Earnings will lead mkt this week; global mkts in party mode

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Earnings will lead mkt this week; global mkts in party mode

The market closed last week with fabulous gains that did raise some hope across the investor class. However, this week may possibly see a correction, says Udayan Mukherjee, managing editor, CNBC-TV18.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other CNBC-TV18 anchors have to say Reliance BSE | NSE 30/05/12 Are Mutual Funds betting on Reliance? Other Stocks in this news Larsen and Toubro | Zee Entertainment Enterprises | Jet Airways | United Spirits |

The market closed last week with fabulous gains, rallying up to 5050 that did raise some hope across the investor class. However, this week may possibly see a correction, says Udayan Mukherjee, managing editor, CNBC-TV18.

It is indeed a big week for the market with Reliance result reaction coming in first today, followed by the RBI policy meet tomorrow. Throw in an early expiry for the market on Wednesday apart from the earnings taking precedence through this week as major companies are slated to release their quarter three numbers.

"Global cues seem positive today with the markets on party mode," says Mukherjee. The only wrinkle comes from what happens in Greece in the next few days.

The good news is that crude is looking a little wobbly once again from an Indian perspective. However, the breadth of the market seems to be shrinking at a rate faster than expected. The CBOE volatility index is down nearly 8% now. "Generally it is good to see volatility coming off, but the speed and rate at which it has come off over the last fortnight or so, I think it's almost getting into complacent territory for global markets," Mukherjee says.

So while the wind is blowing in the right direction, given that people are becoming quite complacent, you almost have a little bit of elbow room for some kind of shock here and there.

Nonetheless, the answer to the 5100-5200 question gets answered this week, says Mukherjee. "You will see a not-so-good end of the earning season play out this week, you have already seen the first one getting fired from Reliance, and I guess there will be more negative surprises coming in this week," he says. How the market negotiates that is going to be very crucial.

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There is expiry and it's been quite a heady series in a sense and the monetary policy where the street is still divided on the CRR cut. So the bond market will probably play an important part this week.

By the end of this week by Wednesday afternoon, you will get a sense of whether the Nifty is able to get past 5100-5200 and stay there or it's turning around from those levels.

According to him, Reliance should start soft today. The buyback supports prices at lower levels. "They do not trigger off massive rallies, and now on hindsight, you can almost sense why Reliance announced the buyback because it had to push in the stock against this kind of fall and also to use up some cash on the balance sheet," says Mukherjee. But stocks usually should perform in line with fundamentals, and fundamentals as reflected in the numbers don't look too good. So the stock would have fallen quite a bit, had it not been for the buyback. Reliance might still fall, but not as much because people will think that at lower levels, Reliance will come in and buy and support the stock; and that feeling will probably put a floor around Rs 700-720 levels for the stock. However, there is no way the stock should trade above Rs 800 now, given what the company announced on Friday.

"On the whole for the market, I won't be surprised if the Nifty opens up flattish today, may be at some point rise to that 5100, faces some resistance and till at least the monetary policy tomorrow, trades in a range of 5000-5100," Mukherjee sums.

However, the gush of money so far has been quite impressive. "It's staggering and it reminds you of a few months of 2011 where we had these kind of flows and the market went up 10-12%," points out Mukherjee. That's exactly what we have seen today - Rs 6000 crore in cash, nearly Rs 6000 crore in F&O; that's Rs 12000 crore in 15 trading sessions. So nobody should be surprised that the markets moved up this fast. Of course, we must have seen some degree of domestic participation in futures. Given that there is such a lot of global liquidity momentum at this point, hope nothing major happens in the next few days that turns the tide around a little bit.

Keep an eye on the local news flow because that will determine whether upsides are caped or not, says Mukherjee. "But the answer to whether this party can continue here is just a matter of dollars. So we need to watch the rupee as well which has taken some degrees of resistance around the 50 mark and if that also forms a trading range now around 50-52, chances of Nifty also stalling and forming a range around these levels also gets higher," he says.

Of the earnings numners today, L&T will be one to watch out for. L&T will struggle to report good numbers. While top line should still show 15-16% growth, we are not expecting a great bottom-line performance considering order-booking was very weak last quarter and this quarter too order booking may not be great.

"I think the internals of the numbers will be quite sad," says Mukherjee. Given that L&T had a 25% stock rally from its recent lows, there is possibility for the stock to come up. Right now, the market is not in a mood to focus on those numbers, but United Spirits posted quite a bad set of numbers, Zee was not extraordinary, Jet Airways was bad. So you are getting to that end of earning season whether first bit is beginning to fade and at least 5-6 large companies have already disappointed and you will see many more disappointments this week as we go along.