Markets shed Dubai debt crises worries

The nerve seems to have settled for the market locally and globally—Dubai is not worrying the markets as much as it did a couple of days back— the reason why Nifty finds its way above 5,000 and it stayed there yesterday, says CNBC-TV18’s Managing Editor Udayan Mukherjee. "The Nifty will open above 5,000 today and hopefully we can get back to where we fell off from and adopt a more neutral stance without the panic of what happened on Friday."

Globally, the markets have got back to a steadier keel but they have got a little sideways this morning after the pullback of the last couple of days.

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

Q: Yesterday we had a neutral stance with 5,000 mark as well. Was it nice to see stability and not that much volatility?

A: Neutral is the word because the clock has just been unwound or rewound to last Wednesday-Thursday when Dubai did not exist a global problem. At this point, all of us were wondering whether there is life for Standard & Poor’s (S&P) above 1,100 and whether the Nifty can take 5,100 and get to 5,200 and make a new intermediate high. The market had seemed to pause at that point in time not knowing the answer to these questions. When Dubai happened everything fell off. Suddenly the Nifty was at 4,800. Therefore, we went into major reverse gear at that point.
The reverse gear has been neutralized and we have come back to the same neutral gear. The market found itself last week before Dubai happened. The question is whether you take on another gear, go to gear one or two or you stay on neutral for a few days more and try and figure out whether we can still move ahead from here.

Q: We have recovered from that trip up because of Dubai. Are people willing to tip toe through the month rather than race through it?

A: Yes and there is nothing wrong with that. Gains need to be preserved, which is typical fund manager behaviour. However, the interesting thing of the last two-three days globally is that there has been some show of resilience. If this was a market which was terribly skittish and was merely going to panic at the first sign of accident then it would not have seen the S&P 500 standing close to 1,100 today. Europe and Asia would have sold off much more than what they did except with that exception of one day. So the Dubai test has been passed by global markets.

If the market had to sell off globally they would do that over the course of three-four days because when there is a accident led panic, it does not happen this way- that is fall one day, recover over the next couple days and then fall again. It may happen but it is not a pattern which is followed when there is a systemic panic because of an accident which the market could not see.

In any case in Dubai, they are talking about a big restructuring package it will be the mother of all corporate debt restructuring (CDRs), they will probably be bailed out to some extent and the market recognizes that globally. So we are out of that.

Now we come back to what we were doing earlier. Where does the dollar go, what do global markets do from here? Do they just go sideways and then close the year out? Or there is little bit juice left in the cyclical rally and the S&P can eek out another 5-7% by the time the year is out which means good things for us.

So we have gone back to pre-Dubai and now global markets have to show what they have in mind in December. We are pretty sideways for the next few days that seem like the most obvious kind of takeaway for the next few sessions of December at least.

Q: Will it get some juice going out from the money though in terms of cash and covering yesterday?

A: We got some half of what we lost on Friday, yesterday in the cash market. There was Rs 600 crore of foreign institutional investors (FIIs) buying on the Nifty futures. Hence, quite a bit of short covering has happened. So they went heavily short after the Dubai news and a lot got covered yesterday. So technically too you have come back to even keel with some cash market buying and with some futures short covering which has happened.

If you look at the options market, it is indicating that we are once again in a range of 4,900 to 5,200 for the time being. So unless something bad happens, 4,900 broadly should hold for the Nifty. On the way up, 5,200 is still going to be a level to take out and we are now at 5,030. So we are getting very close to that level of 5,100-5.180, which has anyways been a bit of a struggle for our market. We need to put on 3-4% more to get to those levels. The test for the Nifty is now to get through this congestion zone. However, even if it stays in this zone of 4,900-5,200 and consolidates for a little more time, it is fine. It is the recipe for the next few days at least. You cannot look beyond a week in these kinds of markets, where all of us last week saw Dubai happening after all.

Q: What about the GDP figure? It is a bit of double-edged sword. Are you worried with what happens with rates now?

A: The market will talk about the exit policy and the interest rate situation but it is not a bad problem to have. Since we are growing so well, we are wondering when will interest rates go up and when will the exit policy happen? This problem if given to a lot of economies in the world, would grab it with both hands and legs. Since we are growing so fast we are now worried about interest rates going up.

The US does not have growth and therefore they are not worried about interest rates going up in the near-term versus India, where growth is very robust and among the best in the world. We are now worrying about RBI tightening in the next two-three months. This interest rate hike has been seen by the market for a long time now. It would also be in the price. The bank stocks have not corrected at all. So maybe a little bit of under performance for banks is seen as we really get close to the interest rate hikes could happen. However, we are walking into this interest rate hike with our eyes wide open. We have been predicting this to happen probably in January.

Hence, the markets have no reason to fall off the cliff.  We will have to see whether it will be a huge spate of tightening because inflation picks up in March-April. However, it seems a little unlikely at this point in time. So the kind of consumption numbers that we got yesterday even if the third quarter numbers are much lower than what we got for the second quarter, India is in a really good place compared to the rest of the world not withstanding the rate hike which will happen early next year. The exit from the loose fiscal policy that we have been running inevitably has to happen sometime in 2010. We will probably absorb it and move on, if growth is as robust as it was reported yesterday.