Volatility up a bit but no sign that mkt will turn: Udayan

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It has been an interesting week for the market. Today, the market may seem to have a little flatness indicated by global cues, says CNBC-TV18's managing editor Udayan Mukherjee. Nothing much has changed overnight but the rally very much seems to be in place globally, admittedly volatility is going up a little bit but so far no signs that we are about to turn just immediately.

The FII flows that India is witnessing are staggering, about Rs 2,000 crore of cash. Yesterday's 2G scam verdict didn't deter the market for long and continued to hold steady after a brief blip. Udayan, however cautions investors to not be to cute about judging fundamentals right now.

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

Q: A day of rest it seems for the global markets but there are important data points expected later today?

A: There is but I think everybody is focused on liquidity at this point in time. Increasingly if you ask people if this risk-on rally globally might come to an end, they will point you in the direction of second tranche of LTRO which is coming up in Europe in a few weeks time. Everybody seems to be talking about a much bigger tranche of LTRO this time. So it's like a QE2 phenomenon in a way though they are different.

But you are in that phase where the market is feeding on liquidity and there is expectation of even more liquidity by the end of February. Therefore, people are asking why this risk-on trade should fade away. It could easily have a few weeks more. That is basically what the market is focused on at this point. Everything else is quite peripheral.

The CBOE VIX has been inching up a little bit so that's telling you that maybe the complacency is coming off a little bit but as long as the money power is as much as it continues to be, I don't think global markets need to worry. Next week will be important because at least you will get a sense of whether this rising volatility is indicating some kind of intermediate corrective phase or money will simply overpower it.

Q: We will continue to move on this liquidity drive too?

A: It seems so. The kind of flows that we are witnessing is staggering at this point in time. On another day maybe the market yesterday would have slipped on the 2G news but it slipped for a few minutes and now you know why it managed to recover looking at the kind of flows that we got in yesterday, nearly Rs 2,000 crore of cash market buying.

Maybe yesterday's event causes a little bit of a wrinkle. Maybe tomorrow's event on the trial court ruling causes a bit of nervousness but that's all irrelevant in the context of the kind of flows that you are seeing at this point. This is a phase in the market where you do not want to be too cute about judging fundamentals; you want to be focused on the technicals because that is what the root of this rally is. So you keep tracking flows. If the market has to turn despite the flows, you will get indications from the volatility indicators and that you need to be watching closely too.

Q: Yesterday's uptrend will continue this morning as well?

A: You wouldn't bet against the market at this point in time because there are not too many other news triggers at this point, results are more or less done, there is no monetary policy event so the market is focused on basically two things; the FII figure in the morning and what happens with other global markets. As long as these two parameters remain stable, traders will be inclined to trade long. Along the way you can get a day like you saw last Monday, which was a big jerk down but that got swallowed quite easily and the market continued to move higher.

In this kind of a market it is quite pointless to talk about levels, so you know this obsession with 5,200-5,400 all of that is quite meaningless now because the market can go to any level until the money keeps coming in and you don't have too many sellers at this point in time barring the domestic institutions who are being overpowered by the FIIs. So this is that kind of a market and you can continue to move higher.

At some point will you get a correction? Yes, what is the trigger for that? - I don't know because over the weekend there could be a Greek resolution. If it happens the way the market hopes it will, then you could get even more risk-on next week which could drive prices higher but if it's a bad outcome, then that is the possibility of denting the market sentiment somewhat.

Q: The Chidambaram thing on Saturday will not affect the market much?

A: It depends. There is no point speculating about the verdict because it's a binary situation. If it's a good verdict for the home minister then the market will say - fine lets move on and keep focusing on global markets and their flows. If it's a bad verdict then it might have implications for the government, for the UP elections maybe and to that extent that might be bit of a roadblock on Monday but let's not speculate ahead of the event. We will see on Monday what the trial court verdict is.

Q: The flows have been extremely strong but there is a big buy figure in the index options as well yesterday?

A: The big thing is the cash market right now. This is not a market which is being driven by fresh addition of long positions. This is the brute force of the cash market and you saw that almost Rs 2,000 crore cash market buying which happened yesterday and the kind of delivery percentages we saw in many largecap names like Reliance, Bharti, ICICI Bank, its top down money which is getting allocated.

I don't know about ETFs, that is hearsay in the market but it seems like it is that kind of money which says I want to participate period so give me the stock or big index weightages with which I can participate. So it seems like nothing is wrong with the money that is fine. You cannot distinguish between the colour of money, it's coming from whatever quarter but it's that kind of top down money which is getting into the market.

The only small wrinkle and that's maybe not a big thing is that the India VIX is slowly rising for the last couple of sessions. That generally is not a comfortable thing. Sometimes it's a precursor of some degree of choppiness coming back into that market. Also the CBOE VIX has been going up the last couple of sessions, so the volatility indicators should be watched closely because right now we are just getting too tunnel vision on one thing and that is the amount of dollars which are coming in.