Greece elections, RBI policy may take Nifty to 5200: Udayan

Greece elections last night saw the New Democracy Party emerge victorious, which means that Greece stays in the eurozone for now. It is now up to the Reserve Bank of India to carry on the good news today, says CNBC-TV18’s managing editor Udayan Mukherjee.

Markets have welcomed Greece’s election results with a positive upmove, however it may only be a short term bounce. Most global markets had gone into the event quite strong, so they were expecting this outcome and a large part of that is therefore in the price. We will get a little bit more of a pop-up, so we could see Asia stable and Europe opening up pretty okay. The Dow future is also quite stable, so we should start off okay. Traders probably will get their 5,200 exit that they might have been playing for last week. So good for now in the short-term. In the medium-term, a lot of work needs to be done. I think Greece has just bought some more time for itself, there will be a lot of renegotiation on the euro treaties and austerity packs and the last word on that has not been said. Spain and Italy remain in a very sticky kind of position. Also, if the market was hoping that a poor Greek result will lead to a lot of the liquidity flood gates opening this week from the ECB and from the US Fed, now that the election result is not too bad maybe that also does not happen. So maybe there will be a trace of technical disappointment in the market because of the lack of big liquidity measures. But all said, a little bit of a pop-up is expected this morning, but we will need to see the currency markets for further indication of whether it can be extended over the next few days. The suggestion is not that there will be a massive sell on news, there might be a bit of that, but if the euro stalls around 1.27 to the dollar, then there is no major risk-on which is durable. The euro needs to move to 1.28-1.3 and the dollar index needs to break below 80 for the markets to get the feeling that there will be a powerful risk-on which lasts for a few days and weeks. If the US Fed gives us good news on Wednesday with some variation of QE or Operation Twist, then we might get a period of a summer rally which can build on the 5-6% rally that we have already have. On the other hand, we get another 1-3% but it ends there. This morning, all you can say is that maybe a small step will be taken towards a risk-on, but it is very unclear at this point whether we are talking about the multi-week global risk-on rally. Also read: Mkt forming base for durable long-term rally, says Ridham Desai Obviously back home we have got pretty big cues from the Reserve Bank which will speak in a couple of hours. Hopefully the market is not walking in with high hopes, because then it will be difficult to beat the market’s expectations. To cut a long story short, if we just get 25 basis point repo, I think the market comes off today rather than rallying because that is very much well-known and discounted. So if just a 25 bps repo rate cut is delivered, then the chances of disappointment for the market is higher than a rally. If we do get a 50 bps or higher CRR cut, I think that will go down well with the market and you might see some kind of a build up which may take the Nifty beyond 5,200. But anything in the realm of 25 bps repo or CRR is likely to disappoint the market. It is anybody’s guess on what the RBI will deliver because post the inflation number the case for a repo rate cut is not very strong given that liquidity has eased a little bit in last few weeks. The case for a CRR above 50 bps is also not very strong, so it is a judgement call on the part of the RBI which is difficult to call. So you can only work with scenarios of what will make the market happy or unhappy today. So we will get that 5,200 or thereabouts today, and that is what people were playing for in any case. Whether this turns out to be much more durable trade on risk-on kind of a rally globally is very unclear, so traders who are holding positions sub-5,000 might consider taking some profits this morning.. After that, it is up to the RBI and more importantly the Fed on what it has to say on Wednesday because now expectations will shift to what the central authorities or the central banks will do. That was the reason for the rally in the starting place, because nobody cares too much about Greece because they know that they will continue to struggle and that the fundamental European situation will take a long time to stabilize. So the hope was that because of the events in Europe maybe there is a large dollop of liquidity which comes into the global system. But if the election result means that in the near-term the Fed does not say something very aggressive on liquidity infusion, then the global technical rally might start to fade. I think that is what the next big question for global markets is and on it hinges the big question for our market as well, which is whether this is just a 5,200-5,250 rally or it is something bigger and more powerful which takes us back maybe even close to the highs that we saw in February. So 5,200 is here this morning give or take 20-30 points, but now the call is do we hang on to positions and play for something more meaningful or you take your profits and say okay we played a short trading rally. In the near-term though one could be a mitigating force for the other, in the sense that even if there is disappointment from the RBI we might still move on because it is hitting the same sectors, the rate sensitives, that have rallied the most in this pullback. But there has not been any great global participation in the rally that we have seen in India, the 5-6% rally in the last two weeks. It has been entirely locally driven, so if the RBI disappoints significantly today, the local operators will probably get disappointed and give up a large part of their positions. So in the medium-term, it is far more material what the global outcome is Wednesday onwards and whether the world gets into a risk-on mode as it did in January and February because that can strike off a more durable rally. Trading positions which have been built in the last two weeks in India will probably get liquidated one way or the other in the next day or two depending on what the RBI says because that was positioned for some events, the first of which is played out okay. The second of it comes in at 11o’clock and then some of those traders will probably take profits. The global risk-on is far more important, so that is what you need to monitor to figure out whether we can get at least temporarily into a January-February kind of mode.