Policy hopes, earnings to nudge mkt out of range: Udayan

This is going to be an important week for the stock market. With the new President elected, the government has no reason to hesitate or wait any longer on reforms, so there are high policy expectations. It is also a big week for earnings season. However, we are starting on a back foot because of global cues. Hence, CNBC-TV18’s managing editor Udayan Mukherjee says that this week might just be a defining week which nudges the market out of the trading range one way or the other.

The Presidential elections is behind us right now, so the government has the potential to act. But the events of the last 3-4 days have raised worries for the government, because both the NCP and the TMC have been firing salvos, so they might be on mild fire fight mode. Hopefully they will be able to rise above that to deliver what the market wants.
Global cues also have worsened, but we have got a big set of earnings starting with Hindustan Unilever and Larsen and Toubro today. So there is too much in the melting pot. The market has not looked very strong over the last couple of weeks, it has been grinding lower and retesting that 5200 level again and again. So hopefully something comes through starting with a diesel price hike this week, because if not the chances of a breakdown from that range are quite high.

Amidst all the local trauma we have Europe yet again. It had gone off the radar for about 3-4 weeks but it has come back with a bang. Spain is very much back on the radar once again; it never went away but it has come back with a bang, with fears of a big bailout being spoken about once again. It can be seen in the way the euro collapsed to 1.21. Crude anyway has been quite uncomfortable between USD 106-110 per barrel for the last few days, so that is not good news in any case.

Everybody has been waiting to see if the summer rally which has been on for the last 5-6 weeks globally can extend itself and go to another platform. But some of the recent news flow is pegging it back and that is not good news at a time when we are waiting for our policy cues to break us out of a trading range.

The Nifty has been trapped in a very narrow range around 5150-5350 for many weeks now. It is not showing any kind of momentum on the way up; it’s attempted small rallies but it seems to be fizzling out around 5250. The headwinds have only built up in the last 10 days. The monsoon situation has not improved and that’s a headwind for the market, some of the results have been mixed and global cues have not been great. So far, this market has been standing on the back of reasonable inflows coming in from the global guys, but outflows might just pick up in the emerging markets space and that is not good news for us at all.

The view is that the Nifty has not broken 5200 so far only because it is waiting for the policy action to play out to see what the government can deliver. If it were not for these expectations, the Nifty would have been probably at 5000 and not 5200 now. So this 200 point buffer is squarely because of expectations of a diesel price hike this week, a new finance minister coming in and this window between now and may be first second week of August for many of these movements on FDI and other related issues. If they happen, may be the market does not correct significantly below 5150 or 5100. It is not a big deal, 50-100 points.

But if this were not to come through for some reason, and global cues worsen in the mean time, then we are setting ourselves up for a deeper correction in the market, may be even sub 5000 Nifty. So the next two weeks are absolutely crucial from New Delhi to deliver so that they can prevent the downside in the market. Upsides might be limited by the kind of news flow that is swirling around us.