Nifty may rally to 5800-5900; rupee pullback to 59/$ likely

It looks like a good Friday for the market after the gas price hike that happened on Thursday. The price hike should lift market's mood today. On the margin, good global cues will also support, says CNBC-TV18's managing editor, Udayan Mukherjee.

"After a really terrible June series that ended on a positive note on Thursday, we have some hope at the start of the July series as we kick off trade this morning," he adds. Below is Udayan Mukherjee's market analysis on CNBC-TV18


On gas price hike These days there is not much to cheer about in the economic environment and so we should make the most of good news when it comes and gas price hike is good. I heard some comments yesterday about how power companies will not be able to pass down, implementation will be difficult. But you have to give credit where it is due, it is not an easy decision to be taken by the government and they could have done USD 6.6 but they have gone all the way up to USD 8.2 which is good. This morning you can focus on stock specific impact like Reliance Industries, Oil and Natural Gas Corporation (ONGC), Oil India which will be the beneficiaries. But from the market point of view, that is missing the woods for the trees. This is the first move from the government after the staggered diesel price hike which does something to address the medium term problem of getting some investments in. India’s problem is that we don't have investments going into any important sector right now. The result of the gas price hike will play out in the medium term, but maybe 2015 onwards some serious upstream investments will happen. So that is the one to focus on, for example countries largest private sector company Reliance. This morning should focus on EPS impact of those that are out in the future, that will not happen right now. The big kicker for Reliance comes possibly in 2017. So, the market may price some of it in but that is not what this move is about. This move is about creating investor sentiment towards making serious investments, corporate investments, capex. In the last few months we have been hungry for these kind of moves. If this is the start of some confidence building measures to get investments back into the economy and oil and gas is a big area which can suck in a lot of investment, then this is the start of something better in terms of the economic environment. It is a big take away rather than stock specific impacts that will play out this morning.


On government policies
The government has done a few sensitive things, diesel was quite sensitive. They pushed it through and are having monthly price hikes. There were a lot of skeptics at that point but we have been moving along with that. So this is what the government needs to do more often and I hope this is the start of a few weeks of some positive activity which gets some investment mood getting back into the country. The rest is very peripheral, all these foreign direct investment (FDI), the time for all the sentiment building measures or doing this cosmetic things are gone.
You have to do some real stuff and people who are not making investments in the economy understand the difference between the real stuff and the cosmetic stuff. Government needs to do more of what happened last night to get some animal spirits back into the economy.
A lot of CEO’s who are not even engaged in the oil and gas business baring power companies, must be feeling quite good this morning that something good has happened. This is because when these billions of dollars go into upstream they have a positive feedback loop of their own and will spread out into a lot of sectors as well. So it will take a couple of years, but at least in the medium term there is something to be hopeful about. Impact on power community
It is tricky because the gas based power plants would be sulking this morning. What happened last night is thorny because the moment gas becomes more expensive, power companies will have to go to the State Electricity Boards (SEBs) to ask them to pay more.

It will be difficult for SEBs to gulp given their state of finances. This is why Vinayak Chatterjee on Thursday said that along with this the government has to lean on the SEB or create an enabling frame work for them so that they don't back off now.
You got to address both sides of it so that the whole thing plays through seamlessly. Therefore, this morning power companies will be unhappy but in two-three years some of these same companies should be feeling that at least our gas availability problem might be on our way to getting addressed because right now whatever price you pay the problem is that there is no gas for power companies.
However, maybe in 2016 given the current price, adjustments are required on the pricing front but they will have gas because more gas will be produced. So for a power company CEO while this morning looks like a tough one on the margin front, medium term there will be some positive takeaways.

On global cues
Global cues look better for the third day. We had a very rough patch for the market through June and this is the slightly sunnier side of it. Nothing goes in one way so we had a lot of ray in the last four weeks and a week of sunshine out here should not get carried away on either side. So, we will get rally may be up another 100-200 points on the Nifty. It will still be a pullback because while sentiment is better today, none of this will be terribly material in the near term. Market will realise that, but a rally is deserved and we will get that on the back of both the global cues and what has happened locally.


On Nifty levels Earlier we were talking about this 5700-5750 as the first big resistance in this pullback but the gap up this morning may easily clear that level. So we should be setting our sides for a slightly bigger pullback partly because a lot of people are short in the market and will get caught by the intensity of this gap up. This is because the overnight news is more surprising than what people expected. We could go up easily to the zone between 5800-5900 even. It has been a big fall from nearly 6200 all the way down to 5580 kind of level. May was a great month, surprisingly everybody said May would be bad and May turned out to be good and just when people started celebrating came the June selloff. Now everybody is bearish, but July will start on a better note and then we will run into earnings that will be a reality check once again. So the market follows this trajectory, we could be heading on our way back to even 5900 kind of levels. If the global strength carries on into next week, we could see some more rebuilt. Rupee should also be in focus because of the moves overnight and the global stability. The rupee having been so oversold also gives you a pullback may be to 59 levels and that may coincide with some more optimism in the market. So, I don't know where the Nifty stops right now but it appears now given the recent news flow that it will be a slightly more powerful rally or pullback than we thought. That doesn’t takeaway the fact that we are still in a very weak market environment but just that in the near term you have to make trading adjustments.