Global cues positives; watch out for signs of weakness

The week is starting on a good note because of very strong global cues, believes Udayan Mukherjee, managing editor, CNBC-TV18. The US cannot put a foot wrong these days and it closed last week on a strong note and that is giving the Indian market a bit of a lift this morning, he adds.  

The SGX is also pointing that the market will carry on from where it stopped off last week with the Nifty probably starting a week above 6,200. We are not very far away from an all time high. One would know that looking at sentiment on the street or the general mood on the street. , but that is the reality.

Below is the edited transcript of Mukherjee’s analysis of the market.

On Global markets
Where we started off at the beginning of 2013, the S&P must have taken out even the most bullish of forecast from the street. We are just five months into the year and already the indices there are trading well above what would have been targets for the rest of the year.
There is a lot of money and on the margin, they keep getting good news consumer sentiment. So, all of that is good. Gold is still quite weak, which is good for us. Crude disturbingly is floating around USD 104-105 per barrel, we need to get that down to double digits for people to feel or for India to outperform and participate in a much bigger way in this global rally. But it is not just the US and Japan that have done well. Take a look at Europe and how well that has done. Europe is what most people think is the epicenter of the world’s biggest problems right now.
FTSE is up 14 percent for the year, the Nifty is up 4 percent. So, all developed markets have done remarkably well. This is a big global equity party, which is going on and we have also started participating in it in the last three weeks or so.
It is one of those phases where there is a powerful tide across the world. No one knows how long it will last. I think traders should just be riding it for the moment.

On Nifty
We are doing quite well and the cash market flows are strong. There was a little bit of unwinding in the Nifty futures, so that is a small wrinkle. Also, the last couple of days,  though it was preceded by a blowout on Wednesday but Thursday, Friday looked like modest gains for the index. There is no turnaround but some fatigue or tiredness that is beginning to creep into that market.
This could easily be because the market went up so much on Wednesday that it needed to consolidate over the next couple of sessions and maybe it is not a sign of tiredness. So, it is difficult to make judgments on what the screen was telling. But it could be that the market has had a massive blowout. Once it gets to the 6,200-6,250 level which is not quite the high, but it is just a bit below. So, we should be watching the screen quite closely not because the market is trading at elevated levels after the recent rally and this rally has been quite a multi-week rally in that sense. So, one must be with the screen.

Sometimes one will get a lot of money from FIIs but the needle of the market will not move too much and that is usually telling you that supply is coming in at higher levels and the market might be tiring out. So, we have not seen in conclusive evidence of that yet but I think traders will do well to stay long but to keep watching for some of these signs of exhaustion.
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One cannot map levels in a market like this. All you can do is point to round numbers like 6,200 and 6,250 and then the big level, which is 6,350, the all-time-high. So, these are pointless levels. We are just taking 50 points incremental levels on the Nifty and pointing to some significance out there. I do not think those are very material right now.
Right now, all that one needs to monitor is what way the global mood is moving and that is easy enough to monitor if one looks at other global markets. One needs to monitor whether flows are still strong and they continue to be, despite the fact that we are not seeing incremental commitment from the foreign institutional investors (FIIs) that maybe one can read as a good thing or a bad thing because the market is not terribly overheated on the futures in terms of big extension on the long side.
However, as long as flow commitment and global mood continues, I think the Indian market will continue to tag along with other global markets in terms of performance.
Now, there will be bouts of one or two days where India will do very well. There will be bouts of one or two days where India will not do as well but broadly mapped over a three-four week kind of period, when one analyses them, they would find that most global markets are probably moving in the same kind of broad direction, which is a departure from what was happening earlier. Earlier, market performance was very dispersed. This year, many markets did well, many markets did very poorly but right now one can see that the correlation between markets, not the degree of performance but the general direction, is sort of converging. That ties in with the general point that we have all been discussing which is that the whole world of global equity is moving with a big tide of liquidity and as long as that continues, give or take some difference in performance, markets will generally tend to do well.

On S&P and possibility of upgrade
The finance ministry might be holding their breadth because they tried their best with repeated parleys with S&P to try and swing round a little bit. At a time like this, when global capital is just searching for avenues for deployment, a bit of a vote of confidence for India from S&P would have gone a long way in getting some more money in and that is exactly the note, which the finance ministry was trying to strike.
But S&P, in its wisdom has said that they have not seen enough yet and we Indians are getting excited about gold. They still think that the account deficit is a problem which is perhaps true and they will probably need to see far more improvement on that front. There are two ways to read it, sitting where the finance ministry is sitting today, they probably will be disappointed but as a market watcher, I think we should be delighted that the S&P is not taking the pressure off India because we owe a lot to S&P and Moody’s for the policy action and activism that we have seen.
If one recalls, about nine to ten months ago, it was the S&P warning which sought of triggered off last minute crisis management kind of policy impulse from the government. I do not think they did it on their own. For S&P to relent and say, that they are now happy with what India has done. It is just to take the foot off the pedal at a time when some policy action is beginning to happen.
I think it is good that the S&P keeps the pressure up. It forces the finance ministry to keep doing what it has been doing for the last many months. It is very good and constructive for the market. It is still a one in three probability with some help from commodities. We may not have the downgrade, hopefully, but as long as the fear remains, I think the finance ministry will do what it can do rather than just praying for commodities to come off as it has been and therefore addressing the fiscal deficit issues. The diesel price hikes will keep getting done and the market will be in a better place.