Global mkts weak; Nifty eyes key earnings

The January series is done and we start off arguably the most important month of the year with the budget in it – that’s the February series. Today is a big day for earnings as well. Bharti, Bharat Heavy Electricals (BHEL), IDFC and Hindustan Construction will be some important numbers to watch. There is a bit of a scare on provisioning for the banking system and that’s one big thing to watch today as well, said Udayan Mukherjee, managing editor, CNBC-TV18.

It wasn’t a comfortable kind of a expiry day at all. The Nifty is making very heavy weather now getting pass that 6,100 level. Even a breadth was a while a bit better than the last couple of days, not quite table-thumping. So, these are sticky days that we are going through. Market has been quite cautious about the global cues despite it being in one place.

We now need to see the payroll numbers today and whether what started yesterday is a bit of a corrective dip in the global market or everything is fine and the Euro can continue to rally on. We need to map some of the currencies as well because the Yen has weakened a lot in the last few weeks. It has been a long journey from the Euro-Dollar too from sub 1.20 levels all the way now to 1.36.

So, this phase of what we loosely call risk-on has lasted for many months now and it has gone up quite significantly. The one thing that one keeps worrying about is in such a mature kind of a rally whether there is a possibility of a pullback - if the payroll numbers are good today maybe that will get deferred. But that sense of foreboding that something maybe coming sooner the later is certainly there in the market.

I don’t think the draft banking guidelines are onerous, they are absolutely pragmatic and practical and they should have happened a long time back. This cozy relationship with bankers and industrialists, which have been in place for a long time now - I am surprised that the RBI has not called their bluff already. It has been simmering and I don’t think it will be a draft.

The RBI seems quite serious and correctly so. My sympathies are almost completely with the RBI in this because we cannot have a situation where a Kingfisher Airlines (KFA) is unable to run operations, cannot pay salaries, cannot operate its fleet and yet it is classified as a standard asset in many of the banks books. It is almost reluctantly after many quarters that the banks say okay may be we will now classify it as an NPA.

_PAGEBREAK_

If KFA is not an NPA I don’t know what in this country can be classified as an NPA. So this bank chairman-cum-Vijay Mallya nexus kind of things have happened for a very long time in our market. The RBI has cracked down, it should have done it long back and now all the Suzlon Energy and KFA will start showing up as they should in the NPA books and bank chairman will not be able to come on CNBC-TV18 every quarter and glibly say ‘my NPAs have actually improved quarter on quarter.

What I am not showing you KFA plus Suzlon plus all the textile companies because they in common consensus we have arrived at the fact that they are not NPA yet.’ Now everything will be shown up, chalk and cheese will be clear and it will require some kind of adjust so one step in 2014 March from 2.75 percent to 3.75 percent and then 5 percent the year after that. Long overdue, there will be some pain particularly in PSU banks and one will probably also over the next two years get the sense of why PSUs trade at such a big discount to private sector banks though some of the private sector banks might also get nicked a little bit.

At the start of the February series the Nifty is still stuck in a range. I want to see how banks react today because the Bank Nifty is a very important component of the Nifty. If there is some turbulence because of the guidelines then that might be a bit of a drag for the Nifty overall despite some cheer from the public sector banking universe yesterday particularly from Punjab National Bank (PNB) and Union Bank. So, the Bank Nifty probably holds the key out here.

The newsflow from New Delhi continues to be quite positive barring the odd stutter like we saw in the Cabinet Committee of Infrastructure (CII). Last night even the S&P seem to be speaking a little bit kinder tones than they have been towards India’s rating. That’s supportive for sentiment because that has been seen as a big threat by lot of global investors who look at India. So, there are some supportive factors. The biggest of them is that we are in an exceptionally benign global liquidity environment. The Euro-Dollar at 1.36 is reflective of the kind of a very benign liquidity environment if we have to look beyond the billions of dollars that are coming in every month into India.

Given that there is always a possibility that the markets can move another extra stretch of another 7-8 percent – that can always happen particularly if the newsflow continues to remain positive going into the budget because this is a good patch for the market with the current Finance Minister (FM) in the mood that he is in.

Having said that, the problem is what the screen is telling you for the last one month that it is tired, it is fatigued, incremental money, incremental good news is not nudging it. It is almost going up laboriously, very reluctantly. The screen is suggesting that it needs to pause, but global liquidity still keeping it afloat, something will give and the decider probably will be whether some of the big developed markets give up their recent rally and start correcting or they continue to stretch their rally into a new all-time high. I think that will probably be the decider.