The US pullback is good for Indian markets. It's not the time to get carried away, though. The markets are still settling down. I think one should trade with a lot of caution. The markets are still volatile - one should wait and watch the situation.
Nerves would be somewhat settled after Wednesday’s pullback and the fact that we did not sell-off; everybody would have been watching the US markets last night after what Europe did and then things came out okay. It was volatile in the US but things have come out okay; 300-points up on the Dow, the Nasdaq up a little bit. That will do and Asia is okay, if not running away most -markets seem to be quite calm across Asia today. So we have got stability and that should help us after yesterday’s move back.
Asian Indices:
Asia is quite stable after the green tick in the US market, China is down just that little bit, Nikkei is up a percent, Straits Times is up 3%, Korea is up 2%. So no problems in most of the markets out there, they all seem to be in okay shape this morning.
Is the global mood still extremely brittle?
It is more volatile than brittle; one cannot game what will happened between days now. There is another Fed meeting, which is coming up next week already there are expectations of another 50 bps cut. One would have seen that there is some criticism on Fed on how it’s reacted already. I think what the ECB chief said yesterday was a bit of a rap on the knuckles of the Fed on their overreaction or urgency to act to save the market condition and that has been echoed by analysts, so maybe the Fed will think twice before doing something in the next week’s meeting and that creates a window of volatility around that period once again.
Generally people are quite skittish in global markets. The internals of those markets are also indicating that there could be some more volatility which lies ahead and the problem in a situation like this is that now markets get coupled quite a bit at least for the near-term. I don’t think decoupling will play out now, every market will watch the US then Europe, then Asia and depending on time zones there will be reactions. I think we have entered probably a two-three week period of extreme volatility, global volatility and all markets will be moving in tandem.
Next: What about our markets?
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What about our markets?
We have had a nice little bounce yesterday and there is a bit more to go. We have come up to about 5,200. As was spoken yesterday; we could go up to 5,400-5,500 that wouldn’t be a big deal at all. The Sensex has rallied to about 17,700-17,600 – It is possible that it can go up to 18,000-18,800 but the test will come at that level. So in the near-term one can play for some more upside but as we reach those levels maybe the shorts will start getting active, maybe another bout of global volatility will get injected into this system as often happens in this kind of a situation.
It’s good that we don’t get pegged back this morning by global cues, which was a possibility but at slightly higher levels if the market opens with a small gap up which looks likely, I think one needs to become a little cautious about what one is doing with positions.
The smart traders will trade small moves now and not keep positions open for very long and certainly not overnight because of the global risks and one will see probably intra-day trading patterns opening up once again. People will trade morning to evening, take small profits as they get it and then come back the next day and take guard once again.
Directional long-term trades are out right now and the market probably if it has to move has to move on the strength of investors who are getting in seeing prices which have come down to attractive levels.
We have been clearing up our house as well on the F&O side and the domestic institutional interest has been quite phenomenal?
As one would expect because they had all raised cash, the mutual funds and it’s a heaven sent opportunities for them, suddenly to see stock prices off 25-30% with cash in your hands is a great thing to happen, so in that sense mutual funds and those NFOs have been particularly lucky.
The insurance companies would certainly have bought in this quarter using the fall because they get most of their money in this quarter in any case. FIIs still continue to be sellers on the cash market, what they have done in the futures market is that they have covered up some of their Nifty shorts which were considerable shorts over the last couple of days they have covered and they have unwound some of the arbitrages on the stock futures.
So it looks like the numbers are netting themselves out but there is still some selling which is happening in the cash markets from the FIIs which is quite interesting but the key thing is that despite yesterday’s upmove stock futures still lost 14 crore shares.
In stocks like Ispat, IFCI, Nagarjuna Fertilizer, RNRL, RPL are consistently losing open interest and that is extremely good news that the upmoves in the market are leading to some more wiping away of the weak hands. 75 crore shares have gone in 3 days, which is extremely encouraging and that is the good thing that the market remains in an upward slope because these positions would have got cut anyway, even if the markets were falling continuously. So it’s good that is happening in an upward drift.
We were fretting about the turnover yesterday, does it seem like some of the systemic issues are still hanging in the air?
Certainly, it appears so and the feedback from the ground is also that; margins went up yesterday on many of the liquid names, F&O names from the national stock exchange late in the afternoon that did not help.
I think periodically you are still seeing shut downs of brokerage terminals and pretty prominent brokerages as well, so I think the relationship between the NSE and the brokers now has become a bit of a one way kind of relationship.
NSE does not want to take any chances at this point so they are moving margins around and at the first sign of any kind of slippage in margin, payments from brokerages they are shutting off terminals and it certainly happened for some brokerages at some point of the day yesterday and that also is leading to lower margins.
Brokers have got extremely cagey now after the fall and I do not think you can easily or at least you have not been able to open up unless you are a really priced client to go out and buy for most of the brokers. They are not letting you buy at all because they fear that the markets will fall again and they will have the same margin call issues.
The whole system is in extremely cagey kind of state right now, exchanges, brokers, clients all included. It is a strange kind of time systemically speaking and it is not difficult to go out and buy, sell, operate in a free kind of environment, which will also act as a volume stifler over the next couple of days.
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