Expect rocky start to market, Budget session eyed: Udayan

Udayan Mukherjee, Manading Editor of CNBC TV18 observes that the market has degenerated to a flat to negative one, after a promising start to the week. He predicts that today we will probably get nicked a little bit in the morning because global cues have turned negative. The Dow Jones is down 108 points and the S&P 19 points.

But he opines that a fortnight back too, we had a bad couple of days in the global markets, and we thought that this is a start of an overdu correction. But the market just swallowed that and moved to even higher levels after that.
Last night there was a lot of talk about the minutes of the Federal Open Market Committee (FOMC) meeting and whether there will be a premature pulling back of the quantitative easing (QE3). That will have fairly serious ramifications for a world which has been awash with liquidity. But markets could be overreacting.
It is to be seen whether this will be a trigger for the global markets or just lead to a pullback for a couple of days. But markets have had a great run globally over the last many months, a correction would not surprise most people.
We should not jump to conclusions, but clearly there is a bit of risk off that’s evident right now which is showing up in the currencies, the way the dollar has rallied. To that extent, we will certainly have to price that in this morning. The Parliament session which kicks off today is an important one. The last Parliament session achieved much more than people expected. So right now, the expectations are not very low going into any parliament session.   The start of trading might to be a bit rocky because of the chopper scam, but then we run into the Budget and Railway Budget, and a lot of the business in this session will be centered on that.   There are also a couple of important bills like the Pension Fund Regulatory and Development Authority (PFRDA) Bill which are also listed this time – these could be important to watch even post Budget, to see if they can be pushed through. Around the same time, there should be some resolution on the banking licenses as well. So, there could be important issues for the financial space over the next couple of weeks,.   Also, the Food Security bill will have ramifications on the overall macro picture. So, that becomes an important one to keep an eye on in this Parliament session.   But I don’t think the markets should be too worried because frankly, policy, which was a headwind for the last three years, has become a tailwind for the markets right now.   The issue is whether growth, macro and now increasingly global markets and liquidity will turn out to be headwinds in the near term, which might take away from the policy sheen that the market has been riding on for the last few months.   Essentially I think the index will remain between 5850-6000. 5850 proved to be a strong support. Today, the market might drift closer to that 5900 level in the morning and let’s see if it can stay above that psychological level.   Some of the positions which have been built on the long side over the last couple of days might need to be adjusted. But, we are probably still in that 150 point kind of trading range and going back and forth within that.
  6000 still remains a bit of a hurdle to cross, and on the lower side, maybe the market will not breakdown substantially below 5850 before the Budget.
For the next few days, the market will clearly have the Budget on its mind, but I think the global outcome in the medium term is far more important. This is because if we do get into an unfortunately risky kind of phase, where global markets correct and the liquidity cushion gets taken away for the moment, then I think the Budget will probably be reduced to a non-event.   It will come and go, creating some 24-hour volatility. Then the markets might just start focusing on global cues. So, with our focus on the Budget, we should not ignore what’s going on across the world.   That framework on where the Nifty finally heads out is far more important going into the next 15-20 days. But just for the near term, the next couple of days, I think we are still stuck in the 5850-6000 zone.