Sept scored with EM revival; global news key in Oct: Udayan

The key takeaway from a very volatile market in September has been how emerging markets asset classes, equities and currencies came back in flavour, says CNBC-TV18’s Udayan Mukherjee. May be EMs were oversold, which was the reason behind the big trade played out in those, he adds.

He expects the markets to have factored in earnings season. If the market has to move up in October, it will be on the basis of global news flow, Mukherjee adds. He is also wary of a risk-off situation for equities in this month. Also read: Desperate for good news from India? Monsoon has potential Below is the edited transcript of his analysis. I am totally surprised at how September panned out. We were speaking four weeks back and nobody could have figured out that the Nifty would have a thousand points rally and in the last few days, we have had a 400 point correction. So, it has been completely all over the place. But, the big story about September is how emerging market asset classes, currencies and equities came back into flavour from the depths of being about the most unloved asset class before that. So, the big EM trade played out in September. I don’t think people could have seen the extent of it; maybe all those asset classes were terribly oversold, which is what gave rise to those 15-20 percent kind of rally. Going into October, the big question is whether a large part of that is behind us? If you are entering that party, are you getting into that party late or does that party still have legs and we can after the correction that has played out over the last few days, we could extend that going into October. There is a lot of chatter around about how earnings will be the make or break for the market in October. The market is well ahead of analysts, the market knows what earnings will be like and they will be poor and that is very well-known to the market. Keep an eye on the global piece because if markets have to move up in October, the reasons will be global and not local. Market sensitive to global sentiment? The price movement has not been insignificant. We map the Nifty or any emerging market equity market with how much the index has moved, and markets have moved a lot. Look at markets like Brazil, Argentina, Russia; they have all done very well. But mapped with their currency is most germane for global investors, the rise has been stupendous to say the least. _PAGEBREAK_ Nifty to move 16-17 percent? It was up 30 percent at its peak. If you just added up the dollar and the Nifty before the correction set in. So it wasn’t within a compress period of four weeks, it wasn’t completely astonishing rally that played out in many of these emerging markets. The prices have moved to a different kind of level if you will. My bigger fear is emerging markets’ relative trade which has worked in September fading away, which might well happen after a while is, whether a bigger risk-off situation is lying for equities as a global asset class per se. Some disturbing signs are slowly beginning to crop up in the US. Keep an eye on Europe as it has done extremely well in September and some notes of dissonance are coming to fore. So I know we have got used to these relative trade, which month DMs do better than emerging markets, and some months emerging markets do better. We have forgotten the days where all markets used to fall together. There is a possibility that this emerging market trade might flourish for a bit longer after this correction because taper does not happen in October etc. So the liquidity picture might still be in place for a bit, but in the slightly more medium-term, the global risks are beginning to rise once again. I know there is a lot of talk about the India piece right now, the rupee stability, the current account deficit coming under control, earnings being bad. But I think it would be a mistake to take the eye off the global ball because this rally which has played out has its genesis far more in global liquidity factors than in any local factors.