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Market Watch: A surprising rebound case

The Feb series begins with open interest of under 40,000 crores, the lowest we have seen in a long while, making the market extremely light, writes Udayan Mukherjee.

india Updated: Jan 25, 2008 21:22 IST

Imagine this scenario. The RBI cuts repo rates on Tuesday, signalling the start of an easing interest rate cycle. The Fed cuts rates again on Thursday, maybe by as much as 50 basis points. Global risk appetite recovers. IPO refunds for Future Capital begin early next week, releasing 16,000 crores into the system. Reliance Power follows the week after with substantially greater releases. The January derivatives series expires on Thursday and with it the last residual poison from the futures market is washed away. The February series begins with open interest of under 40,000 crores, the lowest we have seen in a long while, making the market extremely light. Earnings season ends on a reasonably steady note and the Union budget looms four weeks ahead. Most participants are skeptical of any upmove sustaining, so there is no euphoria but widespread pessimism.

This script has everything, all the ingredients for a rally of stunning proportions. Now, before you accuse me of irrational exuberance let me say that this is not a base case scenario. I only outline it so that people can keep their window open for a positive surprise. Yes, the risks are high at this juncture. Markets haven't settled, participation hasn't come back and global volatility hasn't quite subsided. Yet, since almost everyone seems to be taking a retest of 4500 Nifty for granted it is worthwhile to explore the possibility of a contrarian move that leaves us surprised. Hence the bullish script. It's not a scenario that you should base a trade on but just so that you don't close your mind to the possibility.

Of course, the script will probably not play out this way. The conservative Dr Reddy may cock a snook at his American counterpart, why even Ben himself may be less aggressive this time round. There could surely be more bad news from the US which upsets a nascent recovery in global markets. These are all real possibilities. But you will hear a lot of doomsday scenarios this weekend, wherever you go. I thought I would spread a bit of imagined sunshine. Don't believe the script if you don't like it. It's just meant to be a story with a happy ending. The real life drama plays out next week.

Executive Editor, CNBC-TV18