Mkt to wade into earnings season on cautious note: Udayan

Due to the listless nature of global financial markets, CNBC-TV18’s managing editor Udayan Mukherjee says Indian equities could remain flat as we get closer and closer to earnings season.

Yesterday was a bit of a down day for the market, so the week has not begun very well. Today as well we are resigned to flat market because global markets have not moved too much. The SGX is flat, so as we wade into earning season, it looks like we might just have a few range bound sessions and then take it as the newsflow pours in.

Even on the global screen, markets are just grinding down in terms of sentiment and performance. So it is almost like a lull out on the street. Some of the triggers have played out globally, and now people are expecting or waiting for more now.

We have had some kind of clarity on the bank recapitalization plan for Spain, which is the direct use of the European Stability Mechanism (ESM) funds, and excited people after the Euro Summit. But it is still not too much clarity on the part, so over the next few days as deliberations continue in Europe, people would want to know whether some of the direct use of funds is going to come through. That is going to decide whether another period of risk-on is on the cards or if the summer rally is beginning to flag off here.

Of course China is very much on the watch list as well because of the data which has been coming in. So it is a period of lull and data watching. Global markets won’t be seeing any great momentum at this point in time and that is very evident in the kind of volumes that you are seeing across global screens.

Tempo may start picking up for us the second half of the week though, both in terms of micro earnings and macro data. July is a big news flow month, there is a lot to look forward to. When there is a lot of news flow, we expect the market to be hugely volatile because of it. But sometime, the market has a habit of getting crunched into a bit of a trading range which we have seen enough number of times in the past. So July is going to be one more of those months where a lot of data points keep coming in, the market varies between overbought about what's coming in, and therefore it just forms a bit of a narrow range and grinds within that.

As we get towards the end of the month of course we will get the presidential elections and we’ll have more clarity on monsoons. Expectations on the policy will start building up from New Delhi. So the last part of the month will be quite interesting, but don’t be surprised if in the next few days the market continues to remain in a 200 point trading range.

Yesterday we took a couple of steps back from the ground covered, but it is too early to panic out here on the Nifty. It is just forming a range out here, and unless global markets fall off significantly and one gets the sense that we are entering a period of risk-off, everybody is working for a range of about a couple of 100 points.

If you will recall, we had a massive gap on the day when the Euro Summit news came in. If you look at many of the other asset classes, the euro-dollar or many of the European markets, they have gone back and in many cases have filled that gap of that previous Friday but we have not done that. We are still hovering around the 5,270-5,280 mark, which is pretty much the top end of that gap. We have to see if in the next few days newsflow will peg us back to fill that gap of 5,150-5,270 or we form a slightly higher range and maybe grind around 5,200-5,400. But for now, there is no great juice trading the Nifty. Momentum is quite sapped and traders are better off probably looking at individual stock opportunities. Trading the Nifty is becoming quite a crunch once again and that has been the trend of the last many months; you get one-two big moves and then for 10-20 days the Nifty just forms a very narrow 2% kind of trading range.

Even in terms of the internals, the volatility is high but the market isn’t moving too much. Individual stocks are doing this and that, but at the level of the index you are pretty much seeing the same thing. The 5,200 put gets more and more attraction on the writing side and on the 5,400 call as well. So traders are not betting on a breakout of that trading range anytime soon. Volumes have drifted down, there is no great impetus from the liquidity front either, FII buying has diminished to Rs 200-300 crore a day and that is being more than offset by domestic institutions who have been consistently on the sell side for the last couple of sessions. So I don’t think there is anything in the futures and options internals which suggest a massive breakout of breakdown at this point in time. So we may just still remain quite stock specific as we wade through the first part of the earning season.

Read on for Udayan's comments on OnMobile..

_PAGEBREAK_

Coming to the news on OnMobile, the first part of the reaction came in a few days back as some of the media started speculating about this possibility. There is not much clarity on what kind of misappropriation of funds has happened at OnMobile, but certainly sentimentally the stock has taken a knock. Yesterday too it was down, it is off the lows of what it hit when the news first broke, so we might go back and retest those levels of Rs 28-29 quite easily because a lot of people would be scared by so much media attention on this company suddenly and you might see some liquidation on exits coming in.

But if the stock does go below Rs 30, maybe to those Rs 27-28-29 kind of levels, you will be finding it at about four P/E on FY13 earnings. It is not a bad business franchise; the value added services market has had a bad run because of the continuing uncertainties in the domestic telecom market, but it is a reasonable franchise. I don’t know what is the extent of the problem is with the management and if that gets sorted out, they get a new management in place, it seems like a professionally managed company or used to be and the business franchise is good. So maybe if you find it well below Rs 30, it is worth a look in, would the caveat that if it turns out to be a can of worms and a big scam or something like that then you had it but with that risk and caveat, I think if you are just looking at it purely at valuing the business at Rs sub-30 levels, you are finding a reasonably good business at a very attractive valuation point but that doesn’t mean that the stock will not fall this morning.

Also watch the accompanying video..