Stay hopeful as market can stabilize & pullback: Udayan

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A bad start to the week, says CNBC-TV18's managing editor Udayan Mukherjee. Yesterday was a big thumb down for the market which saw a 150-point fall for the Nifty and the Sensex tanking nearly 500 points.

But this morning things seem a little bit more stable globally and locally. Investors and traders can remain hopeful that things may stabilize. It may try and pullback a little bit. Thankfully, there will be no gap down to go with that 150-point fall. Things, however, have gotten mixed and tossed up a little bit in the last five sessions.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: Over the course of the last three days we have seen some pretty steep deceleration for the market?

A: Yes, we have. There are genuine reasons for why the market slipped off. The correction was overdue anyway as the market had run up 1,000 points on the trough and with crude at USD 125 per barrel, UP election results looking increasingly uncertain. All of that probably has been weighing on the market's mind. Technically too we have seen USD 5-6 billion of FII money coming in and now a lot of supply is hitting the market.

The MCX IPO, ONGC, the big block deals on HDFC, that's sucking away a lot of the money which may have come into the secondary market in any case. From a technical point of view, demand supply is far more evenly matched now then it has been for the first couple of months of the year. So for these fundamental and technical factors, the market has given you that correction which might have been overdue.

The big question now for everybody is - is this just a retracement of that big rally since the start of the year or something more meaningful than that. The answer to that we will find over the course of the next one week probably ending in the results of the UP elections early next week.

Q: Globally as well you don't get the kind of confidence that you did perhaps two weeks back. Things look a little unsteady there?

A: Yes, but they are holding up because liquidity is still strong. Yesterday you saw Europe correcting a little bit in the afternoon but then stabilizing. The US slipped and then pulled back. So I don't think global markets here are yet in a breakdown mode. They seem to be holding up, fed by liquidity and expectations of more coming in, more importantly with the second round of LTRO this week.

So the next week event for global markets is what happens in a couple of days with the next round of European financing and funding. Depending on that number and how it pans out, you might see a short move in the market. But falls are still getting arrested quite easily in global markets.

So the edginess is there because markets there too have rallied quite a bit and not eased because of crude at USD 125 per barrel but still they are quite resilient because at one point yesterday afternoon it looked like we might be faced with the prospect of a gap down because of global cues but that did not happen. On the contrary, you might just get a bit of a pullback this morning.

Q: But because of how sharp the fall has been, are there questions about where the index may find support now?

A: We are very close to support. If you look at this rally, from the start of just under 4,600 all the way up to 5,630, it was about a 1,000-1,050 point kind of rally. What we have given up in the last five sessions is 350 points which is about a third of the entire rally. So it is a very reasonable correction from a very big rally, you would give up a third of it and that's what we have done. Now it is difficult to say whether this extends to almost a 50% retracement of the current rally which would take it closer to that 5,050-5,100 kind of zone, that's certainly a possibility, particularly, if some of the local events don't play out as the market had anticipated or crude continues to rise.

So for now, I would imagine that most people are looking at this as a sharp retracement with support lying somewhere close to around the 5,200-5,250 level. Will we stop there? That's a little difficult to determine but at least a little bit of a bounce this morning after loosing 350 points in such quick succession probably should not be unexpected. We probably get back to 5,350 even 5,400 in the near-term and then wait for cues over the next few days, first from Europe on LTRO, then elections and then crude to see if there is another legdown which the market down below 5,200.

Q: It was disturbing to see what happened with a couple of the influential stocks and this morning the kind of selling we have is doubly worrying?

A: You are right; this correction has been more about the broader market. Sure the Nifty is fallen too but the damage in the broader market is been more intense, its been a huge amount of profit taking from a lot of the people who had been getting into some of these midcaps and riding it for very handsome gain, so profits have come off from there. Technically, the numbers are difficult to understand because yesterday there was clear evidence of some delivery based selling but that's not showing up in the cash number for the FIIs.

That's still showing an over Rs 300 crore plus number, so it's difficult to analyze that. But if you look outside that, the bulls are not panicking yet. If they had, then you would have seen large scale unwinding of the 5,300 and 5,200 puts yesterday which had been written but that did not happen. I imagine that the bulls are holding out right now saying, this is the zone of support which will hold out and unless that gets taken out there is no reason to panic and unwind the long positions. That's pretty much what the options data was telling us yesterday.

There was quite a bit of unwinding of long positions by the FIIs too. Even in stock futures, some stop losses have got triggered on the way down because the correction has been rather steep over the last five days. But has it led to a complete U-turn in view of the market that the rally is over and we have started on a massive downtrend, I don't think we have come to that point yet. It may come if the Nifty loses another 100 points very quickly from here but until then people are holding on to their supports.