Sensex may touch new all-time highs

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It is a very wet morning across most parts of India but it's raining good news from global markets for sure. US markets have done very well and Asian markets are picking it up. Though we may have got a little dent in the second half of the day yesterday, all indications are that starting this morning, we may cruise back to all-time high levels once again. It does not look bad as we go into Tuesday morning trade.

 

We should not read too much into yesterday's close, because this will happen around new highs. There is still a lot of skepticism in the market and people are not quite convinced about how much upside there is in the near-term. So you will find resistances coming in. At every higher level, there will be profit booking, as there indeed has been over the last couple of weeks. So yesterday too there might have been some of it, but global cues are very strong.

 

Also, we have dealt with the IPOs quite well and given the liquidity and the fundamental situation right now, there will be growing conviction that in the near-term, there might not be such a  big fall. That will probably ensure that we have higher levels to seek.

 

This morning the markets will get back above those old highs once again and maybe even strike a notch higher, so looking at the global cues, one should read too much into what went on in the last one hour of trade yesterday.

 

Asian Indices:

It's a good morning for global markets. First the US market gave us good cues and now Asia is picking it up, Kospi is doing very well at 1.5% up, the Hang Seng Index is up 1% and the rest of them are up about a third to fifth of a percent. So we have got green across the screens. In Asia some of the markets haven't gone up too much, but the other ones like Brazil was up nearly 2%, Chile and Philippines and Russia were all up quite a bit.

This morning global cues are very significant, not just because the Dow has given us a 100 point rally, but because the bond yields there have cooled down below 5%. That is significant because that is what started spooking the market in the first place. Bond yields tend to be volatile, so one day they will be up, the other day they will be down, so there's not much to read into it. The manufacturing data also looks very robust. Inflation expectations too seem to be moderating a little bit.

So in the US, there is reason to be a little bit more optimistic now. After the little bit of correction they have seen, those markets are bouncing back as well and that is something which emerging markets are picking up. In the context of liquidity, global markets have been very bullish; the only wildcard out there is crude. Though, there is no big correlation or negative corelation between equity markets and crude markets as has been established over the last many months, you tend to worry about crude at USD 71 and the fact that it is refusing to cool down meaningfully below USD 60 mark.

In the near-term there may be more upside to this market with the new highs, IPOs and the fact that we dealt with it very well. The markets were not expected to hold above 14,000, so effortlessly we digested those billions of dollars going out into the primary market. The markets have a good momentum, the breadth is good and it's spreading out. Short of any big earnings disappointments in the next 10 days, the screen is suggesting more strength. So in the near-term, markets may chart slightly higher levels or significantly higher levels.

How much upside from hereon, one doesn't know. Because it's not a call on valuations; it will partly depend on any kind of earnings surprises, partly on how global markets pan out over the next one month. If those factors do not disappoint majorly, then the current momentum can take us higher. So the screen is suggesting strength at least for the moment and something will have to reverse it.

Things are very different between February 9 when the markets came to these levels and where we are today. From an overall market perspective, the three important triggers that bounded around that Feb-March period were - a) interest rates going up and what kind of a risk it presented to the equity markets b) whether earnings were slowing down and whether valuations are too high and c) the murkiness around global cues as nobody knew what the global markets were going to do and whether the emerging markets led by the US were going in for a big dip of correction.

Two of these factors might have cleared out a little bit or atleast there is a far rosier picture that you can paint on two of the three factors.