Mkts to remain bullish for next few days

It's a big morning for markets today. There could be a rally today and every indication suggests that there will be a gap-up in the markets. The global equities look good, crude will help the margins and politics may also prove good for the markets.

Taking into account all the indications, I think few days will belong to bulls.

 On Markets today:

Taking today’s gap up into account, it would have been a fairly meaningful pop from the bottom from 3,800. If we do get to 4,400-4,500 today, we are talking more than 15% that is a meaningful rally. But after that I don’t know whether people will chose to take profits because a lot of traders would have build positions and you can see that the Nifty futures is at a premium. So long positions have been built ahead of that event and people might do a little bit of profit taking but the mood seems to have changed a little bit, not just because of politics but because of global markets, crude etc. Generally, people are trying to sniff out a long trade out here despite today’s gap-up. So it could be a gap-up and then relent a little bit, give up some of its profits and then rally once again, as the long traders now getting to the act. So the next few days unless there is some untoward incident in crude should belong to the bulls starting off this morning, it might happen with a little bit of dip down after the initial gap. But the bears will find it tough over the next few days at least.

On Asian Indices:

Asia is also helping us this morning so it’s not just the UPA victory pushing as along nice rallies across Asia. Hang Seng is up 2%, Taiwan is up 3%, Korea is up nearly 2% and even Japan is up 1.25%. So for the last few days Asian markets and global markets have been helping us.

More reforms ahead now?

One should expect what the Finance Minister told us he and I hope that can push through some of these reforms, which have been long pending. I do not know about new ones like disinvestment etc which people are expecting because it seems like there is not too much time to push through because we will get to the state elections very shortly. But not that they are mutually exclusive but even if they can do pass that insurance 49% and the banking reforms, banks could rally quite significantly if voting rights do get recognized.

So it is possible that they do banks and insurance because that is not very difficult to implement from a government perspective. The rest we will have to see, keep fingers crossed because there has been a lot of talk about swift disinvestment of many companies, which will breach the fiscal deficit that I think we will need to wait and watch because what has not happened in more than four years to expect in the next four months might be a bit wishful. But even if a little bit happens I think the markets will take that quite positively and that is the hope since both the Prime Minister (PM) and the Finance Minister (FM) are talking about reforms as soon as the vote is done maybe they will manage to do something and if they do I think it might be a sentiment lifter for the markets.

I do not think the case for a bull market or a bear market changes because insurance goes up from 26% to 49%. At the best it will send out a good signal to global investors who seem to be shunning us today but banking is quite material and if this disinvestment happens it is more than material. So we live in hope, some things may happen, I do not know about all of it.

Where does Nifty go from here?

A: I think this morning we will start with about 4,400 or maybe a bit higher than that. So from the base of 3,800-4,400 we would have already done 15% that’s quite a material rally. We are assuming about 4-5% rally this morning as well. So the mood has got lifted so the question is whether you do see some profit taking or the long traders come back and soak up any small dip in the market and also how much of short covering is still left in the system because some people might have actually not covered up their shorts given that the vote could have swung either way.

So maybe marginal short covering is also left which could propel the index a bit higher. So we will start gap up. After we go to 4,445 can the market come back to 4,300-4,250 kind of levels which would be a profit taking dip and then resume its upward journey; it’s entirely possible. But for the moment it looks like the bulls have the edge.  

Crude and inflation: How is the medium-term canvas looking?

A: There are many triggers out there. I think for the near-term it would be too simplistic that this market rally has been only on the back of politics and will go forward only on the back of it. It’s an important trigger but it’s one of the triggers. I think global equities are very important because if we look at the last few days, from its recent low of 10,800 even the Dow Jones Index is up 7%. So that’s a meaningful rally by the Dow standards. Markets like Hong Kong etc have rallied 9-10% and we have rallied about 11% as well.

Politics has played a part but we have pretty much been moving in the last three-four days in sync with global equity markets. If there is more of a pop which looks quite likely in the near-term in global equities, given that politics has worked out in the favour of the market, India could actually move up a bit more. Crude is very important as well because for the first time what was happening a few weeks back was that crude would show you small declines and then rush back to a new high. Right now what is going on in crude is that it’s giving you those small upticks USD 3-4 per barrel and inevitably losing it the next day. That pattern is suggesting that maybe the bulls have weakened in that market for the moment and crude might drift down well to USD 120 per barrel or sub USD 120 per barrel.

So a combination of these things - crude maybe at USD 120 per barrel, global equities rally and politics, which has worked out for us, might see the market go up higher. As we discussed over the last couple of days there is a possibility that the bear market rally of the proportions which we do not expect today might materialise, I don’t know because for a lot of people 4,600 thereabouts is the plimsoll line, for a lot of people 5,000 is the line who knows maybe even the market surprises and takes us higher than that before it cools down eventually.

So we are not out of the woods because there are too many negative fundamentals, which are blowing in the wind but a combination of near-term positive factors will probably lead us quite a bit higher before the weak markets return.