Udayan@Moneycontrol | Expect Nifty to consolidate in 10,500-11,000 range near term

The US Federal Reserve's dovish comments on Friday will spark off a risk on rally in all global equity markets in the short term, CNBC-TV18 Consulting Editor Udayan Mukherjee said.

In an interview with Moneycontrol, Mukherjee said that the Fed's conservative views boded well for inflows into emerging markets.

"But the market would do well to watch what is happening between US and China. That is a more important outcome than the Fed's predictions for 2019," he said, referring to the ongoing trade tensions between US and China.

While fewer rate hikes by the Fed was good news for equity investors, liquidity in general could be tighter compared to the past.

"Central banks will still suck out close to $1 trillion from their balance sheets during the course of 2019. So we are still batting on a liquidity shrinking wicket and so we should not expect any tailwinds from global markets," Mukherjee added.

"Once the risk on rally is over, one needs to figure the growth picture that is left for 2019. It is not just about risk or risk off; it is also about the underlying growth in the global economy," he pointed out.

The market is facing significant resistance around 11,000 on the Nifty, and is likely to consolidate in a 500-point range between 10,500 and 11,000, Mukherjee said.

"What the market is saying is that it does not need to retest the 10,000 low immediately, because bond yields have cooled, rupee is stable and crude prices have cooled.

"However, given the uncertainties going ahead, which are political in nature, given that we are not seeing significant earnings acceleration yet, and the fact that the global picture changes every five or six weeks, the market is saying that given current valuations, trading significantly above 11,000 would be getting ahead of ourselves," he noted.

On the macro picture, Mukherjee said it was a bit tricky because of the setback to the ruling party in the recent assembly elections. There is talk of a huge direct benefits transfer to the farming community in the upcoming vote-on-account.

"It (a direct benefits transfer scheme for farmers) stands to reason because of the backlash faced by the government from the farmers because of the distress faced by them. But whether the government has the elbow room to announce such a scheme because GST collections have been subpar, and what such a scheme does not just to the fisc but also to the bond yields, are the subject of macro concern," he said.

Mukherjee feels that earnings for the December quarter will be patchy.

"There will be hits and misses, and at the end of the (earnings) season, you will not be able to make up your mind whether it was good or bad. But there will be no real reason for (earnings) upgrades for either FY19 or FY20."

He said that other than general elections, tepid earnings growth was the other big hurdle for the Nifty to trade above 11,000.

He expected lackluster numbers from auto, cement, oil and gas, telecom, decent numbers from IT, corporate banks and a good set of numbers from quality consumption names.