Expect small rallies; Fed minutes to cheer EMs: Udayan

One can expect small rallies in Indian market because it seems that quantitative easing (QE) will be around for longer than most people feared, says CNBC-TV18’s, managing editor, Udayan Mukherjee.

The SGX Nifty is up quite a bit and the global markets too are doing better. The US too was flat yesterday but the minutes of the Fed meeting could surely help emerging market equities, he adds.

Also read: Long-term, India still an attractive market: StanChart Bk

Below is the verbatim transcript of his market commentary

On Fed minutes

Fed minutes is what the market will focus on. Commodities have had a bounce back, crude is up; gold has bounced back to USD 1,280 per ounce as well. One would have expected this given that the dollar too had a bit of a whack overnight because of the Fed minutes. So, there is a bit of a retracement trade playing out now.

Global markets had got extremely jittery because they had assumed and concluded that come September, QE will start tapering off and it still may. However, after looking at the Fed minutes, it appears that they will probably give it a little bit more elbow room and maybe the global markets have another couple of months of breathing room before that happens. That has led to the US bond yield tapering off overnight, commodities moving back, and the dollar retreating. All of this means that the rupee will probably get a bit of a breathing space something which it may have seen coming yesterday.

It is possible that in the next few days, the rupee also pulls back to 58.50-59 kind of levels. That may coincide with a bit of a rally out here too because emerging markets will be breathing a little easy after looking at the Fed minutes. It is still a temporary kind of rally that we are talking about but nevertheless given that most of these asset classes have been under quite a bit of pressure, there could be a bit of relief over the near-term. So I think we are probably setting ourselves up for a little bit of a rally in the near-term.

On Indian stock market and currency market

We will see a relief in the stock market and the currency market today. Although it may be temporary, it is a trading move that is playing out. I think fundamentals will be kept aside for now and we will probably see a trading rally. I am not clear how powerful that rally will be but it may have some legs given that there is some wave of relief that global emerging markets are experiencing this morning. So, one could have a rally in both the rupee and in the stock market; it could be short-lived or it could extent for a few more days depending on how the first earnings turn out.

I am not suggesting that we are flying off into a major rally zone but just in the near term because the market has been fretting such a lot about global liquidity, there might be a small window of relief out here.

On Nifty

The market has seemed a bit reluctant over the last few days to break below 5,750 just yet. It seems like it is in that kind of mode where it wants to see if it can get to those 5,900-5,950 kind of levels once again and see if it can test it if not break it.

The current newsflow on the QE front will probably give the market ammunition to get to the levels of 5,900-5,950. However, whether it can climb beyond that in the near-term also depends on a few other factors. We have got Infosys declaring tomorrow. That has a bearing on a heavyweight stock and the IT index and next week too we will see many more results coming in. Newsflow is about to pick up now, as we go through the macro data, which comes in over the next few days plus soak in some of the earnings. So, this QE push can probably take us to that level of 5,900-5,950 and then it is up to our local data to determine whether we can pierce past it. In any case, this is trading kind of a move which was playing out.

Some parts of the macro data like the trade gap etc might not be too bad for the market; it could probably get a bit of a lift from the currency market as well over the next couple of days. It is conceivable that the market moves to that zone that we are talking about but beyond that, I do not think it is fundamentally deserved right now but a trading move can always make aberrations of 100-150 points on either side.

Generally, fundamentals are not very supportive. The question which the market has been fretting about is liquidity and in the near-term if the perception of liquidity is slightly improved as it is this morning then the market can probably trade to the higher end of the range.

On FII Flows

It just appears, on the evidence of the last couple of days that the Foreign Institutional Investors (FIIs) selling in the debt market is not accelerating. One cannot say for sure that it is diminishing but the data for the last couple of days is a net sell of something in the vicinity of Rs 800 crore. That is not very significant.

Also one might have feared that last week because of the QE news; the way the bond yields rallied once again, one might have feared that the FII selling in the equity market will also pick up and that has not happened. Although there is still a marginal sell figure on most days but we are not seeing those very large figures of something like half a billion dollars a week in the equity market.

This makes for a flattish kind of an FII flow trajectory both in bonds and equities, and in a context where people are slightly more hopeful about the global picture just in the near-term, it is possible that a market which has been beaten down just rebounds a little bit. We are not talking about big things out here. I don't think anybody is saying fundamentally things have turned around and that one should now take a very benign view of liquidity inflows into EMs over the next many months.

It is just that in the near term - next few days, may be a week or 10 days if the markets feel some relief, it is possible that we don't see great outflows and the market might just have a little breathing room. After that once again we will come back to fretting about some of the same issues about global liquidity. And with the passage of time the macro and the earnings data which comes out will remind us that we are still on a very shaky ground.