June 21, 2013 / 08:32 IST
Foreign Institutional Investor (FII) numbers need to be watched as there is no better way to track this market, says Udayan Mukherjee, managing editor, CNBC-TV18. The quandry the market is in right now, gives us no option but to wake up every morning and see if FIIs sold Rs 1000 crore or Rs 1500 crore, and depending on that adjust our positions on the market, he says.
Below is the edited summary of his analysis on CNBC-TV18How much the Nifty can fall is impossible to say. The first call is 5500, which is the low of the year. We bounced back from here to touch 6150 just a few weeks back, so that becomes the first big level of support if you will. There is no surety that that will hold because there is nothing sacrosanct about a level in the market in any case, as it depends on flows. If there was a very strong domestic investor fraternity or base I could have even said that we would soak up some of the FII outflow, but that is not the case. Therefore no level is sacred. It is easy to talk about scary levels on an afternoon like this but we just have to take one level at a time and just hope and pray that global sentiment stabilises and this storm blows over in the next 10-15 days as valuations adjust. That is the best one can do, otherwise you just keep watching technicals and what the FII activity is like over the next few days.I think there will be some more pain on the macro economic front. It is difficult to say whether it will get worse than what it already is, because the hope is that it is not getting incrementally worse but we are just bobbing around a very protracted bottom. It may take longer to recover than we think but whether we are getting worse is difficult to say.But because of the way the currency has moved, I think some fresh concerns will come to the fore now on what kind of implication this has towards inflation and deficit. Not to speak about individual balance sheets of companies. So, at 60 to the dollar, everybody is sitting back and taking stock of the situation once again. But, just to end on a slightly more optimistic note, everything will look bleak on a day like this but there is a silver lining. If one just goes forward a little bit and asks oneself what can change from hereon, one would have to say or take the view that this reset had to happen at some point. When things get really ugly, then one asks oneself whether there was an air of inevitability of things coming to this point sooner or later. The answer in my book is yes, that at some point the Fed would have tightened. Globally liquidity would have needed to adjust, the rupee would have needed to adjust and it is good that we are going through this adjustment phase. Gold had to get whacked and gold has got whacked right now. So, many things which were almost inevitable, it could have happened now, it could have happened in December, it could have happened in March 2014 but the fact that things are playing out is in a way a good thing because some bad things are getting out of the way and that is the only silver lining one can have. Also remember we keep talking about whether the macro situation is getting worse or whether investor should be buying stocks. In this phase of FII withdrawal, if valuations adjust more significantly or prices correct more significantly one will finally get good valuations in good quality stocks, that is something which investors have not had the luxury of throughout the course of this year. Generally broader markets have been bombed out, but the real good stocks that one wanted to buy – a club of 20-30 stocks which long-term investors want to acquire were kept floating at very high valuation levels because flows were always abundant. Now, as flows contract, one will see some of the froth coming off the valuations of some really high quality stocks. For investors who are sitting on cash, this will present an opportunity. It does not present an opportunity today maybe but eventually it will. For investors two good things are happening. The long awaited or long feared reset is finally happening in global liquidity and valuations in good quality stocks are contracting giving one an opportunity. Now at what point one grabs that opportunity is really a judgment call. Obviously, the time has not come; we are not bobbing around at a bottom today. But over the next few days which will probably appear quite dark, these things should be kept in mind, amidst all the pessimism that you will hear around you.
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