Nifty may test 5500 in August series: Udayan

Last week was a disaster for the market. It was a terrible week for the Nifty. The midcaps and small caps also did poorly last week. Today we start off with a little more hope because global events have played out slightly more favorably for us, says CNBC-TV18's Udayan Mukherjee.

The US non-farm payroll numbers were optimistic for people who are dreading early quantitative easing (QE) withdrawal. So that might lift the rupee and sentiment in emerging markets. Not that any great rally is visible across Asia but the SGX Nifty is suggesting that we might attempt a small pullback this morning, says Mukherjee.
Also, the monsoon session of the Parliament kicks off today and it is a week pitted with important earnings like Tata Motors and Crompton Greaves.

Below is the edited transcipt of Udayan Mukherjee's market analysis on CNBC-TV18

On Indian market
After the disastrous last week, the only hope is that people are getting utterly bearish at this point. It is never a guarantee that the market will pullback, but now the level of despondency among investors is quite amazing and startling.
I don't think anybody believes that the market will move up. May be they are right and last week certainly appeared to be a crack below some important levels on a closing basis too, but the sheer scale of bearish now should make you a bit cautious in the near term. This is because sometimes with this kind of bearish positioning you will get one-two days kind of rallies and if you are a weak hand you might get stopped out quite easily.
So the fall last week, the proportion of the broader market fall was such that there is a possibility of some kind of a pullback happening at some stage this week. If it happens, what can be the extent of it is difficult to say because last week we had many failed attempts at a pullback so it is not going to be a very tradable. Therefore, people should be careful but this is only for people who are very bearishly and very aggressively positioned in the market.
People should be careful about the possibility of a pullback from much oversold kind of levels for the broader market but that is just a technical factor. Broadly the way markets closed last week indicate some kind of a breakdown which if not this week, could eventually take us a whole lot lower. On global cues
The US nonfarm pauroll numbers do not particularly matter because the unemployment number keeps coming down and may be the Fed is watching that more closely than small 15000-20,000 kind of additions or disappointments on the payroll number.
The payroll number is volatile and it changes from month to month but the longer term trend is tracked by the unemployment number which the Fed will be tracking more closely.
However, a lower number on nonfarm payroll is better than a higher number in the near term and could have been worse this today if you had got 200,000 plus number on the payroll. So to that extent, there is possibly a little bit of relief this morning for the rupee.
Rupee is scaring people because the close at 61.1 last week was really unexpected closing in the rupee after all that the RBI did over the last two weeks. To that extent, there might be little bit of relief particularly because the dollar has weakened over the weekend. That coupled with the fact that even the US bond yield retraced a little bit after the nonfarm payroll number makes for a slight case of optimism at least temporarily for the rupee and for the equity market. So I don't know how much impact we will see but global market cues could have been worse this morning.
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On macro situation

The macros are just not improving, in fact they are worsening. Even though we spoke about the Purchasing Managers' Index (PMI) numbers last week and then the core sector numbers that are quite awful.
In the 5 percent GDP number that everybody is talking about, I think they are still calculating, industrial growth this year at 3-3.5 percent. There is a genuine chance that industrial growth ticks in at sub-2 percent this year which may mean shaving off more from the gross domestic product (GDP) than has been penciled in.
 
The kind of core numbers, PMI numbers, index of industrial production (IIP) numbers, do not lead me to believe that we are talking 3-4 percent in the industrial growth this year. So macro remains very shaky. I don't think we are expecting any support from macro or even micro earnings in the near-term.
 
The volatility is caused by global capital movements whether the outlook for global liquidity in the near-term is good or bad that on the margin is determining whether the market is at 5500 or closer to 6000. But our economic data has been steadfastly negative for the last many weeks and I won't be surprised if that continues for quite a bit longer.


On Nifty levels

Morning gaps and the afternoon selling has become a familiar pattern, but to the extent that the market got sold down and you might get a pullback. Whether it lasts or how long it lasts is difficult to say because we have quite a bit away from the 200 DMA now with the way the market closed. For the market even to get the first hint of strength has to get back above 5850 the 200 DMA and we have got quite a bit away from that.

Now, to even think of a 200 point rally in the Nifty is a difficult proposition because one doesn’t know what will pull it. Last week’s close was disappointing because the support zone that everybody was eying, 5750-5700 got broken quite decisively, it came on the back of two-three failed attempts to move up on Wednesday to Friday. So, the price action was quite bearish.
 
The only saving grace is the fact that almost everybody is bearish on the street that is no guarantee of a pullback but it can conjure up some kind of a pullback that is not impossible. Otherwise the way the price moved on Friday is indicating that sooner or later we are going to bang against the door of 5500 again on the Nifty. Not that has held for the last many months.
 
This time the approach seems to be with far more venom and with many other clusters like the Bank Nifty breaking down quite completely, the broader market has completely collapsed in this approach to 5500. So one can at best hope that it will hold out again, but the conviction on that trade is quite low. So, I don't know whether in the next day or two we will get a pullback back to those 5800 kind of levels that is not impossible but eventually 5500 will be tested this series that looks a higher probability outcome.