More gains to be added in Feb, so enjoy the party: Udayan

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The Nifty its past is 200 day moving average and liquidity is sloshing around global assets, so as of now, it looks like there is not let up in the January rally, says CNBC-TV18's managing editor Udayan Mukherjee. More gains will be added as we go by, so he thinks it's best to enjoy the interesting party going on right now.

There was a bit of edginess in world markets because of indifferent data from the US and the eurozone, I think this is an exceptionally strong liquidity phase and exceptionally strong sentiment turnaround phase that we are going through. It's been many weeks on the trout, and you can't remember, in the last 12-15 months atleast, a phase which has been as green as this for global markets and global asset classes.

There is a hope that things are on the mend after the past year that we have seen, due to which money that preferred to stay out throughout 2011 is coming back into markets. Sometimes these rallies can be punctured by any dose of bad news which surprises the market, but for now none of that is visible. So you just got to play along and enjoy the very interesting party that we seem to be in the midst of.

People may say that the market is looking overbought etc in the near term, but we should not buy into this theory; that is as meaningless as saying the market is oversold. You saw stocks losing 60-70% of their market cap last year, and the decline did not stop because then the sentiment was terrible, flows were against us and nobody cared about stocks. So like that, it's no point every morning talking about how the markets got overbought. Surely it's come a long way therefore it's not as attractive as it was at 4500, but the mood has changed and sentiment is positive and who can argue with sentiment and liquidity when things are seemingly on the mend.

Right now, I don't think you want to stand in front of the market with a view of going against the green, that's not a clever thing to do. Of course as investors you would want to take more judicious calls about where to deploy money and whether to take money out of certain stocks which have run up quite a bit. But one thing that needs to be said is further this rally carries on, I have no idea whether it's 5400-5600, I think it will be that much difficult for the market to go back and form a new low this time around. To go back all the way to 4500 would require a really bad dose of news to come about.

Nothing has been ruled out in the market, but you are just creating a higher margin of safety. Whenever this move ends for a higher low and don't go back below 4500, that would be the first sign that the bearish trend could be coming to and end. Still premature despite the rally, but at least with every passing day you get a little bit more cushion or safety belt under the pit of the market.

The trade so far has been long on the Nifty and it continues to be that. As we were discussing few days back, as a trader you cannot and should not be trading against the market, you have to be long because the market is just been showing incredible momentum fuelled by liquidity. One by one some of these resistances like the 5,100 mark and then the 200 day moving average all seem to be falling, which typically happens in a momentum market. Investors bet against the market crossing a certain level, but such is the force of money that it will inevitably cross over those levels. So traders cannot be taking pre-emptive kind of contra market calls in this kind of a market environment.

It is difficult to say what the next level is, but 5,400 loosely is the kind of target that traders would have their eyes on now and as long as we keep seeing good global cues, good liquidity and good data points like the HSBC PMI which came in yesterday that will only fuel the market's propensity to get to those kind of levels.

Now the bigger question is if this is a big turnaround in the market or just a strong temporary period of relief. The jury is out on that. I hesitate to say it's the big thing, but as we get pass 5,300-5,400, it becomes difficult to go out and justify buying many stocks in the market which have had meaningful rallies. So as investors, despite the strong momentum in the market, you would want to be a bit cautious right now in committing fresh capital because there is a chance that at some point in the next few 100 points or few percentage points the market will take a breather and then give a correction. In that correction we will know whether this is a real turnaround or it was one strong rally which deceived again.

In terms of the market momentum, we haven't seen these kinds of flows in a long time. The more money comes in, you get higher prices, better momentum and then more people who are left out trying to catch on that momentum. So from the vicious cycle that we had last year, it's right now a virtuous liquidity cycle. It's also helping the currency; the USD 5 billion inflow has knocked the currency back by Rs 5 and that needs a huge difference to the perception of the money that's coming into India and that's been part of the trade in any case.

So right now, it's all about liquidity fuelling more liquidity. This kind of things comes to an end quite abruptly, but right now there is nothing which suggests that it will come to an end by itself. So you just keep trading on and keep an eye on important markers. I think it's important that you be stock specific at this point in time because if you just keep on tracking the Nifty, you might lose perspective on individual stocks. So in stocks which have gone up 40-50% from their lows, it may not be a bad thing to take profits because it's only rarely that you get a period of four-five weeks where you make 50% or 40% on a stock if you are lucky to get in early. So right now capitalising on some of those gains even if you miss out the last 10-15% may not be a bad idea in specific stocks.

What does have some potential to create a bit of turbulence is the court verdict on the 2G scam which is expected today. If there are cancellations of licenses you could get little bit of turbulence in TTML, Unitech or DB Realty, but these are not stocks which are top of mind for traders. Maybe an Idea which is a bigger one and that also could potentially get hit if there is a license cancellation.

So you make your set of five stocks where you might see gyrations today which the trader might want to capitalise on depending on the verdict. Overall it's still maybe the home minister's ruling which might cause some kind of sentiment dip depending on which way it comes. Bharti might sentimentally go up if there are license cancellations because of more spectrum being available. But I don't think it's a make or break kind of thing for the market; it will cause of half an hour of turbulence in prices maybe but otherwise the market's too focused on liquidity and momentum right now to slip on something like this.