different direction compared to global markets if there is indeed a correction, but relatively things might be better and some of the local factors need to put up their hand. The global outcome for October is very important in determining what our markets do as well. In the next couple of days you will get a sense of whether a bit of risk off is coming in the October series globally and India will have to fall in line. It may be temporary, but we still need to be cognizant of that.