Most negatives discounted; liquidity supporting mkt: Udayan

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It's a big day for Indian equities today, with inflation numbers are a few big earnings candidates from the infrastructure space, says Udayan Mukherjee, managing editor of CNBC-TV18. There has been a bit of a wrinkle with Moody's downgrading six countries, so it could be another one of those very stock specific sessions but there is enough macro news to content with today as well.

Those downgrades were probably coming, but in any case global markets seem to have hit a soft patch. It would have been weaker had it not been for the wall of ECB money which is standing on one side. If you just weigh up the factors now, the European news has not been good for the last couple of days. At another time, the market might have buckled under pressure because of the things on the geo-political front and the constant sparing between Israel and Iran.

So at this point, the market's discounting most of the negatives and is focused most importantly on the liquidity aspect. We are therefore in an interesting situation where potentially there are reasons for the market to pull back and retrace from here but they are not because of technical factors. So this might cause a little bit of volatility down the line.

Everybody is pointing to the 29th of February when a large half a trillion plus kind of liquidity injection would be into the markets once again. So difficult to say if the market will actually respect some of these fundamental bits of news or continue to defy them and move higher.

Another factor that the market has ignored is the earnings barometer which has been leaning against us. You saw what happened to DLF and Reliance Communications yesterday. They are not market making stocks, but they started at 4-5% down in the morning but by the end of the day they had recovered all their losses. So the market is showing a remarkable tendency to discount bad news, probably suggesting that it's all priced in and therefore stocks should not react to even bad news.

This is a classic sign of a very strong market which is only focused on the good news and the money and not focused on the bad news at all. The market has been standing in one place for the last six days, but it's shown a remarkable reluctance to correct even a little bit. So right now the market is very well supported by technicals though as you said some of the fundamental news at another time might probably have brought the market down or induced some correction at least given the strength of the recent rally.

In market internals, we saw a bit of the shorts which were open day before getting covered up yesterday. Given the current global context with Greece, the fact that we are still getting Rs 400-500 crore of money everyday is not such a bad outcome at all. That is probably what is preventing the correction from happening because you are seeing outflows from domestic institutions. In the last couple of days, retail might have also paused a little bit around that 5400 mark, but the fact that the market has intraday corrections and again you get those Rs 500 crores of money coming in it's probably preventing the correction from happening.

So right now the internals are saying that the market is respecting that 5400 level. The focus is shifted squarely now to tracking individual stocks because there is a lot of news flow still coming on individual stocks and that's where traders are focused now. The Nifty for the last six days has been in a 100 point band, so that's not given too much joy to the traders.

On inflation later today, the consensus seems that the RBI will act in any case, but I guess it maybe a deciding factor in terms of how soon they move. The RBI knows it's going to be a soft number today and even most people are expecting sub 7% which may well come in. Optically, 7% plus or 7% itself will be a highest number given expectations. This number will be soft because of the extraordinarily high base that we had in the same January 2011. Food prices have been declining in any case, so the key number is I think manufacturing inflation that should not come in at a very high level, but that is the key number.

In any case whether we get 6.75% or we get 7%, I doubt whether it will change the general expectations in the market. The RBI will still wait for the Budget to see what the government wants to do on the fiscal front and then probably go ahead with the first of the rate cuts in April. I doubt whether any number delivered today will change that perception of the market beyond 10-15 minutes when prices adjust.

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