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Market to climb higher with global support

Published on Tue, Nov 10, 2009 at 09:54 | Source : CNBC-TV18

Updated at Tue, Nov 10, 2009 at 15:04

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Udayan Mukherjee, Managing Editor, CNBC-TV18

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Nifty

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Are Mutual Funds betting on Nifty?

The market has sussed out that the global market tidings are very strong, said, CNBC-TV18's Managing Editor, Udayan Mukherjee. In the last couple of days there has been some momentum in the market; it might not have been visible in the largecaps but certainly in the broader market where many stocks have gone up 8-10%.

Global tidings are strong for India which is why the Nifty is back at 4,900 from the brink of 4,500. After the volatility, the next leg has been pretty good.

Below is a verbatim transcript of Udayan Mukherjee's comments on CNBC-TV18. Also watch the accompanying video.

Q: We may actually have been one step ahead by the time we closed up?
A: The market has sussed out that the global market tidings are very strong. In the last couple of days there has been some momentum in the market. It might not have been visible in the largecaps but certainly in the broader market where so many stocks have gone up 8-10%. So retail is feeling that global markets are bailing us out. In the medium-term the lights are still Amber, you don't know which way we will come out but in the short-term the lights have turned from red to green over the last three-four days. People are once again focusing on liquidity and technicals just for the moment and in that the market may go on to climb higher levels with global support.

What happens one month from now, people who are playing long right now will tell you that they don't know things may turn out to be different. So the medium-term is unclear but the short-term has become bullish once again in the last few days.

Q: The past 48 hours globally have looked almost like the pressure was let off?
A: Yes, it has come back to focusing on liquidity. The S&P 500 went back to 1,100 which is 2009 high and even the other anecdotal evidence has shifted around. Commodities have started moving up once again; crude is back to nearly USD 80 per barrel. The Chicago Board Options Exchange Volatility Index (CBOE Vix) that flared up from 20 to 30 is back to 23 again and that tells you that people are probably feeling a little easier after the scare that happened last week or ten days back.

So the technical factors are also indicating that the market which was feeding on liquidity last fortnight and got worried in the interim has gone back to focusing on money and they can now believe once again that the liquidity tap will be quite easy and that is pretty much happened after the Fed statement.

Yesterday, Timothy Geithner said that Stimulus packages will continue. So the US is singing a very different cue from what policy makers in India are singing. In India, the RBI has warned about monetary tightening, politicians are talking about exiting loose monetary policy, fiscal policy and the US is saying, "guys what are you worried about, 10% unemployment we have got to keep things easy for a while". That means that money flows continue, the dollar trade continues and for the moment people believe that there is no problem with the same thing that have driven asset prices higher over the last six months and there is no change to that tune at all.

That means in the short-term there could be some more global momentum and maybe markets move even higher from here but liquidity is a short-term determinant of the market. So in the medium-term the concerns remain and at some point this party will stop but is it going to stop this week or next, it looks unlikely now.

Q: But it could well mean that the trader's eye might shift from 4,900 to 5,000 now?
A: That is a days work at the current rate that we are pulling back, so the traders are going long again and the surest sign has been with what has happened with midcaps these last few days. Even liquidity has eased up, Rs 1,100 crore of cash plus futures market buying from foreign institutional investors (FIIs) once again yesterday.

If you look at the options data 4,800-4,900 Puts have become very active. It could be because Puts have been written and also some protection is being brought by buying puts at 4,800-4,900 a bit of both but Puts are being written at 4,800 and 4,900 once again. So we probably have a good chance of building on that 4,900 rally.

The only thing is we have come back from 4,550 to 4,900 in about 3-4 sessions. So one of these days you might see an intraday kind of correction coming in but the market has rediscovered quite a bit of momentum and has become technically strong by cruising about its 50 DMA with far greater ease than people thought it might. So the last couple of resistances have not stuck, so that probably will embolden traders to trade on the long side once again.

Q: But it could well mean that the trader's eye might shift from 4,900 to 5,000 now?
A: That is a day's work at the current rate that we are pulling back. So the traders are going long again and the surest sign has been with what has happened with midcaps these last few days. Even liquidity has eased up, Rs 1,100 crore of cash plus futures market buying from foreign institutional investors (FIIs) once again yesterday.

If you look at the options data 4,800-4,900, Puts have become very active. It could be because Puts have been written and also some protection is being brought by buying puts at 4,800-4,900 a bit of both but Puts are being written at 4,800 and 4,900 once again. So we probably have a good chance of building on that 4,900 rally.

The only thing is we have come back from 4,550 to 4,900 in about three-four sessions. So one of these days you might see an intraday kind of correction coming in but the market has rediscovered quite a bit of momentum and has become technically strong by cruising about its 50 DMA with far greater ease than people thought it might. So the last couple of resistances have not stuck; that probably will embolden traders to trade on the long side once again.

Q: There were some announcements from Sebi yesterday?
A: The important one that the market is making a song and dance about is the QIB auction. However, I don't think it makes such a lot of difference for Follow-on Public Offers (FPOs). There is no price discovery which needs to be done for a large company which is doing a FPO. NTPC being a case in point, it is a liquidity stock. It trades everyday and the market has discovered a price. So it's highly unlikely that a QIB which can buy any quantity of NTPC from the screen will suddenly decide in the FPO to bid 10% higher than the current market price and take NTPC. If this is a starting point to test the system before unleashing it on IPOs. Then, it's a good move but I don't think auctions for FPOs make a whole lot of sense in any case.

For IPOs, it could be a big thing because the critical thing is not that QIBs are allowed to bid and discover the price, the critical thing is that the retail gets it at the base price or the floor price. So you could have a situation where the management sets a floor price for Rs 50 for an IPO and all institutions scramble and discover the price at Rs 70 and the stock goes on to list at Rs 70-75 and retail is still getting allotment at Rs 50 you could actually then make a lot of gains.

What this may also do is that it may just take a little bit of sting away from greedy pricing from managements, that is what the last IPOs have been.

So now managements might say, "I set a floor price which is conservative and I know that people will because of instead of getting it 25 times subscribed the QIPs they will probably get the price higher to what they think is a fairer price and I am happy to give 10% of the issue or whatever 25% to retail at my base price". I think that might cure the ill of too aggressive pricing to a limited extend as well and the good thing is that six months balance sheet is very desirable.