Nifty may see 6100 in May series; support at 5700: Udayan

The Q4 results declared by Hindustan Unilever Ltd (HUL) helped lift the market mood on Monday believes Udayan Mukherjee, managing editor, CNBC-TV18. He says there are some tailwinds from global markets and the US market that continues to be in a zone of its own, is lifting the mood today across Asian markets.

"It is certain that we will start the day above 5900 and now comes the test whether we can clear this congestion zone and head higher in this pullback rally," adds Udayan.

Below is the edited transcript of Udayan's analysis.

Our market has been feeding on global cues and a few other things like a couple of good earnings have come in. Indian companies have done a remarkable job of holding margins this quarter. Companies are taking the view that they cannot control their topline because that depends on the environment. What they can do is tighten their belts and atleast protect margins and we have seen that in a couple of large companies which have reported their numbers. The bad earnings are probably yet to come in the next few quarters, but atleast this quarter is not a complete washout as was feared at the start.

The call for a big rate cut from the Reserve Bank of India (RBI) is getting louder. That is keeping some of the rate sensitives supported as well but at the core is the fact that global markets are not seeing any meaningful correction. We had a minor dip on Friday, yesterday that too got swallowed up, today we are coming into some serious resistance points. Let’s see what the market does with them.

On US and European markets

The US market is remarkable because it is just shrugging off any negative data point which is coming in, so that still has a shape of a really good bull market story. Everybody keeps talking about corrections but they never last more than a day or two. The European rally clearly is predicated on some kind of a hope of an ECB rate cut which may be coming too. Regulators these days are super proactive in terms of preventing any major downside in the markets out there. So, we may get an ECB rate cut as well.
 
From an Indian and emerging market perspective, it is interesting because if developed markets start doing well once again, that is the US, questions will once again be asked on whether emerging markets will start to underperform like they have for most part of the 2013 calendar year. This is more so in a scenario where crude has gone back to USD 104 which is a good 6-7 percent more than when our rally started. So, yes it is great that global markets are doing very well but how India and emerging markets do in the relative context is something that we will have to figure out. However the strength in the US market has been nothing short of remarkable.

On Nifty

There was no sign of the momentum waning in Nifty till yesterday. The market just spent a quiet morning and then perked up in the second half of the day on Monday.

The time of reckoning for the Nifty is now around these levels. Depending on who you ask, somebody will quote levels of 5,930; 5,950; or 5,990 as we heard from CLSA. So, this whole cluster of the next 70-80 points is a congestion zone for the Nifty. If the market aided by global factors or even the RBI policy on Friday gets passed this with a dash and gets to 6,000, then I think there is a fair chance of the Nifty attempting the highs of the year which is 6,100.

It is not unlikely. It would be a surprising outcome from two weeks back but the market suddenly caught momentum, flows have turned and there is some more optimism about India because of some of the commodity related factors. So, it is possible that this momentum can carry us to those kind of levels.

However, I think first we have to get past this congestion zone and see how the market is dealing with this zone broadly of 5,950-6,000 and over the next few days, we should not have some negative data points or surprises, which sets us back from here. Once we attempt to climb over an important congestion zone and fail, then the bears get even more excited. So, we should not get to this 5,950-5,970 zone and then turn back and give a significant correction. I also hope the events of the next few days do not give the market a trigger for such a correction.

Generally, the options market is more optimistic for May. If one sees where the option strike prices are being written, it seems to suggest that the market is veering towards 5,700 to 6,100 kind of range. That could change with one bad day or one good day but for now, the general view is that 6,100 is the top for the May series and even in the event of a correction, we are not going to 5,500 immediately, around 5,700 mark there should be some strong support.

India vs US, Europe, China markets

India is too small to be compared in a relative sense to the US market, so we keep making these points about how India with some improvement in macro will attract flows out of the US. It is like saying money will come out of Tata Consultancy Services (TCS) and get into Rolta or Geometric. The two are simply not comparable. We talk about a few billion dollars here and there. That is a small drop in the ocean of global capital. What we should compare ourselves with, is whether we can get a little bit more capital compared to some of our peer markets.

I am not even talking about China but relative to Brazil, Russia, some of the other Asian markets. If people get the feeling that India is not as bad; maybe the parliament functions and a couple of things come through; the diesel price hike happens during the course of the week; we get a good rate cut and commodity prices don't go up substantially, then one can make a relative case for India. In the near-term, that can throw a couple of billion dollars our way. If that happens, then that 6100 possibility becomes a reality. So, we should keep our sites a bit lower than saying that we are in the league of the giants.