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Mkts in pullback phase once again

Published on Wed, Jul 15, 2009 at 09:18 | Source : CNBC-TV18

Updated at Wed, Jul 15, 2009 at 19:48

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Udayan Mukherjee, Managing Editor, CNBC-TV18

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Nifty

BSE | NSE 30/05/12

Are Mutual Funds betting on Nifty?

On global markets:

We can see that the market is following two things; it's following global markets and its following foreign institutional investors (FII) flow. Tough to say how global markets will move because they have just entered and earning season and the good thing is that the earning season has started well. If it started badly from poor numbers from Goldman Sachs etc then I don't think the S&P would have been above 900 by now but Goldman surprised, Intel has not done badly, a couple of days back Posco came in with bad numbers but relatively strong guidance for the future - all of that at the margin certainly has helped the S&P to climb back to above 900.

But that's what you need to keep watching even in the global space, I don't think people have a conviction that the S&P's next move is 950 or its next move is 850. So everybody is playing a bit of a guessing game here but to a limited extent, the fact that commodities have stopped falling, the first few results have been good probably is raising the hope that maybe the market will not fall off so much as was feared just a few days back and instead head up a bit in the near-term because if the S&P does manage to stay above 900 then the chances of the Nifty settling or going back to 3,800 appear that much lower.

On FII cues:

You need to monitor the FII cues because last few days the market's direction has pretty much mapped what the FII sell figure has been like, so that's very important. Yesterday's small positive figure has raised hopes that the post QIP allotment selling has to come to an end or is coming to an end and if that is indeed drying up then that's good news for the market which was struggling a bit to absorb that selling. So keep watching FII figure, there was a bit of covering of short positions yesterday on the Nifty futures, the futures got back into premium from a discount.

So good news from global markets led to or prompted some kind of short covering yesterday - that much the data is suggesting. Also there has been a significant build-up in the 4,000 put so maybe traders are getting the feeling that it was just a marginal break of that 4,000 levels and broadly speaking that is going to hold out for a near-term support - that's what traders are going with and that's the trade which will get tested over the next few days on whether indeed 4,000 is some kind of a durable support there. But otherwise you need to monitor the FII flows most closely among the internals and if indeed the next few days you don't see too much of red, you don't need to see too much of buying but if the market gets the sense that the selling has petered out then I suspect the chances of 4,000 holding in the near-term go up.

On Finance Minister's speech:

He did come out very strongly to defend his budget and that was good to hear but I don't know whether that defence was very high on detail, it was still a promise. So the market which yesterday was in short covering mode in any case might have fed on that statement. The bond market has not moved too much this morning; it's still at 6.97 the yield, the rupee has not moved too much. So I don't think the market is in raptures because of him saying that it will be Open Market Operations (OMO) and not monetisation and the deficit will come down. What the market wants to hear how the deficit will come down to 5.5% next year - not his assurance saying, okay we will do it. On disinvestment he said that something will be worked out but again quite low on detail.

My own take is that the market overreacted on the way down to the budget and eventually all these things which the market wanted to hear on the budget day will happen. It will probably happen in the next few months leading up to the next budget. So you will hear things on disinvestment perhaps even on foreign direct investment (FDI) it was just not packed into the budget. To the limited extent that he is saying or showing more positive intent on some of the market favourite things, I think there is a bit of positive on the margin which the market might have priced in yesterday.