Mkts betting on global policy stimuli

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Here is a verbatim transcript of Udayan Mukherjee's comments on CNBC-TV18.

 

Today is the start of an important week after what happened last week - we first had a pullback, then a pull-down and finally a short rally to settle around the 3,000 level.

 

In terms of global news, it's not a bad morning and the Asian space looks good. What remains to be seen is whether we resume the rally after a good start. It's an important trading session and traders are seeking answers to whether we are getting into a higher range or was this a false pullback. The coming days will provide the answers.

 

An important week:

 

It is a very important trading week because I think traders will seek the answer to whether we are sort of getting back into a higher range or even trying to resume the upward movement that we saw from the lows or is this just a false pullback after which the market will drift down and maybe even sink below those 2,800-2,900 levels.

 

The coming few days will tell us, you can see that the global space is also a bit volatile. So it is interesting how the next five days pan out leading up to the G20 meeting.

 

The street in the West is expecting lots of good things and you have seen some action in China as well. So I think the next five days could be quite interesting for the traders at least.

 

Asian Indices:

 

Asia is okay this morning. Couple of markets like China are very strong as you would expect because they have got a big stimulus package, the others have sort of given up some of their gains Taiwan is in red, Korea is just about flat, Hang Seng which was up 5% in the morning is barely up a couple of 100-points.

 

It is largely the big markets of Japan and China, which are rallying this morning; the others have sort of given up much of their gains in the last few minutes.

 

Policy activism is what global markets might run on for a bit now?

 

They are running on that because there are a lot of stimulus packages which are doing the rounds; the US is expecting on, China has already got the mother of all stimulus packages. That is serious intervention from the government to lay out 20% of that GDP (Gross Domestic Product) over the next couple of years, is serious intervention. They will be very worried about what's going on with demand over the last few weeks.

 

The China intervention is quite significant not just for itself but what it could mean for the commodity universe as well. That aside the US market seem to be expecting Fed rate cut well before the 16th December. There is a bit of punting ahead of that as well.

 

So the market is betting on more policy stimuli which might come in over the next few days that's what the market seem to be feeding on at this point in time. But the core economic data continues to flounder; the US jobless rate just got up to 6.5% which is disturbing and it continues to climb. We have seen the earnings data from the auto companies Ford, General Motors; it is not encouraging at all.  It is a bit of a confusing kind of situation in the West where you ask yourself whether you are better off focusing on the underlying economic data which is worsening or has that largely been priced in. You are better off focusing on the stimulus which is coming in now which can lift the market out of their gloom?

 

It's a tough call maybe the stimulus packages could lead to an extension of the near-term pop that we have been seeing that's what one can play for but we can see that the market is in two minds, its not an easy one because despite all that talk after a 10% fall in two days all that the Dow could recover on the way back was 2.5%. So it's still lacking or not smacking of great conviction just yet.  

 

What is the expectation to work with then for the Nifty that it climbs a lot of steps or it just holds still for a while?

 

It is still very volatile and that is the problem that makes it a little difficult for the traders to take a call, because had volatility subsided and you had begun trading in a much narrower range, then I think traders would have had some sense. But even in the last one week the market fell off so sharply from 3,250-3,300 all the way to 2,850, so you had to react really fast because 10-12% went just like that and then you have come back to the mid-point of close to 3,000 levels. This morning it is likely and conceivable that we get back to those 3,050 may be 3,050-3,100 kind of zone as well and then questions will be asked, are we going back to 3,250-3,300 or is this just a weak pullback and then the market needs to go back to 2,800-2,900 levels.

 

It is not easy to answer these questions because the bigger question is in these whole scheme of things over the last few weeks 10-15 days, did the market give you a relief rally and then it went back and then formed a higher bottom and started resuming its upper journey, can you say that with conviction. Because if you could, then you would play for gains on the Nifty, but you don't know whether two days action is enough to tell you that the higher bottom was formed indeed and now you can trade with conviction back up to those levels of 3,300-3,400, if not beyond that.

 

But for the moment, I think traders will try and trade on the long side because they have seen what has happened a big 40% rally, then a 10-12% pull down and then the market has bounced back somewhat. So that formation should be enough for them to try and trade the long trade once. Now if it succeeds or not one doesn't know but I think there will be a moment of uncertainty around that 3,050-3,100 levels, which we should get to this morning and then take it from there.

 

The street is divided on whether we are going to make it to 3,400 this time, or we slip back and trade in a narrower range say of 2,800-3,200 and consolidate for sometime.

 

We haven't seen those big balloons of selling or covering and volumes have been quite tepid through last week?

 

That's the interesting bit that despite volatility the participation is waning; not just futures and options (F&O) volumes on a daily basis but if we look at the Foreign Institutional Investor (FII) data and how much they trade everyday that is subsiding. So one doesn't know how to read that, is it a sign that the market is finally entering that consolidation range and the inevitable is therefore happening which is the excitement and the volumes dropping off or is it that people don't have the conviction to trade on either side exactly what I was saying just a minute back that they just confused on whether this market has resumed its pullback phase or is it just a couple of days of pop back and then the market goes down once again.

 

It is not easy although you can take a view  but I think even people who are taking that view, are not taking that with great conviction. It is a very tentative kind of a trading step that you are putting forward and therefore volumes are bound to be low when you have high conviction in trending markets then volumes pick up because you know you are comfortably laying out your money behind that trade. But now both from the FII perspective and from a local perspective, conviction levels are waned considerably which is why you are seeing those very low- volume kinds of days. I suspect you might see a bit more of that unless the market gives you a clear sense of which way it is trending for the near-term.

 

The other thing is if you look at the options data that is quite interesting because while a lot of directional trades are not opening up, the boundaries have seen some trades which is people saying that - I am comfortable writing a 2,500-Put right now because while I may not know the next 200-points move on the Nifty, I don't think in this move the Nifty breaks 2,500 in a hurry. On the way up, it could go up I may not have the conviction to trade that long with a lot of money but I think that for the traders 3,400 should not break very easily on the way up. There will be a lot of resistance there.

 

So even if I can't take a Nifty futures long or a Nifty futures view, then I am happy to sell that 3,400 Call as well because that will prove to be a bit of a resistance. That's a big band 2,500 and 3,400 is a 900-point band on this base but people are more comfortable playing the extremities of that range rather than taking a directional call at this point playing for the 200-300 point move on either side and that is quite interesting.