FOMC meet, RBI policy will be crucial for market direction: Tushar Mahajan, Nomura India
With the indications from the FOMC and the Fed, markets can shift down back to the 5700-5720 odd levels, says Tushar Mahajan.
ET Now: It has been a quick ride for the Nifty from 5200 to 5900. Do you think in the short term this is as good as it gets or since liquidity is strong, one should not draw lines?
Tushar Mahajan: For the short term, we are probably done with what we have reached in this huge rally over the last two to three weeks. Not to forget, the big event (the FOMC meeting) coming up tomorrow and then later this week the RBI governor’s maiden policy meeting could be the other key risks.
But having said that, with the indications from the FOMC and the Fed Reserve, I think we could probably now shift down back to the 5700-5720 odd levels.
ET Now: What about volatility and how long would we have to grapple with it?
Tushar Mahajan: For a very long time, we have been operating in a low volume environment with the VIX trading as low as 13-14 till not too long ago. Then we saw the spike, primarily driven by the change of sentiment in global liquidity towards emerging markets. Then all those people who had shorted options had to come in and cover which led to the spike in volatility.
For the moment, it is stabilising around 29-30 odd levels, but we have to live with the fact that at least in the short term, we could continue to see these levels.
Post the events which pan out globally in light of whatever the Fed Reserve says tonight and day after and locally with how Raghuram Rajan pans out his maiden speech on monetary policy, you will see the VIX slowly grind down its way back to the 23-24 odd levels.
But I do not think we are in a rush to get back to the 14-15 odd levels and on the upside post these events, we do not see that going up to the 35 odd numbers again.
Tushar Mahajan: Next week there is a futures expiry and that will be determining the action per se. Given the way the positions are set up, you could see a fairly interesting next week as well where the markets would probably be on the downside, taking support around 5700 odd levels and the upside seems capped at 5900 for now.
ET Now: Do you think in the short term, we may not go back to the levels of 5200 or 5300?
Tushar Mahajan: In the short term, I do not think we are headed to that stage. I would tend to think that the people would turn buyers around the 5500-5550 odd levels. When we went down to the 5200-5300 levels, it coincided with the massive panic situation in India, especially with the run on the rupee. We have made successful attempts at stemming that move and I do not think that the panic situation is anywhere around the corner which could lead the Nifty back to those levels.
ET Now: The one space which has held out has been the banking pack. How are you approaching trade there now?
Tushar Mahajan: The banking space was also the biggest hit in the months of July and August. There was some outperformance which would have been expected in the Bank Nifty.
The Bank Nifty made its moves, first based on short covering and then the massive buying in the private sector banks. Given the fact that the Bank Nifty is more weighted towards the private sector banks, I would tend to think 10,000 continues to be a good level and we probably would just see the level break maximum to 9900. I do not think we are going back to those earlier levels.
But within the banking space, not as constituent of the Bank Nifty, there continues to be pain on the public sector banks. We have not seen them participate as much on the move up compared to what the private sector banks have done and that is a trend which will continue to be there.