No option but to go long; Nifty may see 6350 soon: Udayan

Benchmark indices on Wednesday rallied immensely with the Sensex gaining 491 points to close at 20213 and the Nifty gaining 151 points to close at 6147.

If the market breaks above 6100-6150 zone, it could stretch this rally to 6350 in the next few days, says Udayan Mukherjee, managing editor, CNBC-TV18. He feels there is more juice in the rally because of global liquidity.
"For now traders have no option, but to remain long with trailing stop losses particularly because today looks like a breakout and a surprising one after the big fall on Monday," he says. Also Read: Nifty rally valuation-driven; profit booking seen: Religare
Udayan, however, feels that to bring back retail investors, one needs to see much more constructive performance over the course of time with issues like the pending election at the back of people’s heads. Below is the verbatim transcript of Udayan’s comment on CNBC-TV18
On market move today
The extent of it is certainly surprising. Earlier in the day, I thought that maybe today the markets will be constructive but it will be more stock specific with the Nifty finding resistance around 6100 once again. But the ferocity with which it has taken out that previous top would have surprised most people. So yes, it is surprising, but the rate sensitives have come back in a big way today. The WPI number on Tuesday, and the fall in the bond yields overnight and this morning has taken the sting out of the current account deficit (CAD) or the trade deficit surprise which led the market down on Monday.
If it was one macro metric that saw the 450 point correction on Monday, it is yet another macro metric that has sparked off the recovery rally today. So I do not think at the end of Monday’s trade anybody thought that in a couple of days the market would have scaled that peak once again, but that is the markets for you. They surprise all the time.
This is also underscored by the kind of global liquidity and according to a lot of fund managers, India’s improving macro on the margin, a lot of fresh money whether it is exchange-traded fund (ETF) or even global emerging market fund money that is being put to work out here and that is why India has outperformed today and such a lot of money has come in.
Despite the 450 point fall on Monday, we did not see any foreign institutional investors (FII) selling and that should have been the first cue that this market was not going to go into a deeper correction, because global funds were using these corrections incrementally to deploy more money into India. On global outlook
The global equity situation is a big tailwind right now. There is a possibility of some kind of risk aversion in global markets which remains a central risk going forward in the event of it happening. But right now, it is a big tailwind for any equity market across the world.
The way the US and Japan have been leading over the last few months and continue to form fresh highs, it is something that has a huge magnetic pull for most equity prices on the way up. However, one must understand what is going on there. The fact that equity markets in the developed world, the US and Japan have done so well is increasingly leading a lot of global asset managers to move money towards equities. So, there is a bit of a search for momentum or even for yield which is going on. When that is the case then people just wait out for where some good news is popping up in the global space to quickly deploy some money out there.
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What happened with wholesale price index (WPI) inflation on Tuesday, and with the bond yields, has got India back as something where some good news has popped up, where money has immediately rushed in. Globally, people are searching for the next big thing to buy or the next place where they will get some yield where they can chase some momentum and whichever market can produce that kind of good news immediately sucks in some bit of money and that is what has happened.
Right now, there is a very powerful liquidity not just from the US, but increasingly from Japan which is trying to fill these kind of vacuums that are yielding some yield. India has played its card right on Tuesday with the inflation number which has led money back into the rate sensitives today across the board. At the end of the day, you will find a fairly hefty FII number.
On the margin, Monday’s breakdown might have got some of the traders to form some near-term short positions. The way the markets pulled up through the day and continued its rally, some of those intermediate short positions might have got covered up. That I do not think is the central impulse today with the Nifty going to 6150. It is sucking in some of the global liquidity because of India’s improving macro on the margin. On stock/sector specific views
It is possible. That's been the evidence today as well. I know that infrastructure stocks have not done badly. In fact in many cases they have done very well. But I would fashion this as more of a rate sensitive rally than a high beta rally. This is because if you look at the Bank Nifty, which is almost pushing a four percent gain, autos where numbers have not been great, monthly numbers but autos have done exceedingly well today and real estate has come back into fashion big time.
