Mkt may be volatile on inflation, eye on key earnings

The market has seen a respite to the downtrend in the last couple of days though it was a bit disappointing the way the market came off the highs of the day. Even so, more of Asia is open this morning and some of them in the green. So, atleast it could lift the market for starters in the morning and hopefully, we will get our third positive day on the trot.

It is a very big day for the earnings calendar with biggies like State Bank of India (SBI), Tata Motors, DLF all reporting their Q3 results today and with the inflation numbers coming in. So, it could be an interesting micro and macro day.
Yesterday did not spark off too much confidence in the market. Infact, the way it came off from the highs of the day was a bit disappointing. Today is an important session in that context, because we have got lots of important earnings coming in and inflation numbers too.
At the end of  the day, if the market can strike off a little bit on the way up, then maybe confidence will grow in the fact that 5,900 or sub-5,900 can be worked out as a short-term base before the Budget. We can then, over the next 10 days maybe attempt a bit of a pre-Budget upmove. However, if we close today in the red, then I think the general feeling that it was just a two-day respite, a modest respite and the downtrend is resuming on the way below 5,900 will gain a lot more currency.
Today is doubly more important because today is probably the most important day in terms of the second half of the earnings calendar and then the inflation numbers that might swing it around in the middle of the day. So, I think by 3.30pm today we will get a sense of whether just in the near-term, the short-term direction of the market is a bit more of a pullback or the resumption of the downtrend begins again with the Nifty going down below 5,900 again.

People are bidding for a seven percent inflation figure which is tricky, but my sense is that this number is probably not as important as the Budget for which the Reserve Bank is thinking about doing next. The inflation number is always important. Sure, a sub seven percent number will help quite a bit and that’s part of the puzzle. Today, if we do get a sub-seven percent number and a core inflation number of say four percent, better still, sub four percent, then again yields might start softening down to 7.8 or below. Market will start hoping that come March, if the Budget isn't bad, then we will get another rate cut.

That probably becomes a small platform for the market to attempt to get back to 6000 once again. So, that’s a midday trigger, but I still think the Reserve Bank has probably a good idea what's coming today and is probably watching the Budget far more closely on what the finance minister achieves to be able to move in March once again. So, like the IIP number came and went, I think inflation too will come and go unless it's a deeply sub seven percent number. Maybe it will cause half and hour of volatility but beyond that the market will assume its ordinary course.
More to come.