This is a big week ahead — the earnings season's results, monetary policy meet on Tuesday and US Fed meet on Wednesday. There’s an air of mild confusion in the markets regarding what the hedge funds can or cannot do. The global cues, though, continue to be strong.
An uptrend is possible in the market, but will depend on news flows.
The week forward:
It is a big week for the market. Lots of numbers jam-packed over the last three days of earnings season, a monetary policy announcement on Tuesday, a Fed meeting day after and we have just about begun on the November series. Things look good so far global cues are good but we have got lots of news flow hitting us over the next few days and there is still an air of mild confusion about what hedge funds can or cannot do on the FII flows. So very interesting week that we are getting into at more than 19,000 levels
An air of momentum:
The global cues are strong and there are lots of expectation form the Fed meeting. So for the moment I think the tailwind is behind us but I think there is still a little bit of air of confusion about what’s happening on the hedged funds front. We just need to watch those flows situation for the next few days. Generally the market seems to be in an uptrend there is no reason to believe that it won’t seek higher levels just need a bit of clarity on the hedged funds activity over the next few days.
Otherwise the way we closed on Friday it would appear that we are on an uptrend but there are lots of triggers this week from earnings, from monetary policy meeting etc. The start should be good after that the market will be hostage to news slow.
On inflows:
For the first time in many weeks actually the whole DII crowd just had a very quite five-six weeks out there, and now that money has started coming in, which is very interesting because you did see a largish provisional sell figure for the last day and that almost entirely got soaked up by the Domestic Institutional buying.
So maybe the insurance companies who typically get a lot of money, maybe its the beginning of the month’s flow, which are coming in maybe they were sitting on a bit of cash, which is getting deployed now that the market has sort of got over this event risk and got over that hump. I think Domestic Institutional money will be very crucial.
On the futures side of course there’s been quite a bit of covering you have seen that the futures have got into a premium as well, so the FII’s have pretty much bought back any of the hedges or shorts they might have created on the Nifty futures and that might be part of reason why the market found it so easy to get back into new highs once again.
Some adjustments are been made from the pre-event situation to the post-event situation. But we need to watch for the next six-seven weeks, what is the extent of drying up of FII flows and how much of action shifts over to the ADR market. You will note that the ADR’s are jumping very fast now; Friday’s ADR performance was quite eye-popping.
So maybe the premiums have started expanding already and some of the money will now move to buying the ADR’s because that’s easy to do in the absence of buying in the Indian markets.
There could be a little bit of a exporting of the price performance here to the ADR price performance and that’s something to monitor for very closely as well.
For the rest of the world has the Fed magic has already begun?
90% possibility is being priced in of a 25 bps cut, so hopefully there will be no surprises. Last time there was a surprise and it was on the positive side. If its 50 bps again you expect a big dash in the global market and even with the 25 basis point the markets are pretty okay. As one can see none of the Asian markets are looking too bad, the Hang Seng is dashing up as it does the most it run up to the Fed cut expectation so things seems pretty benign.
There are too many things, which are flaring up almost a blow out kind of situation happening in the global markets again. Emerging markets equity are strong, gold is at a 27-year high, crude is at USD 93/bbl. I think you are in that stage where you are getting that uncomfortable feeling.
PAGE_BREAK
I don’t know when that uncomfortable kind of feeling will play out because right now there is a Fed cut expectation may be around that next couple of days all markets rallying quite significantly but if it’s only 25 bps after that what happens, we need to probably monitor and I don’t want to sound cautious because global markets including us are showing a lot of strength and showing momentum right now.
So the arrow is very much pointing up but right now the way everything is going up is leading to one of those blow out kind of situations. So just wondering whether there is some kind of accident, which is lying ahead but otherwise the screen is telling you that it is bullish, gung-ho and quite red-hot.
On the monetary policy and Dr YV Reddy’s speech:
The street is quite divided this time on what may come and may not come. So we are all scratching our heads a little bit because you can build an equally persuasive a case for him to hike CRR or not hike CRR. One can contend that maybe flows do moderate a little bit in the next couple of months, so why the need to press on the brake right now.
He is a conservative man, the rupee is still very much in an uncomfortable groove for the government, entirely possible that they actually presses the trigger on the CRR front.
The other rates may not change. I don’t think at this point both given what he has achieved on the overheating front according to him and on the rupee front because higher interest rates do not help the rupee in terms of flows coming in.
On both those accounts, he would not probably want to signal too much of a rate hike in the system. On the rate front we maybe pausing but on the CRR front one is not quite sure we might actually take a little bit of a move up, if he is feeling very conservative.
It is difficult to call even if there is a CRR hike it’s not the end of the world. I don’t think the market should take it as a signal that he wants interest rates to climb higher in the system and that is pretty much with an eye on liquidity and with what’s happening on the rupee.
So maybe a little bit of turbulence in the bank stocks on the day if it happens. But otherwise markets will get back and seem pretty okay.
I don’t think the monetary policy event will be such a big trigger for the market because frankly one is struggling to see why he would want to signal a rate hike in the system and anything short of that is frankly market neutral beyond the day.
More important is the Fed meeting there should not be a negative surprise, if it delivers 25 even better 50, we have got a case to move up from here.
Comments
0 comment