This market is buzzing. Today should be another buzzing day. There's a lot of momentum in the the markets. Hopefully Dr Reddy's (results) won't do anything to poop the party today. Some people may choose to book profits. But overall, there is still strong momentum in the markets.
This is a big day for the markets, almost 20,000 flashing on the screen, a monetary policy announcement and such big numbers coming in from the earnings season. So we have got everything, big market momentum, the maverick RBI Governor nobody knowing what he will say today, tomorrow there is a Fed policy and of course today so many big results coming in. This market is buzzing and today should be another buzzing day out on the street
On market momentum:
A lot of momentum in the market right now, I think this morning people will be waking up rubbing their eyes hopefully Dr Reddy will do nothing to poop the party. It looks like you are still going strong. We have of course gone up 1,200 points in two days, so there might be a little bit of pause etc ahead of the two policies.
Some people may choose to take profits that is entirely possible but is anything on the screen telling us that the party is over not quite yet. Something will have to come through. I don’t think that anything that Dr Reddy will say will probably break the back of this bull atleast just yet.
Asian Indices:
China is still running, Shanghai is up 1.4 per cent and Hang Seng is up more than 0.5 per cent. The other markets are somewhat softer, Nikkei is down about 1%, Kospi is down nearly 1% as well. Mix bag for the Asian markets, the Chinese are up, the rest are a bit subdued going into the big policy tomorrow for them.
How is the market feeling this morning?
Feeling strong I think, there is momentum again. I know there is a little bit of discomfort for the last couple of days that we have again dashed up so quickly to 20,000 but nothing on the screen is telling you is that the market is ready to fall off yet. I do not know whether today or tomorrow the triggers are stacked up such that we get pegged back a little bit but there could be some profit booking and a bit of an intra-day dip those things are entirely possible but left to itself, I think the market is telling you that there is more upside in the near-term and we could be surprised by levels even from here the way it is going.
I do not know about today, tomorrow but if you are asking whether there is any sign of an intermediate top in the market right now I do not think those signs are visible of course corrections never come with prior warnings but that said the market looks like there is more upside in the near-term.
How you should approach it is a different matter altogether because I think the question for a lot of people is do they book profits now and a question for a lot of people is they can see largecap stocks moving 8 per cent — 10 per cent a day, is it a good time to jump into the water. Those answers are difficult because profit booking for people who have been riding it is a tempting alternative right now but I suspect the market may make you regret that decision in the next few days if you sell out too soon.
Buying now probably is a little dangerous because we have had a fantastic rally already and even if there is a couple of 1000 points more left in this run just in the near-term, I think it would require a brave man to go out and in tern buy a lots of stocks at these levels.
So maybe a bit cautious on the buying front, holding on an easier decision to take and profit booking maybe in a staggered manner not completely because you do not know where the market will take you so maybe small tranches of profit booking at every high level starting now for the guy who is feeling very tempted to book profits.
Monetary policy impact:
Tough to say because overall this should not be too much by way of an impact, I don’t think the RBI whatever it does will come out and signal higher rates in the system, I don’t think it want to do that and there probably no case for doing that.
So at best what you will get is a bit of liquidity sterilization move from the RBI on the CRR front with which it will not want to signal higher interest rates but just mop up some liquidity. And the market in this current frame of mind will take it as that; that no the RBI is not signaling high rates, even if there is a CRR hike, it is simply trying to take out some money from the system to defend the rupee.
So there might be a little bit of a knee-jerk reaction on some of the banking stocks, but I don’t think it will last beyond a day or two and then once again the out performance starts once again. If there is no CRR hike or no rate hike or no rate changes at all in the system then I suspect the markets will use that as an excuse to rally further.
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So no rate changes at all is good for the markets today, and you will probably see a big thumbs up or a relief rally even after that. If there is a CRR hike which is a possibility, which cannot be ruled out, then you probably will see a little bit of a dent in banking stocks not too much but tomorrow, day after tomorrow we should be fine once again.
But best if there is no hike at all and that’s what we look forward to from the Reserve Bank of India today.
On Fed meeting:
Thursday’s meeting is more important because at 20K you do not want negative surprise and especially since after the P-Notes ruling, which is come in you are any ways expecting little bit of moderation in the next couple of months in flows. Yu don’t want some more of moderation because of Fed surprise.
The Fed usually that’s not surprised negatively and the market is expecting atleast a 25 bps cut and I think the Fed will probably go on and deliver that because the US Fed does not want to surprise the equity market too negatively if it can help it. I suspect we’ll probably get our 25 bps cut if one does not then there is reason to worry all markets have rallied quite a bit and if it does not then it will come as a surprise to the street in which case the emerging market might correct.
In the near-term if you are a trader I think the bigger risk lies tomorrow and if there is no cut then I think the market might get picked back. Just one comment aside on what’s happening on the liquidity picture.
Everybody is saying we have gone up so much because of copious liquidity flows but in the last couple of days the 1,200-point rally has not been because of the FII flows the last reported figure from the FIIs is actually a sell figure of USD 64 million and yesterday’s buy figure provision only Rs 700 crore and not USD 500 million or USD 600 million.
I’m getting the feeling that a lot of people are completely surprised by the pace of the rally. Since they cannot explain it or did not expect it, are pointing to flows but I think the rally from 18,800 to 20,000 has little to do with global liquidity. One day we had a sell figure in the cash market the other day about USD150-160 million, I don’t think that is responsible for the 700-point rally in the market.
I think people are surprised and they are pointing towards liquidity but it hasn’t helped us too much in the last couple of days. Of course the fact that the P-Note guys cannot hedged too much on the derivatives side and probably has lifted a bit of the selling pressure from the market, which is why you might have seen a cleaner run on the longer front.
It has got more narrow though, it was happening yesterday and it has happened over the last few 1000 points, is that about the kind of money or about the kind of stocks?
I think about the kind of stocks, at this point people do not want to be left out, they want to participate but they want to participate with a margin of safety, they want to be in the kind of stocks which are delivering surprises which are still seeing earnings upgrades which is why you are seeing that narrowness.
We are seeing L&T move, Reliance move, BHEL moving, those kind of stocks moving even in the midcap side all those capital good, construction, some real estate. Those are the companies which are still seeing earnings upgrades and people want to be in those stocks because they fear at the back of their minds that at some point there will be a correction but they have seen in the last few times that these stocks which continuously show earnings upgrades and continue to be in a sort of a strong QoQ growth momentum, they bounce back to new highs the fastest.
They want to be in those kind of quality and growth stocks where even if there is a correction they will probably not go down 30 per cent — 40 per cent and then not get back to new high as very carefully.
So you want that little bit of insurance while participating which is what you are trying to buy by buying into that narrow set of stocks, which is what everybody, is buying into. I think we are seeing those sporadic moves because a lot of money is chasing a small club of 30-40-50 stocks in the market which are good, which have the mantel of leadership and a delivering surprises every quarter and therefore everybody is rushing to buy into those stocks.
The out performance there is getting exaggerated while the underperformance in some of the other sectors is also quite stark because the money is just not chasing those companies.
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