Strong June series after disappointment of May: Udayan

Today is expiry for the June series. It has been a good series for the market and a good comeback from the disappointment of May, says CNBC-TV18's managing editor Udayan Mukherjee.

Today is also the start of the EU Summit which may or may not have important things for the market but financial markets across the world will watch it very closely for any kind of cues on liquidity. Also Read: Indian market outlook ahead of the EU summit
As important events flag off today, our market should start off flat because most global markets seem flat around us. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: We have done okay for the series even though we have flattened out at the tail end. It’s been so high in terms of news flow through June.
A: Yes, it’s been a good comeback. Yes, the last 10 days we have been a little stifled around this 5,200 level. There has been some stalling of the momentum which we saw in the middle of June. But having said that, to get 4.5% in the series till today, is not a bad outcome. We lost 5% in the May series and all that the market has done is probably recovered that 250 points odd that it lost in the May series.
So it’s good but we have come back to the April levels now. It’s not been a defining series in the sense of a major range breakout but it certainly has got us into a higher range for the market. Let’s see how we close off today and how the July series which seems to have more triggers pitted for the market starts-off. Q: How about the global setup for markets now?
A: Well they seem quite relaxed for now going into the EU summit and the currency markets have not moved too much. Equity markets seem to be quite relaxed. There is no great expectation so no rally pre-event. While there is some skepticism there is no great despondency as such which is why markets have not sold-off so an even keel.
But currency markets are pretty much stuck where they are with the euro and the dollar not having budged at all over the last couple of days. It’s in neutral gear that the markets are approaching the EU summit today. It will be important of course but I don’t think there is any clue that you are getting right now on where the next 7-8% move in global markets will be.
I think the near-term trend might well be set next week once we pass this event because immediately after that there is not too much by way of events. On July 5 there is an ECB meeting where rate cuts are expected but the big global events are out of the way after this weekend. Q: The hope will be that with the series gone by and global cues behind us, the market will attempt to break out of its range.
A: For today, an expiry around 5,150-5,200 will please the street. That’s what was the target for traders in the first place that we will try and get as close to that 5,200 mark and maybe end the series somewhere there, and then see what the cues are like globally next week and see if in the July series we can move higher to that 5,400-5,500 kind of platform. So that seems to be the tilt of the market for now.
No great turbulence is expected today in any case and yes, June has not been a bad series for the market particularly for the broader market. But also the positioning seems to be getting a little bit more bullish. If you looked at the action for the last couple of days, FIIs have been buying Nifty futures and the last two days put together, the number is about Rs 1,500 crore.
Day before yesterday, it looked like some long positions were being built and yesterday it looked like some of the shorts were getting covered ahead of the events of the weekend. The bears have retreated a little bit to the corner for the moment. The bulls are hopeful that the events of the weekend will probably move the Nifty out of this very narrow 100 point kind of trading range.
So let’s see what next week is like and if it opens the tap up for some more liquidity flows in the near-term. That is what this market has been lacking and that is why it has been stalling around this 5,200 level. Again, there is some supply of paper of around USD 450 million from Axis and YES Bank which needs to get absorbed which will take away some of the global money from the secondary market. Q: In the past, we expect a lot from some of these global events but then nothing comes out of it. What about the EU summit in that context?
A: Expectations are low this time but conversely, markets seem far too relaxed and there is no semblance of panic in the market. Therefore the compulsion for the euro leaders to act in haste, tend to do something very quickly is much lower. Politicians usually respond to very dire market conditions far more than they respond to bullish expectations in a market which is stable.
If the euro had completely collapsed to say sub 1.2 over the course of the last seven days, if euro markets had taken a complete beating, there was panic and mayhem in the credit markets, I think the chances of Angela Merkel doing something which she is intrinsically opposed too would have been far higher.
Right now with markets being relaxed, euro leaders might just shrug and say - we have done 18 conferences and there has been no real panic, so why not kick the can down the road and why the haste to act right now especially on things we are not completely agreed on. So that is a bit of a disincentive for politicians in Europe to do something in this summit because markets seem quite cool about it.
The one thing that you can see from the commodity markets is that may be there is some kind of stimulus which they are banking on. The fact that crude has pulled back and it looks like a corrective pullback for now, this 5% move from USD 89 to USD 94 a barrel that is probably pricing in the July 5 ECB rate cut.
So some liquidity event is probably being banked on by the commodity markets which are why they moved up before the summit and before the ECB meeting. So it’s unfair to say there are no expectations. But having looked at the previous EU summits, given such placid market conditions, the chances of them doing something dramatic appear a bit low.