6100 key hurdle for Nifty; July series may end well

Today's market session is likely to be volatile as the July F&O series expires today. The July series was very good until yesterday when some wrinkles cropped up. The early signs for the August series don't look encouraging after the recent newsflow, said CNBC-TV18's, managing editor, Udayan Mukherjee.

There seem to be many headwinds piling up for the market; especially with Bank index moving diametrically in the opposite direction to the Nifty, the midcaps underperforming and the interest rate landscape too seems changing for worse. The Nifty is flattering to deceive, and the July series might end with 400-points gains, but could also end with 150 basis points jump in bond yields. Therefore 6,100 still seems like a bit of a mountain to climb as we enter August, he added. Also read: Is China about to launch a new round of stimulus? Below is the verbatim transcript of his market commentary On Nifty and Bank Nifty The standout feature of this series has been that the most influential and the biggest weightage on the index has moved in a diametrically opposite direction. The index has done very well on the back of a few clusters of stocks but the broader market has started showing some major cracks; midcaps have started underperforming, the Bank Nifty is pulling the other way and the whole interest rate landscape seems to be changing for the worse. There are many headwinds piling up for the market. The Nifty seems like it is flattering to deceive really because underneath that a lot of damage has happened. The July series might end with a 400 point gain on the Nifty, but would also end with a 150 basis point (bps) jump in the bond yield, which cannot be wished away. Therefore, today it is difficult to say what will happen. However, as we get beyond the expiry and start looking at the August series and digest more of the weak earnings which are coming in, not to speak of the deals like Ambuja which cannot help minority investors sentiment. All of this comes together and 6,100 still seems like a bit of a mountain to climb as we enter August. On global markets and yields in US market The dollar has not run away, but it is beginning to creep up and that is not a good sign because a few weeks back the big emerging market (EM) underperformance trade had a lot to do with how the dollar was moving. The dollar has behaved itself the last few days, but the first signs that it might be beginning to edge up once again are coming to the fore. The US bond yield has hardened once again to 2.6 percent which is not what you want to see, so that has moved up about 13-14 bps in the last couple of days. These are moves not in the direction that EMs would like to see. Generally, if you look at Asia too over the last couple of days, it seem very sapped of energy, I don’t know whether it is because of the Chinese data or it is because of some apprehension that the EM pullback is coming to an end. But they have started flat-lining it and on some days actually not doing very well. There is a bit of a sag in EM performance, which is coming in once again which one needs to be a little careful about. However, it is not to say that global markets have started a massive phase of risk-off or anything like that. However, the early signs of sluggishness and tiredness are beginning to creep in. So, being a bit careful may not be a bad thing here. On opposite direction of earnings in US and that in India It will be even more in opposite directions once the next couple of weeks go because in the last two days we have seen the first signs of poor earnings. Yesterday, because of all the deal talk it got lost over but numbers were not great from the likes of Ambuja Cements etc. So, barring a few exceptions here and there we will probably find that we have entered the deep end of the earning season this time around and the disparities will be quite yawning in earnings growth. That robs the market of energy more than anything else. The fact that the underlying macro is still dragging and the earnings growth remains a big force of gravity on this market. So, when earnings are okay you can deal with global newsflow and volatility because you know that your act is together. However when they start to disappoint then liquidity can only expand valuations to a point and the further you go up the more you are going away from the fundamental reasons while stock prices move. _PAGEBREAK_ On Nifty Today, strange things might happen. Yesterday we had quite a big cut and therefore there will be an attempt I guess to get the Nifty to settle around 6,000 because till yesterday morning it was looking like 6,100 expiry is quite likely. But today it would be enough if the Nifty clawed back and closed around that 6,000 level. The bigger fears come in for August series where you don’t have the support of these stocks being put together, so that the Nifty can expire at a particular level. Already, I think some of these sectors which have led the Nifty higher might be reaching some kind of exhaustion point in terms of valuations and banks show no signs of bottoming out. They are continuously falling and their slide is relentless in terms of even some of the private sector banks. So, given all of that today might be different; we might slip in the morning then pullback in the second half, still manage to close the series around to 6,000 or thereabouts. However, in August, I think 6,000 might be difficult to defend because of the kind of forces, which are building up against the market. It does not helped that there is not institutional money in the market right now. If you look at foreign institutional investors (FIIs) and domestic institutions both are on the same side. They are not selling a lot, but they are selling and that tells you that both those clusters of investors seem worried about the course that the market is taking out here and there is only so much of Hindustan Unilever (HUL) and Tata Consultancy Services (TCS) that they can keep on buying. Some fatigue is creeping in, in buying the same over-owned sectors, which is why some of the institutional guys are now are probably just skimming profits and waiting for the market to give them better price points. On this series being a clear indicator of how money is actually moving into this market. I think, what should not happen, and from a bullish perspective is that global markets or EMs start to lose their steam once again as we get into August, because they have had a good pullback. Most markets have recalibrated quite well. Most EM currencies have pulled back quite a bit over the last few weeks. Now if this was just a pullback to a bigger downtrend and that downtrend starts to assert itself for some reason like the dollar going up, US yields hardening once again, as we get into August and therefore closer to September, the taper talk comes back into fashion. So for a combination of events if people get feeling that the EM pullback is also beginning to wane then I think we are in a bit of a trouble spot out here because the strongest sector in our market or the biggest one has already broken down. We are being held up because flows have gone into a few clusters in the market. But if flows start to disappoint because of an overall EM phenomenon for whatever reason, then this market will be difficult to hold on the way up. Also it might have implications for the rupee which has pulled back to 59 because of the many measures from the Reserve Bank.