This week will start on a strange note. Indian bulls would have been raring to go after Friday's breakout. After consolidating in a 6000 - 6200 range for a week, the Nifty seemed to have effected a convincing breakout on Friday. Particularly so as index heavyweights led from the front: Reliance, ICICI, ONGC, L&T all posting significant gains. The large cap leadership smacked of the return of global institutions into the ring. The script was playing out perfectly. It may yet but unfortunately global events seem to be playing spoilsport; the market has the baggage of yet another Friday global selloff to carry this Monday morning.
In fact, the US couldn't have got off to a worse start in 2008. First the manufacturing (ISM) data which turned out pretty bad and now the jobs data which is much lower than expectations and the worst in four years. The global boat has been rocked early in the year with fears of a US recession taking centrestage. So far, it is Japan and Europe which haven't taken this news too well, the rest of Asia hasn't exactly sold off. The yen's recent strength though could be indicating some risk aversion which comes at a bad time: the start of a new calendar when emerging market equity allocations would typically have gone up. Of course, all this data does raise the chances of a sharp 50 bps rate cut when the Fed meets next in the end of january, which should be very positive for all markets. But that does not necessarily rule out the possibility of a mild selloff till we get to that point.
The positive is that local momentum is very strong at this point, even strong enough to counter global headwind. Most global bad news is being brushed off as domestic investors participate gleefully in a broadbased upsurge. The seasonal factors are important too; there's a general feeling that small dips notwithstanding, the market should be at much higher levels by the time the Union budget is presented. Small bouts of global turbulence may not be enough to upset such a strong bind of sentiment. Hopefully there won't be too much bad news as the futures market is quite extended and overbought. Some strain could be tolerated but a whole lot may snap the stretched cord. For the moment the odds still favour the bulls but it may be prudent to be a bit watchful. Complacency is the bull's biggest enemy.