Udayan Mukherjee, managing editor of CNBC-TV18, says that yesterday’s global growth numbers came as a dose of reality which scared the market.
Yesterday’s fall confused a lot of market participants because the ferocity of it was surprising. So even before the market could celebrate the rally of day-before, the market tanked 140 points which affected sentiment. So the market is in a difficult place this morning, but hopes are that there will be a little bit of recovery.
Udayan Mukherjee, managing editor of CNBC-TV18, says that the main setback for the market was the global economic growth. The mistake was that people were probably too complacent about global risks, because even just two days back everybody was saying that there was no reason to worry about Europe because the ECB had taken care of it. But then suddenly you get those very ugly numbers, and it was quite a bad day for numbers across the board.
The morning started with the Chinese PMI which was very bad, and then the German and the French PMI, which came in later in the afternoon, just served the market a bit of a reminder that while stocks have rallied economies are not flying right now. So it's probably just that complacent markets were faced with a dose of reality about the underground economic conditions and that probably scared the market out here a little bit.
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Key thing to note, however, was there wasn’t any great institutional selling yesterday. So it could also be events like the coal scam that triggered the sell-off. CAG report on the coal scam and the Rs 10 lakh crore bandied around might be a gross exaggeration. It seemed like the CAG had closed the lid on this speculation for the moment by saying that the report was misleading, but in the current environment and in the milieu that the government finds itself, political parties will try and extract capital from this report. Therefore the noise in Parliament will remain quite shrill. In anyway, mining has been in the dumps for the last many months and this cannot come as a help in that kind of environment either.
We also had a rollback in the rail fares yesterday, fuel prices still in a bad place and the government’s getting more into a corner with the kind of noise that you are hearing in Parliament for them to come out and do something which is constructive. So this sullies the environment more than anything else, even if the CAG Report is inaccurate in terms of the numbers and the allegations.
As of now things have turned a bit in terms of people’s expectations of the index given yesterdays events. The market is in a range, but it's got very volatile within that range. Just day before people might have thought that the rally which is starting which will take the market to at least 5500, but just within a day of that we are back down to defending 5200 yet again. So it's not an easy market to trade at this point in time because it's range bound and very volatile.
So at this point, it's very difficult to make a prediction of what will happen over the next couple of days. Given that at least some of the news flow on the coal front seems to have subsided a bit and a big gap down globally this morning has not happened, so may be a 40-50 point recovery on the Nifty is very likely today. But after that, people will start wondering whether the 90 point rally meant nothing and if they should be going short again if the Nifty works its way back to 5250-5300 levels again. But right now, once again the focus turns to defense of the 5170-5200 zone which people have been talking about. So far it's held out, and today would be another test of that on a weekly close.
The internals are not great, but it's not too bad either. It might have appeared yesterday afternoon that the kind of PMI data that we saw from Europe has unleashed some kind of risk off and that’s why the market sold off, but the data doesn’t support that. We have still got Rs 250 crore of net positive cash market flows from the FIIs and in the futures market they have created some fresh longs Rs 400-500 crore. So yesterday’s fall was not on account of global selling, which I suspect will be taken as a bit of a relief by the market this morning because the traders might have prepared for an FII sell figure yesterday after the global news and that’s not materialized.
But domestics panicked a bit may be because of the coal situation and that’s what led to the spike in the VIX. When the market corrected from 5600 to 5200 the first time we didn’t see a huge jump in volatility, but yesterday the VIX added about 4 points to itself which probably will make the market a bit nervous that this time may be there is more momentum to the downside or the volatility is indicating that a temporary breach of 5200 is not unlikely. So that remains the worrying figure today and the comforting figure is the lack of selling from the global guys.
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