Global cues strong; expect good numbers from Infy and RIL

Wednesday was a much better day for the market, finally there was a pullback. Today global cues are pretty good. The US is trading once again with a smart rally at fresh all time highs and Asian markets are following suit. There is every reason to believe that the pullback, which started yesterday will probably get extended today, says Udayan Mukherjee, managing editor, CNBC-TV18.

Also read: Low FII flows temporary; book profits in Infy: Dipan Mehta Below is the verbatim transcript of his interview to CNBC-TV18 There is no stopping the US. There was a little bit of wrinkle around the Fed minutes yesterday, but that also seem to indicate that there is no stopping the huge liquidity gush just for the moment. The market celebrated that yesterday.

Around us, some good things have happened. There was the Italian bond auction going through yesterday and the Chinese trade deficit, which a lot of people are reading for a potent of good economic performance domestically in China. So, I guess all of these things have sort of lifted the pall of gloom across at least this part of the world, the US has been on a bit of tear.

The only thing one would worry about right now is that there are signs of the US market showing a bit of a blowout kind of phase. It almost looks explosive and the word blowout is usually used to describe phases where market burnout in a flash towards the end of their rallies. There is no indication of that on the screen there and I am no expert on the US market either. However, it appears the price action that there is a climactic kind of move happening in the US right now. So, just want to tag along with that sentiment, but I think there is a climactic element, which might lead to grief. At some point it may not happen immediately, but the way prices are moving in the US, it resembles the last bit of a strong bull market run. But that said those markets are strong and they have lifted the general risk on sentiment across the world this morning, no question about that. Whether we get some flows our way because of this risk on is the key thing to monitor. It has taken other markets along with it. Europe is very strong, Asia ex of markets like India has actually had the best rally this week that it has seen since January, so at least we held a 1 percent gain yesterday. This is a period of respite for the market. We were talking about this two days back, but it did not materialize then and surprised by breaking below 5500. But slowly because of the global sentiment, may be an expectation that starting tomorrow we will get a couple of good numbers from Infosys and Reliance Industries. So, it is that combination of factors, which is leading to this period of respite. We have had a big fall continuously for many days. It wouldn’t surprise me, if we put in an effort out here and got a few days of an up move, which might lift hope in the market if nothing else. Are we done with this down move? Is 5500 the bottom for 2013? These are difficult questions to answer. I don't think so, but that doesn’t matter as much as the fact that the answer is very unclear. I don't think a 150-200 point up move on the Nifty will take away the sting of the kind of downtrend that we have embarked on. So, it is a fluid situation, downtrends will also have respites and what we have started yesterday and may go on to build on today is that period of a respite which one will always see, even in strong and pronounced downtrends. So, enjoy the respite as long as it plays out, but one shouldn’t get carried away. How much the market can do in this current pullback phase, if it can pullback a bit more depends on a few things. It depends on whether this current assessment of risk on that we are seeing once again continues. If this risk on continues how much money gets thrown our way because nowadays global risk on does not necessarily mean that India gets its share of it. Different markets have started getting different kind of flows and they are not moving in the same direction. So, this is probably a rising tide in the near term, but it is not lifting all boats and certainly not all boats equally.
So, one could have a situation where there is good global sentiment, but most of the beneficiaries of that are probably the US and Japan, to a limited extent Europe. However, we don't get too much of that share of it. Then we have the first few earnings, which may be good from Infosys and Reliance and that might create at least in the near term some sense that the market might have fallen too much ahead of earnings. Though I think the bad earnings will catch up soon after that but in the near term that might lift sentiment a little bit. If all of this comes together one could see an extension of this pullback. The first hurdle of course is the 200 day moving average below, which we have spent nearly a week. So I think the first sign of a limited amount of strength comes when the Nifty is successfully able to climb above 5640 kind of levels and steer pass the 200 day moving average. Once it does that may be a first level of short covering happens and then that might pave the way to something like 5700-5750 kind of levels. But that is a couple of 100 points away from here, so one should not get carried away. We take one step at a time because these are pullback rallies. These are periods of respite and one shouldn’t set very aggressive targets for pullback rallies, which tend to be counter trend in nature. So, for traders once set modest targets and the market gets there, one can reassess situation at every level. May be even start taking profits even if one has to leave some profits on the table which if the market carries on higher. I think the best thing is to play along, if one has to with the momentum at this point in time on the way up, but be prudent, cautious and do not be too aggressive in chasing these up moves. As one has seen over the last one month, these can come to an end very abruptly and take away all gains in just about a days trade. So, one needs to be aware of what you are trading right now, not a very long multi-week trend in the market but a respite and that has a different set of characteristics. Therefore calls for a different kind of discipline of its own. This morning liquidity is not too bad because we have got a small Foreign Institutional Investor (FII) buy figure of Rs 40 crore. More than the amount of the buy, the debate this morning would be whether one has got the end of selling for the moment because we have had five-six days of continuous selling. If this trance of selling has come to an end then at least it removes in the near term some bit of a technical hangover of the market. It could equally be that it is the price level, which has led people to move away because markets come down quite quickly to 5500. Therefore prices don't look that attractive to sell and the selling might come back if the market recovers a little bit. We’ll find out over the next few days how the FII money behaves itself, because if we talk to brokers one will get various opinions on how ETF selling is over for now. Some will say that it will reemerge later. The liquidity position is unclear.
What is important over the last couple of days is that we have started to see some domestic institutional buying. Day before was quite a large figure, yesterday was also a buy number. It may be because of insurance companies but in March may be domestic mutual funds also got a little bit of inflows. There might be some deployment of that money going on with the Nifty coming down to 5500 kind of levels. So, for now today the liquidity picture just in the near term looks a little bit better than how it has been looking for the last one week. That is something, which the markets might want to ride on as well. One could sense yesterday that there was a bit of short covering in some of the financials, there was a little bit of buying which was going on or long positions being added as well in some of the better quality midcap names. So, people are positioning themselves for a bit more of an up move whether it is 100 or 150 points. So I guess the mood this morning will be a little bit better than how we started off yesterday.