Nifty unlikely to go beyond 5900; see US outperform: Udayan

The emerging markets seem to be under a lot of strain today because the strong non-farm payroll data from the US could mean that the Fed will start tapering its bond purchases come September-October, says CNBC-TV18's managing editor, Udayan Mukherjee.

The US market on Friday was up and the bond yields there were back up to 2.74-2.75 percent. India seems to be facing the possibility of sluggish inflows, and the possibility of crude going up. The global picture too seems to be quite mixed and murky which may come in the way of emerging market equity performance.
According to him  many of the factors like crude, US bond yields, emerging market flows and earnings, which are coming in will probably not let the Nifty go too much beyond that 5,900 kind of level for now.
One can expect divergent performances from the US and emerging market, wherein US continues to outperform and EMs languish, he adds. Also read: Bond funds gain $2.11bn after record outflow
Below is the verbatim analysis of his market commentary on CNBC-TV18 On US market
People were hoping secretly in the emerging market that the US non-farm payroll data would turn out to be not so great but it has turned out to be remarkably strong. The US bond yield reaction gives it all away, that increasingly that market is beginning to price in that come September-October the Fed will start tapering off its bond purchases. That should have the emerging markets quite worried as it has this morning.
For India, things have not helped because of the way crude has moved up to USD 108 per barrel. It is a bad cocktail for India this morning - the possibility of living with not great flows going forward and also with crude going up because of the Middle East tension.
The global picture seems to be quite mixed and murky and it will probably come in the way of emerging market equity performance. So, maybe it is paving the way for another leg of very divergent performances where the US continues to outperform and emerging markets languish, and emerging market currencies also do not do very well. A part of it is in the price, you would like to believe because this has been simmering for a while but the reaction this morning in many Asian markets tells you that maybe all of it is not. Factors impacting Indian market
Factors like the crude going up, tepid flows, currency, expectation of not so special earning season and the dollar index – Taking all these things into consideration, one cannot build a strong case for the market to go up from here. The best you can say about the market is that it is showing a lot of resilience around that 5,500-5,600 kind of levels. So every time it goes there, you find some kind of support. But every time it gets back closer to 6,000-5,900 levels, these headwinds do not let the market flourish beyond a point.
The core underlying earnings momentum is weak, as we will find out in the next few weeks and flows are still going to be tepid. So, there is no great push that the market will get from flows, the rupee too is not recovering. Although, crude seemed like it was sorting itself out but unfortunately that too has gone back up again.
Therefore, the case for Indian markets to do very well from here is quite dim. So, limited upsides is what you would want to play for right now and hope that the downsides do not open up dramatically because of the combination of events, which are coming to the fore. So, best case is that the market holds a bit of a range under that 6,000 level for the next few weeks and digests this flow of bad data and bad news flow which is coming in. On rupee
We do not have any support of flows, and that is not getting better now with the data which is coming through from the US. The fact that the dollar index is so strong right now does not help the rupee’s either. It is a case of expectation of muted flows going forward which then makes it a bit of a struggle to cover up our current account hole, and also the fact that the US dollar is looking so strong.
This week we will hear some last-ditch effort from the Government of India and the Reserve Bank of India (RBI) to try and to salvage the currency somewhat. They have been talking about it. But these pullbacks have not been very durable. On Indian market indices
It was a flat week, nothing happened to the index and it was held up by two stocks primarily Hindustan Unilever Ltd (HUL) and ITC. If we take those two out then it was a very tepid kind of week for the market.
Markets are stuck between 5,600 and 5,900 right now. This morning again you will get pegged back a little bit. Is another huge wave of downside opening up immediately? That is difficult to say because we have seen just one knee-jerk reaction to the global event.
If over the next few days, emerging markets start another slide, it is conceivable that the Nifty also will go down to retest that 5,600 level. Right now, what you can say with slightly greater conviction is that levels above 5,900-5,950 seem difficult given the combination of circumstances or events that we are dealing with. Many of these things like crude, US bond yields, emerging market flows and results, which are coming in will probably not let the Nifty go too much beyond that 5,900 kind of level for now. How much of a correction we witness from here frankly depends on the outflow situation and how nervous emerging markets get over the next few weeks.
_PAGEBREAK_ On FII flow
That is the disappointing bit because the week before, the market has stabilised in the hope that maybe the foreign institutional investors (FIIs) outflow situation will get limited now, most of it is out of the way. But you just look after last Monday when we got that lumpy USD 200 million - last four sessions FII flows had been negligible infact marginally negative. So there is no money coming in. We saw some good announcements seven-eight days back on the gas price front etc but that has not led to any great inflows coming in.
Now after the jobs report on Friday, let us see what the emerging market flow situation is like because the first time the global market got nervous about this whole quantitative easing (QE) taper, a lot of money went out of emerging markets in a compressed period of about 10 days. Are we going to see that music playing out once again now with that US bond yield going up to 2.75? It is conceivable that happens. If that were to play out, we will see a lot of pressure on stock prices once again.
So markets had stabilized; the first flush of that panic of QE tapering-off was digested and priced in but whether we will see another flush of panic right now because of the data is something that we cannot game.
However, if flows do not pick up, I do not see how this market is going up because the short covering has happened. At the end of the last series, when the good news came in, shorts were pretty much out of the market. Small buying started happening but that has also diminished to a trickle, so if flows do not improve I do not see how this market is going up in a hurry. On government paper
It is sucking out whatever little money is available both domestic and maybe for IOC etc it will suck out some FII money too. So, whoever is this long-only long-term India lover FII, that kind of money is getting sucked up by this lumpy kind of offerings, which leaves on the margin the exchange traded fund (ETF) problem still unresolved.
Therefore, because of this US bond yield problem and the general emerging market underperformance, if the ETF outflow start once again and sucks out another few billion dollars from our market then that has bad ramifications for the rupee which is anyway going to struggle with the way crude has moved and also for the stock market.
It is not a great liquidity situation right now. The best case is to just hope that at least that 5,500-5,600 level is okay for the next few weeks and months.