Don't see much correction; Nifty, rupee to be rangebound

Thursday and Wednesday brought in some respite for the Indian equity market after five continuous days of bloodbath. CNBC-TV18's Udayan Mukherjee says despite the market not moving up too much, it has atleast managed to improve a lot as the Nifty stopped falling in the past few sessions.

However, Mukherjee adds that the rupee still hanging between the 60-61 against the dollar is not making life easy but there’s some hope as the US market has seen some fillip. “Hopefully,  we will linger around in this kind of level for few more days and not see the kind of damage that we were seeing before the fall started stopping,” adds Mukherjee in his analysis of the market. Below is the edited transcript of Mukherjee's analysis of the market On Nifty The Nifty was flat but the midcap index was down 1.5 percent. So, as long as that bleeding does not stop, I don't think people in the market will take any heart from the fact that we have had two days of consolidation. Also, when there is five days of a steep fall and one doesn’t see the market going flat for a couple of days, it is generally not a great sign because it is almost like a landing after which the fall might resume and the broader market is still showing you that extreme pain. What is disappointing in terms of the price action over the last couple of days is that we have attempted intraday rallies and they have fizzled out which is again not a great sign. We went back to 5800, we didn’t even get close to the 200-day-moving average and the market came right back and closed in the red. So, the price action is not great. The only thing that one can hope for now is that by some miracle one sees the global markets strengthening. This morning, the global backdrop is too bad. If that happens, our fall might be averted but one will note that India is snapping its connection with many other global markets right now. Even on days when Europe is doing well or Asia has done well in the morning, we still remained very lacklustre. So, there is a lot of pessimism about India now in the global investor fraternity and that is showing up in prices. If one looks at the screen, it is not looking pretty but if global markets hold up the next few days, may be we will not see the same kind of intense pain. On US markets and Brent Crude

The bond yields of 2.71 percent is not comforting for us at all. Also if the jobs data turns out to be an exceptionally strong number, then I think all that taper fear will come back into the market. Maybe the bond market is signaling that the economic data in the US is looking so strong that it is just a matter of time that emerging market investors start panicking about this taper starting in September and then money starts coming out of that. Hence, the more good economic data in the US, more the divergence between the US equity market performance and emerging market performance. So, we need to fear good economic data from the US right now and not be happy about that. It is not good to see the S&P tearing away into new highs every morning for us with the bond yield hardening there as well, because these have very bad repercussions and ramifications for emerging markets like us. Also, the USD 110 on crude is very discomforting. The government is panicking now in trying to do something about the deficit but quietly crude has gone back to USD 110 and this 50 paisa move on the diesel price will not get us anywhere. It is better than nothing but with crude at USD 110, I think it is nullifying a lot of the good work that has been done on the deficit front. So, we need to be cautious. High crude prices are never good for a market like India. It just adds another straw on the camels back. On the possibility of a pullback in Nifty Pullbacks have been attempted but they are not working out. After such a big fall from 6,100 all the way down to sub 5,700, we are not even able to reclaim 100 points on the Nifty and that worries a lot. We attempted a rally atleast yesterday from the lows. It went to 5,800 and by the time we closed, we were down 5,720. So, we are not very far away from the recent lows of 5,680 or so. We are dangerously close to that and look at the pain that is playing out in the broader market also within the index anything which is vulnerable -- Jaiprakash Associates fell 10 percent on a day when the market was flat. I think we are still seeing a lot of pain. It is still not showing up on the Nifty because IT is holding out, because telecoms have become a darling sector right now. So, some of these sectors are masking a bit of the pain but the Nifty’s price action over the last couple of days is not encouraging at all. Hence, in-line with some of the Asian markets, one might attempt a bit of a rally today but let’s see what the weekly closing is like. A sub 5,750 kind of weekly closing would be setting up the market for a bigger cut next week. So, five down days, two or three days of consolidation and then if the rupee goes off the handle again or does not respond to these moves taken by the government, one could see next week opening up the floodgates. The start of August was always going to be tricky. One could see that at the fag end of the July series as well, the cracks were beginning to happen and the market mood is quite awful and the NSEL business has also soured sentiment on the margin. On the rupee It hurts to see that the measures on the rupee are not working. I think the last couple of days Reserve Bank of India (RBI) would have been very aggressive in the market. One can see it in the price action. At particular pressure points, suddenly the rupee yanks back by 20-25 paise. That is a sure sign that RBI is not just trying to use measures to control, it is also throwing in quite a bit of dollars at the market to keep it below the 60-61/USD mark. I think it would have stung the RBI that despite all it did, the rupee is dangerously close to an all time low. So, it is a bit of a slap on the face. The government is panicking, everyday the finance ministry is announcing something, trying to do something to salvage the rupee but these band aids are not working. So, the latest band aid is to try and address the offshore market trough participatory note and offshore derivative instrument (ODI) permissions. I think that might be a band aid for a couple of days, but nothing more significant than that. Everything is causing confusion in the market. I think money market participants are completely confused at this point, not just between this dichotomy possibly between the finance ministry and the RBI but also within the communication from the RBI. I think the policy left a lot people very confused on whether they are talking up the path of growth or the rupee. So, the fact is that both these cannot be managed. Therefore, one has to clutch to one side of what one is trying to do and not do both because one will otherwise not achieve anything. I think that is what confusing people there. The one good thing is that the yield is softening a little bit. It was 8.07 percent yesterday, so that has not gone off the handle because that was also threatening to go back to 8.5 percent but I doubt these small moves will rein in the rupee beyond a point and every failed attempt, every time the RBI or the finance ministry is trying to do something and the rupee is not going up, is a big negative trigger for the rupee actually because there is nothing as bad for sentiment as a failed attempt from the regulator. It is almost like the market saying RBI is trying but it is failing, the finance minister is trying but failing, so the rupee must go down. So, I think the conviction in the rupee is downward trajectory is getting emboldened at every failed attempt and that is not a good thing.