Further ahead or a U turn, the question must be on everyone’s mind after the volatility of last week. On the verge of 18,000, the Sensex swung around wildly and ended on a somewhat inconclusive note on Friday. Both the bulls and bears scored hits, but the jury would have been hard pressed to hand it to either. Every time it approached 18k, the Sensex slipped off, sometimes alarmingly, yet it always managed to claw back from the brink of a sell off. Honours were shared.
One almost gets the feeling that having rallied thus far it needs a fresh trigger to rise even more. Unfortunately, even global markets have gone sideways with a touch of volatility. After all, the September rally has been quite heady and needs some digesting.
The weekend news from the US is quite interesting. Not only are the September employment numbers ahead of expectations, the previous month’s numbers have been revised substantially upwards. On one hand, this brightens prospects for the US economy, which is good; on the other, it perhaps reduces the chances of more aggressive and immediate rate cuts from the US Fed, which may not be construed as positive for emerging markets.
My guess is that markets here should take it positively. There is enough money going around already in the world, all we need to avoid is an outright US recession. The bigger risk is that, not a lack of liquidity for emerging markets. We will find out whether this acts as a trigger for further up moves in the Asian markets. If yes, the bulls may win this skirmish too and manage to push the index above yet another historic mark.
It is true that the market has turned a bit narrow these last few days. While stalwarts like Reliance, Bharti, L&T have managed to keep the index from slipping, the breadth has declined. While this isn't comforting, it isn’t necessarily a prelude to a market breakdown, as we have seen so often in the past. Sometimes, the stronger men keep a tired ship afloat till the younger hands gather energy and get back to the oars again. This is not to undermine the chances of a correction from here. The markets are at elevated levels and the risks are high, particularly for those who are entering now. It’s just that the lights have only turned amber; green hasn’t turned completely to red yet. Second guessing traffic lights can lead to painful accidents.
(The writer is Executive Editor, CNBC-TV 18)