Mkt needs more than poll results to hold above 6400: Udayan

Market will rally in the short-term for sure given the political trigger, but for the Nifty to sustain above 6,400 levels, it will need more than just state assembly election results, says Udayan Mukherjee, CNBC-TV18.

Along with the domestic cues of exit poll outcome, the US payroll data has to be quite weak, so that the US bond yield back off from 2.84-2.85 percent. Also, some of the edge that we are seeing in global markets over the last 72 hours needs to taper down a bit.

“Today the markets is reacting to a combination of those two - a little relaxation on the taper front plus political news and that can be good enough to take the market to a new high beyond 6,350 and even stick there for a while,” he adds.

Also Read: UBS sets Nifty target at 6,900 for 2014

Mukherjee feels that after the initial rally and even post Monday once this exit poll gets confirmed, if it does, the market will need some global support to hold above 6,350-6,400 durably otherwise it may face some question marks at higher levels. At the moment, he expects the Nifty to hold 6000; however, adds that the market should not lose its focus from global cues.

Don't count your chickens before they hatch

There is a case for India to be a relative outperformer, but as seen in the past, India tends to be a fairly high-beta market and whenever global tide change India tends to overreact on the way down and on the way up given how the global situation is changing, he explained.

Also, the one thing which a lot of people are not talking about today is that the market is reacting to an expectation that this dispensation whose probability seems higher after yesterday's exit poll - market is taking it as a given that this dispensation will be very, very good for policymaking. Remember, four year’s back, a dream team combination of Manmohan Singh, Chidambaram and Montek was supposed to unleash this big bull market. The market went up circuit on that day and that was also an expectation, but that did not trigger a bull market, he said.

“So, today we are betting that an unknown fish will deliver the policy goods for India and we are building an outperformance scenario on that. There is an even probability that the situation turns out pretty much like the dream team scenario that we built a few years back. Right now there will be a hope and expectation rally, but we should not count our chickens before they come to roost,” he elaborated.

Hope trade

Stocks in the capital goods are lily to do well as long as the hope trade is in place. One would have noticed that in past before the elections, market do tend to rally and build in scenarios of hope. There is nothing wrong with that. It is the nature of markets to try and pre-empt what may happen and to try and price it in.

“Markets will never wait to see what the new dispensation; if there is one will do with policymaking before it prices it in. It will do something and then if the expectations are belied or do not turn out to be true it will adjust swiftly on the way down as we saw three years back. What is going on right now is that there is a hope that a new dispensation comes about. The markets are trying to price that in before the event and therefore they are hoping that an investment cycle will start,” he explained.

He feels that the investment cycle may not pick up unless the reality on the ground post the election verdict shows some positive signs. However, this does not mean that these stocks will not do well in the run up to the elections. “But on the ground, not too many CEOs will start putting up projects on the basis of 10 percent of central election seats showing a trend in one direction,” he added.

Sector bets

IT, FMCG and pharma have not been doing very well in the past few days. The IT sector is fretting about the global situation, FMCG has a valuation problem and banks are volatile, but there seems to be a propensity to play some of the local cyclicals, he said.

So, one might see some of these infrastructure related stocks performing well. Some of the banks might also participate if there is a rally in the near term, but we need to see what is the extent of this rally? Are we going up to say something like 6,300 and stalling there? The weekend outcome in global markets is very important, he elaborated.