This is an important week for the market because of the kind of macro events that are lined up says CNBC-TV18's Udayan Mukherjee. The Fed meeting on the quantitative easing and Reserve Bank of Indias (RBI) policy meet is lined up for Tuesday. Also, a lot of companies will be declaring their Q1 earnings.
A lot of measures which the RBI took few days back on the rupee will come into effect today as well. So, this is going to be a very important week for the stock market particularly from a macro point of view and also micro because of results compounded by the weak trend that we have seen over the last three days on the Nifty.
Below is the edited transcript of Mukherjees analysis of the market.
ON FEDERAL RESERVE MEET
The influence on the market will be most of the Federal Reserve for sure because we know what the RBI will do. We more or less have a sense because they have shown their hand last week or in the last 10 days but the Fed meeting is going to be very important because while we have been celebrating the fact that the rupee has come down 59 because of what the RBI has done, it has also happened because the dollar has been quite weak over the last few days.
Hence, I think over the next couple of days, the answer to where the dollar index continues to drive lower in the near-term or if it stages some kind of a pullback is going to be absolutely crucial for emerging markets (EMs) this week. It will establish the trend for August as well because EMs have not been doing very well, if one looks at the other markets around us, they have also been a bit wishy-washy the last few days. They are probably waiting to see what the Fed has to say.
By Wednesday we will probably get the big trigger for August on whether some of our currencies will get a bit more relief going into August or this is a bottom for the dollar index for the moment that starts springing back and with that EMs start to come off once again. So, that depends on what tone Bernanke takes. He cannot afford to be too hawkish for sure but how dovish he will be is going to make or break EM trend over the next two-three weeks. Hence, that is the key event to watch out for and more than the RBI policy on that will hinge how we come out into the August series.
ON AUGUST SERIES
The Friday closing was very disappointing because Wednesday and Thursday were weak and people would have expected that after the expiry, the market would have gone up a bit. It seemed like that in the morning for a bit and then it started to slide off again. So, the Friday closing would have told a lot of people that the intermediate trend or the short-term trend might have turned down.
I guess a lot of people are now beginning to look at 5,700-5,750 area again for a retest particularly if the two macro events do not pan out well for the market. It is also a bit disappointing that while foreign institutional investors (FIIs) are not doing much domestic institutions have constantly been selling for the last few days and that is little perplexing.
One explanation could be that they are making some headroom for the Indian Oil Corporation (IOC) issue. That is possible though we do not know the exact figures or it could be that the domestic redemptions for mutual funds have started with full force again for people who are debating whether this time they should be selling around 6,000. However, the breach of the last two-three days have convinced them that the market is turning again from 6,100 and that could have invited a fresh wave of redemptions.
I am quite clear which way to read this, but the liquidity parameters which have been disappointing for the last two months now, are entering August with a fairly weakish kind of outlook.
ON NIFTY
This week will be more of a wait-and-watch week for the Nifty. It came down and had a fairly weak close below 5900. I don't think even at the start of last week people were talking about sub 5900 kind of levels because the conviction was very high about the Nifty being at least in a 5900-6100 range and may be then even inching higher towards 6200.
This week could be volatile and there are many events which could yank the market either way. If the Fed comes out with a very dovish kind of an outlook, it is possible that EMs put in some kind of a rally though increasingly the possibility of that does not look very good looking at the price action on the screen. So, for now one has to work with a 5800 kind of base for the Nifty, though the possibility of going back and retesting 5700 is not very low. Though after the policy, if yields cool down very significantly or the rupee pulls back to something like 58 to the dollar, then those events can cushion the markets fall a little bit but the thing to be noted is that even without any great pressure from FII selling, the Nifty has very quickly come back to sub 5900 levels.
Hence, if for some reason over the next few days, whether it is poor earnings or RBI communication there is more selling from global guys, I think 5700 could be retested. So, things are a bit hazy but the chances of the market having turned once again from 6100 to go firmly back into that trading range certainly has grown after how the market moved last week.
ON RBI's POLICY MEET
The chances of this being a non-event are very high now because the RBI has done quite a bit over the last 10 days. It would be rash on its part to not wait to see where the rupee stabilizes before moving ahead on another very big trigger like the cash reserve ratio (CRR) hike. Hence, I think they will wait-and-watch. However, in waiting and watching they will probably guide the market a bit about any kind of change in stance because of how the rupee has moved.
Hence, if tomorrows takeaway is that the RBI is not going to hike rates anytime soon, maybe bond yields may soften down to 8 percent kind of levels that is entirely possible. At the same time, the RBI might say that one should not be hoping for any kind of rate cuts at all in the foreseeable future because it is trying to battle the currency and that will change a lot of equations because a lot of people still believe that there is room for rate cuts during the second half of the year.
If tomorrows takeaway is that rate hikes are not coming immediately but rate cuts are also not happening at all for the rest of the year, then I think the conviction in that 5 percent GDP growth number will intensify for a lot of people. So, RBI may not do something explicitly tomorrow but what it says about the future will be read very closely for people who are trying to map what growth will be like in FY14. This is because one thing is understood that the RBI will throw all that it has at the rupee to protect it at 60 against the dollar. But what it also is raising a big question mark on, is how much that will affect growth and what will the growth be for FY14 because that has ramifications for FY14 earnings growth as well. Someone just said about JP Morgan talking on earnings growth being 6 to 8 percent in FY14, 6-8 percent FY14 earnings growth cannot support the Nifty going beyond 6100.
The commentary has been quite cautious the last time it had spoken, it has not been very dovish at all and right now having done what it has done, if it does not raise rates it is possible that it says that my outlook towards policy has changed because of the way the currency has moved. So, it will not say that I don't care about growth but probably the word currency will feature more prominently in its statement which will tell the market that in its mind, a shift has happened in trying to defend the currency rather than just to accelerate growth and that may not have very good growth takeaways for the market......written by suraj tiwari
