Markets starts on a positive note post Draghi's comment

Yesterday, the markets looked scary but today it is a better morning. Expiry was bad yesterday, but this morning the mood has been lifted because of some comments from Mario Draghi.

Yesterday afternoon Draghi mentioned some important or influential things which lifted the European markets yesterday, the US markets, the global markets overnight and that indicates that we'll start off by winding the clock back to 5100 on the Nifty. We will get a bounce today morning but one needs to see how durable it remains by the end of the session today.
Draghi made some important points yesterday where he promised all kinds of unions, political, monitory, fiscal banking.
It is difficult to understand whether he was trying to talk the markets up or is he worried that the yields are moving in a direction where unless the ECB steps in and announce something to the rescue, or was he warding off some market players or was he injecting little hope, as central bankers do or was he indicating that he will go out and buy sovereign bonds and activating the S&P.
It is difficult to pick up what was on his mind but the message was strong, and the markets have reacted to it. It is difficult to say how things will progress from here, does he have the political capital to do what he desire to do, or will Germany block the way. Spanish and Italian yields were moving in a direction where one would have expected a verbal intervention from the ECB and that came in through yesterday.
But the million dollar question is -- for how long. One needs to see if it is just a band-aid for sentiment which lasts for a couple of days and then the markets go on to focus on the core problem because the euro is rotten at the core.
I think markets are manic right now. Yesterday afternoon all said that the market has broken important levels and today for traders who would have gone short they will get snapped back 50-60 points and may even have to cut off their short positions.
Currently, the global markets are in a very manic state and the markets are behaving in a very immature way over the last few weeks. The immediate reaction which comes after the news flow and then the disappointment which follows 12 hours later indicates that that markets are not thinking wisely. Equity markets of developed markets are behaving quite immaturely.
Like yesterday we got excited. It won't be surprised if 24 hours later people come to the conclusion that this was some verbal intervention and markets will go back to focus on the problems that you alluded to.
The euro moved back to 1.235 but already it has come down to 1.22. We just see what type of reactions will follow up on Draghi’s statements over the next 48 hours from Germany and from the rest of Europe, and if that is proper and appropriate, you might see an extension of the rally that started yesterday. I think markets are volatile right now.
I think this morning we'll reclaim 5100. I don’t know for how long but we will because yesterday it was almost a climactic selloff, expiry was happening, a lot of midcaps had sold off, mood was bad and suddenly towards the last one hour we saw the collapse below 5050. Sometimes it happens that the market will take out an important support level. So I think it is possible that we get back to 5100.
If Europe opens up again with optimism this afternoon which is not unlikely then we can see the rally extending to even 5150 which is the level which the market took some time to break on the way down.
Anything more will need more because once you get into next week you are getting into important news flow again. The RBI policy comes in, by then more disappointment will start growing on the local policy front if nothing would have happened which is quite likely and then the frustration will start building up. So unless you are saying that whatever Draghi said and follow-ups over the weekend leads to a massive period of global risk on and global markets rally 10-15% easily over the next few days, that’s a different ball game.
Then India will participate. But if this is just a two day kind of pull back in global markets because of the yields cooling down there then may be we are headed to 5100 and then 5150 and then pause and take stock and if global markets don't continue the rally it won't surprise me one bit if the Nifty came back once again and retested and probably even broke the levels where we closed at yesterday.
So global markets will be a key but to add fuel to that global fire, we need local action. If that does not come through then I think any global-led rally will not sustain in India because our fundamentals are very shaky.
We had a large sell figure yesterday but that is on expiry day so I don’t know what to make of Rs 1200 crore sell number. In the last three days we saw selling of almost Rs 2,000 crore from FIIs in the cash market which is a bad sign.
The options data series is starting with 5000 put and the 5200 call being most active. So the markets view right now is that we are trapped in a lower range with 5000 as a key psychological support as well. But getting above 5200 which is the support we broke on the way down is going to be a little difficult and challenging. What is baffling is that the market collapsed yesterday but the VIX did not move.
I think there is a lot of complacency in the market at this point that 5000 cannot break on the way down and the VIX is therefore not moving. So let us see over the next few days if we can indeed see volatility remaining subdued, markets still getting stuck into a narrow range which would be not a bad outcome in the kind of local fundamental picture that we are wading through.
Our fundamentals are rotten at this point. We have got a drought like situation, earnings are patchy, there is no policy action which has come through yet. All this does not make case for any upside. So if we can grind in this 5000-5200 range and get out of jail by the middle of the series, I think it would be a good outcome.