Mumbai: It's the last trading day of the week. It has been a week of consolidation for the markets and a little bit of correction as well. There is no panic yet but the market just softened up a little bit and it has not been a good last few days for the global markets and today, it is no different.
It's the global cues, which are leading the market sentiment down a little bit, which is why the markets have not been able to cross 12,000 just yet.
The market is not in a panic mode but sluggish. It doesn’t look like it wants to fall off very sharply but maybe it wants to just spend some more time here around the 12,000 mark. It has got a bad set of global cues so it will need to spend some more time and probably loosen up a little bit as well.
Asian and emerging markets:
Nikkei is down about 100 points. The others seem to have recovered a bit after a weak kind of start. So, they are not up too much but at least one can see a little bit of green and that helps because Thursday was a day in the red.
Emerging markets though were still deep in the red. Russia was down 2.5 per cent and Brazil was down nearly 2 per cent. Mexico was down 1 per cent; so clearly those noises from the US seem to be pegging them back. Things are not exactly looking great but at least one does not have very negative Asian cues this morning.
Market cues:
Some people believe that in the near term, markets could just soften up a little bit. Markets are stuck in a broad 11,000-13,000 kind of consensus range depending on how bullish and bearish one is.
This set of global cues came at a very unfortunate time because markets seem to have been just mustering up enough momentum to cross that 12,000 mark and then the global markets softened up. Therefore, markets don’t have much ammunition to climb the 12,000 just yet. Traders are also just taking their hands off a bit, just lightning up and seeing how global cues pan out. At critical levels, one needs momentum; one does not need bad news, which is another wall that one has to cross along with the psychological baggage of crossing into an important level.
Technically speaking, the market is pausing right now and it may pause for a bit more. Now how long it pauses, depends on a bit of the global cues and the flow situation. Depending on what comes in from there, the market will either cross 12,000 and most people seem to believe that 12,000 is an important psychological mark, which may not be crossed so easily. So for the next couple of days, markets will probably spend time in this zone of 11,600-11,700 to 12,000 odd.
US slowdown could scar global economies:
It has been a bad time to get such global cues and people are getting quite worried out there. One can sense a bit of skittishness out there. Sometimes people get worried about US growth, sometimes about interest rates going up. For example, yesterday the markets fell because the labour costs were going up and there were fears that interest costs would go up once again.
This morning, people are talking about growth slowing down because housing prices have come down for the first time in one year. It is difficult for investors to stare at a one year of slow growth and that itself is beginning to take center stage ahead of the inflation scare. Some of it is noise while some of it is not. One needs to be selective about what kind of noises one is picking up from the US.
The ones to do with interest rates might be a little bit of noise because people are still waiting and watching what the Fed will do and everything that will suggest that the whole interest rate scare is not over, will send the markets into a bit of tailspin. But there will always be noises and one just needs to be careful about how one is reacting to it because between sets of data and between days, one will see the markets going up and down.
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The more durable problem of course is the US slowdown and that is not looking good. In fact yesterday, they were talking about profit warnings as well from some of the companies and that is not good news at all because the US companies have been at least doing well. And the housing news is not good at all, that is the central point of the problem. So people across the world are beginning to feel quite sober now at the prospect of staring into maybe 4 to 6 quarters of a US slowdown and how badly that might scar some of the other global economies.
One can understand a bit of pessimism, which is getting factored into the market. It is sad that it comes at a time when crude has cooled to below $67 because we have been waiting for so many months and quarters for crude to reach that level. From its top, it has lost nearly 15-20 per cent; and it comes at a time when the obsessions or fears of global growth are taking center stage, which is why the markets are not able to react fully to the extent to the relief they would feel at crude cooling down.
Things are a bit murky out there and one needs to watch what is happening in the global space because much of that mood on India is not so bad. Indian companies are doing well and our data is okay. If emerging markets soften up across the board then in a relative world, one would also be struggling to move against the tide because India is amongst the most expensive markets in the emerging markets space.
India will get progressively more expensive if we don’t correct in line with emerging markets. So in a relative world, one needs to watch that space; it could not be terribly bearish or anything but the global cues, if they don’t sort themselves out in the next few days and continue to struggle, then we will probably struggle to move up, if not fall very sharply.
Futures and Options:
Futures and Options data is a bit mixed because between days, markets are getting sell and buy figures from FIIs and one does not know liquidity is something that one wants to use as a crutch right now to scale that 12,000 barrier. One may say that the global cues are not great but we are getting money, so we need to trade this market up. But those are also changing between days so that is not clear-cut.
If one is looking at F&O side, we are at Rs 33,000 crore F&O positions right now and very early in the series too, we are not heavy. But we are not exactly light anymore, so it is building up. Once it gets to that Rs 40,000 crore kind of mark, which we may get in the next week or so if we keep on piling Rs 1,000 crore a day, as we have been, since the start of the series, then one begins to wonder whether the markets are a bit heavy as well because even yesterday in a flat or weakish market, 1,500 crore of positions got added almost equally split between F&O.
So there too, one is not getting clear sense of what the internals are suggesting; volumes are not great, the build-up is there, the discount is small slender at 3-4 points on the Nifty, which means there is not huge amount of shorts in the market at this point, which will give you that cushion and the build-up is not too bad, which means some amount of leverages gone into the system.
So if the market were to come off 100-200 points, maybe that will be an extra weight on one's back. Because at this point in the earlier couple of series, we were a bit lighter. We do not know what will happen in the next 10-15 days. So we will just wait and watch how this month of September pans out. One is unsure whether we will breakout above 12,000 or we need to soften up some more. So it’s a bit of a 'blind leading the blind'.
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