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Near term outlook for global markets clouded
22 Jun 2012 08:22 AM
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Just when it looked like the momentum was picking up, yesterday came a bad blow from the global markets. The US markets sold off quite dramatically overnight. The Dow Jones was down 250 points, one of the biggest seen in recent days.

That pegs us back today once again as the economic data from the US has failed us. We have to see whether we can preserve some of the gains of yesterday on a weekly closing or we get pegged back right into that trading range again, said Udayan Mukherjee, managing editor, CNBC-TV18.

The US manufacturing data and the economic data is disappointing. That is not good news because we have just come out of a Fed meeting. The Fed said that it will hold its fire power for sometime till things warrant a QE3 and immediately after that we have seen the economic data worsen quite a bit. Also the Moodys downgrade of many banks did not help yesterday at all.

For the last few weeks and days we have all been freighting about Europe and the risks from the Europe, but now if it is presented to the market that the US will weaken and the S&P starts fading from that 1,350 level from which it dropped 30 points yesterday and goes in for a medium-term correction, then global markets might struggle a little bit in the near-term. So it is a one day sell-off prompted by data so it is premature to take that call, but it certainly looked difficult the way the data came out yesterday.

Also the currencies have not moved in the direction that equity markets would have liked. The dollar index respite all hopes of QE3 has now gone back to 82.25, which is what the markets would not have liked to see. The euro made a brief attempt to 1.27, but has come back once again to 1.25. These are not good for equity markets per se.

But let us see if yesterday was a savage sell off, if it was a one day or two day kind of sell off and whether todaythe euro meeting throw up something on the ESFS use front which the markets might like. There is too much news flow and the near term outlook looks very clouded.

Our market has done okay for this important newsy month. The market is up about 4-5% still and the overwhelmingly good news is still from the commodities front. Thats the question which investors would be asking themselves that there are pockets when India underperforms global markets and there are pockets when India outperforms global markets.

So far we have seen some modest signs, its not dramatic but some signs that India is just beginning to outperform a little bit. Take yesterdays case in point, most markets seem to have sulked a little bit because of the absence of QE3. We closed quite well. Crude may be one reason because its down to USD 89 now and that changes Indias macro somewhat. It is ot a guarantee of near term outperformance, but it certainly is favorable from Indian macro point of view.

Conversely the rupee is not inspiring too much confidence. If the rupee was at 54 now, you would have found more global traders and investors being a little bit more positively inclined to India than they are now. The rupee is a little bit of a headwind which is taking away a little bit of the feel good or relative feel good because of the crushing of crude prices.

Today is an important day because today many global markets will be down. Lets see if by the end of the day even if we start lower we can once again demonstrate with some price action that downsides are reluctant and the market is ready to outperform. So todays outcome is quite important in establishing that.

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Meanwhile, the Nifty has done quite well in the face of what has been fairly pedestrian newsflow. The price action on the screen has been quite encouraging offlate. The markets have not slipped on badeconomic data. It has tended to discount bad news and try and move higher on the face of it, which is typically a market, which in the near-term does not want to fall too much.

At another time, one could have said with some greater degree of confidence that the market in the near-term is probably headed higher. But right now, things are so clouded by the kind of expectations people have built up on global liquidity, central bank action whether they come through or not. While it is good to say that India has outperformed a little bit, if there is a 10% move either side on global markets, India will tag along in the same direction give or take 1-2% points, outperforming or underperforming.

So, for the near-term the market is very confused about the direction. A lot of people in the US like Goldman Sachs is saying that the near-term rally is over, market should fall. There are a lot of people who believe that running into the euro news, markets will head higher before the correct. So I am completely clueless about what the next 200-250 points could look like.

Yesterday it looked like the Nifty was affecting on the mini breakout of that 100 points trading range because it had been getting stifled at around 5,140-5,150. It was a good late action, we moved above that level and closed there, but today because of the gap down we get pegged right back into the trading range again.

So today for the closing we want to see if the market can pullback from the mornings cut and get back to that more than 5,150 kind of zone despite Europe opening up weak as it seems it may after the US fall. It is difficult to say what happens in the near-term. Hopes were lifted yesterday, but I guess we are still working in that 5,000-5,200 zone and awaiting clarity.

The details for the Competition Commission of India (CCI) report are out now, but thats a segment where markets have not responded to bad news. At another time these stocks might have sold off 8-10%, buteven on the day when the news was supposed to come stocks fell and then bounced back immediately. Thats another space where people are saying if we do get a fall well buy into it and stocks are moving on the face or against the face of that bad news.

I dont know whether its a function of valuations or people want to buy the dips in cement from a medium term point of view or its a belief that companies will eventually not have to pay the CCI penalty as indeed DLF has not on its order for so many months now. I dont know if its a confidence in the legal challenge of the order or valuation call that people are taking.

I would imagine there would be some reaction 3-4% on most of the cement companies today. Valuations for ACC and Ambuja are cheap at all. The only cheap stock in that space is JP Associates and perhaps Ultra Tech cement, but then JP has a balance sheet issue hanging over it. So there will be reactions today, but whether it gets sold into or gets bought into, a little unclear.

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