Right now, what’s working for the market is the belief that interest rates will come down much more than what people thought earlier. There is some genuine reason for thinking that way after the way the recent macro data has been coming in. So that’s reflected not just in the way banks and rate sensitives have been moving but the first signs of that came in the collapsing bond yields which went down this morning to as low as 7.36 percent.
A lot of global money has got into the bond market over the last few days. The subsequent data will approve that, a lot of money has been getting into the bond market as well. So this is a play on Indian interest rates or expectations of Indian interest rates going down more than envisaged earlier. Therefore, the rate sensitive play has come back big time. There is some justification to the kind of names that have gone up today which has led to the breakout that we are discussing. On Nifty levels
I do not think there are too many retail investors in the market right now. There is a body of retail traders which come in and go out depending on which way the wind is blowing, but I do think there are a lot of retail investors who are tracking equities very closely.
Today looks like a breakout and if it indeed is a breakout above that 6100-6150 zone, you could stretch this rally to 6350 in the next few days. Global liquidity as you well know has a very powerful impulse and if the market were to go onto those kind of levels it may look a little inflated in the near-term in terms of valuations, but considerations of overstretched valuations do not rein the markets back in the force of very strong liquidity conditions as we are witnessing at this point in time and the fact that macro is improving on the margin.
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What we tend to forget is that this market was at 5900-6000 in end-December early January. Five months have passed; so today it looks like the markets had a phenomenal performance. It looks like that because we fell to 5500 and have bounced back to 6150. Map from December 31, this market has gone up 4 percent in five months. That is not a very big return. That is also not a sense of overheating. By the end of December, the market ran ahead of itself in terms of valuations, therefore, took four or five months to digest those gains and has merely come back to a little bit above the December 2012 levels.
So the gains from equity markets while sitting from a three week perspective look magnified, but if you are talking about a retail investor he is probably sitting back and saying from the start of January this market has gone up 4 percent.
If I had held fixed income in this five month period I would probably have done better by the way yields have come off. So sometimes because we track markets on a daily, weekly basis movements in the market appear very exaggerated and inflated in our eyes but once you stretch out the timeframe you will realise that all we are talking about is a 4 percent gain in the Nifty in 2013 which does not compare very favourably with a lot of markets in the world and certainly does not compare very favourably with the kind of fixed income returns one has had.
Therefore, to bring back retail investors you will need to see much more constructive performance over the course of time and there is the pending election thing in a few months time as well which a lot of people have at the back of their heads. So enjoy the rally. I think there is probably more juice to it because of global liquidity. But to think that this move will get back retail investors in droves just yet is probably wishing for too much. On macro situation
Lifetime highs are 200 points away for the Nifty, which is not a big deal. A couple of days like this will get you there. We should not labour the point about this move from 6150-6350. It has stuck in our head because it has been in place for five or six years now and the markets have not been able to cross that.
It is not that fund managers had been selling out of India because of any macro disappointment. Even on Monday, we did not see a sell figure from FIIs. There was some selling because of the trade deficit number, but I do not think a lot of foreign selling happened. Clearly, that was not the evidence from the cash or the futures market.
Over the last few weeks, because of all these improvements on the margin and macro whether it is fiscal deficit, CAD, inflation a lot of people have been putting more money to work in India, that is consistent not just with the foreign fund data flow, but also from the anecdotal evidence of what one hears from speaking to a lot of fund managers.
India was an underweight because of how fast it ran up in 2012 and going into January and February into Budget, and a lot of positions have now become overweight on India after the improvement in the macro. So the story of the last four to eight weeks has been a story of recalibration of weightages in India to overweight because of the improvement in the macro.
The big questions going forward are the two risks. One, when does growth start picking up India, an earnings growth and macro growth and whether this kind of benign global risk-on situation continues indefinitely for the next few months. Once either of those two disappoint, people will have to take stock of our market which is trading well above 15 times current year’s expected earnings.
Markets have run up a lot. As long as the global music is playing, we all continue to do well. If that music stops one has to take stock of the situation. For now traders have no option, but to remain long with trailing stop losses particularly because today looks like a breakout and a surprising one after the big fall on Monday.