It’s Wednesday morning and we come back after a day’s break. The markets are all trading at new highs.
The Nifty has crossed above 5,000 and the Sensex is above 17,000 levels. Global markets are also looking strong today, the US has moved up a little bit.
Good news from overseas
New York’s buzzing with India right now and everybody is just up to India to their gills. So the news is very good from there, they all love us, they don’t own enough of us, and there is a feeling of having missed out as well. From all those perspectives people I met things seem to be looking very good for India.
I don’t know just today or tomorrow but at least for the medium-term we have got a good thing going that’s what I hear from most people in America.
Markets going strong
Going very strong. In the near-term we have run up quite a bit though, from 4,000 to 5,100 but nothing on the screen is telling you that it is about to slip off just yet. Flows are very strong, the mood is very good, globally there is a party going on. so you do not know when little bit of a pullback may come but ordinarily you would think that the market has run up so much so soon that little bit of a pause may just be in order.
Even so the markets not in a mood to pause so it is difficult to say whether in the near-term we make a dash maybe to 18,000 kind of levels before the earning start coming in or the market having rallied from 4,000 to almost 5,100 just pauses a little bit before the earnings come in and then take it from there.
I think both scenarios are possible but you cannot predict now with this kind of momentum whether you have got much more upside before we cool off even for a little bit.
Asian Indices
Some of the Asian markets were looking a bit tricky in the morning but they have pulled back now, the Hang Seng particularly. Couple of the markets like China and Korea are shut today but others are looking pretty okay Taiwan is up about 1.3 per cent, Straits Times 1.2 per cent, Nikkei is looking okay. Good pull back in some of the markets from their lows they are all up this morning so good news from the global markets.
What was the mood like among the investors in New York because you spoke to a lot of money managers, market experts?
Everybody is a bit surprised that the markets are where they are. I went to that India Investment Conference of Merrill Lynch’s as well and nobody almost nobody said they would have expected the market to be more than 17,000 and the Nifty to be 5,000 so soon.
I think here is an air of surprise that the markets have rallied so far. I also got the sense that a lot of people are still quite under weight; they haven’t really re-calibrated to the extent in emerging markets or India that they would like to and that is why the air of surprise. These are experienced and professional investors they don’t tell you that we have missed out. But you got the sense that they would love to have another correction right now because they have been surprised by the extent of the rally.
So one is still hearing lots of people saying but what about politics because in November the bad news will come and the market may fall once again, US recession-one can’t just say that the recession won’t happen yet.
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People are trying to latch on to the bad news because you almost get the feeling that they are not participating to the extent in this rally, as they would have liked to because they were bearish throughout August and September might have been a big rally but they did not move swiftly enough in September to catch this September rally.
That’s the feeling I got from most of the investors, they like the themes but they are little bit behind the curve in participating in the themes. Even the markets in which they want to buy into like India they have been very slow to invest, they are waiting for big drops to buy in and sometimes as you find with very hot stocks and very out performing stocks the market probably makes you buy it at prices slightly higher then you would ideally like to. And I suspect emerging markets and India probably is a case in point right now.
The feeling I came away with is that people are very bullish but they probably still have not invested to the extent that they would have liked to be in emerging markets, in India particularly.
Skepticism and decoupling theory
I think it’s playing out very well, not that the US has done badly, the Dow is back to 14,000 as well, ofcourse the Dow does not move at the same pace as some of the other emerging markets. Right now there are two camps; even the bulls are saying we have had a fantastic rally; from the lows we are up 25-26 % in just over a month and maybe its time to take a little bit of optimism off the table and let the markets consolidate a bit.
But markets are markets, they never move like that. Maybe it will make a dash to 18,000 as everybody is saying it should consolidate now and maybe then correct later. So one can't predict this kind of a momentum market now.
Ordinarily we started saying that after this kind of rally one would expect a bit of consolidation, maybe even a bit of pull back but the flows are so strong, the sentiment is so strong that it is very difficult to predict whether it is going up further from here or I think at slightly higher levels if you go on, if you are a trader maybe its not bad idea to just milk off a little bit into cash as well because the rally was phenomenal and even if the market were to give you more of a rally in the near-term it might pull back and give you similar or lower prices but its tough call because the way this market is going the way the flows are coming in, it may surprise you on the way up and if you take profits now you may even regret it.
I think yes, it’s gone up and something is telling you to be a bit cautious but one doesn’t know whether this is it and whether there is more upside coming in the next few days.
Magnitude of US housing market:
I think people are breathing a bit easy; partly maybe it’s the mood or the relief of the US fed rate cuts and everything has gone up in one shot. I think right now the mood is such that people want to believe news is good news.
If the market was feeling terribly bearish couple of days back, the news which was coming in on UBS and Citi, then people might have said they are making large losses conversely now people are saying that now we know the extent of the news, we are able to put a number to the subprime problems and therefore it is discounted now and the market should actually move up.
So you are seeing that the glass is half full and never half empty in the current context. The US too is looking pretty smart and people are feeling far more confidant out there.
Globally most markets at new highs and if one looks at India’s performance in the context, I think only Hang Seng has out performed us and rest we are better than most of the markets. India has lived up to its history of being a high beta play and so when all markets start moving in a really detectional form, India tends to do better on the way up and way down and its done very well and it has returned about 11% since we started moving on the September 18.
Its been a tear away, the global mood is fantastic at this point in time but one doesn’t know there has to be some news related to the US recession which can dent us or something on the geopolitical front because right now the momentum is too strong.
On inflows:
So far we have had USD 7 billion this month cash plus F&O. Since the September 18, USD 5.5 billion has come in cash plus F&O we have had USD 3.5 billion in the cash market already with some money from the IPO, but it’s still very strong.
After July this must be the biggest month so far say in terms of cash inflows and we have crossed USD 13 billion this year already. Last couple of month’s money typically tends to come in December etc. Unless there is a major blip which we can’t see sitting here today, I think we will probably reset the bar in terms of FII flows this year and maybe end up something like USD 15 billion which we have never seen in the past. And that might be a sort of benchmark, which we look forward in 2008-09 as well.
Flows are fantastic and that’s the point I was making earlier that people are probably scrambling to get back into some of these markets and if you just look at the amount of money which India has pulled in compared to some of its other Asian peers, we have out-performed by a wide margin in terms of inflows.
People were generally underweight on India since the start of this year because our market was relatively under-performing and now that the momentum has started picking up again and the price momentum is strong people are re-calibrating and getting back into India again. And that’s pretty much in keeping with the mood that I got there that you know first six months we have underweight India and its time to get back once again.
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