September was heady. Even die hard bulls couldn't have predicted this rally after the August selloff. Just to put it in perspective, the Nifty has rallied 25 per cent from its August lows. 4,000 to 5,000, non stop. It's unusual, even in raging bull markets to see a 25 per cent index rally in just over a month. Many large cap names have been virtually rerated. This sets the bar really high for the October series. October traditionally has been an interesting month for our markets, a month of large swings.
There are several potential triggers pitted in October. For starters, important local factors come into play. The September rally has been a global phenomenon; most markets have had a V shaped move as the money gushed back in. Now, earnings need to justify these prices. It's an important earnings season too. Some of the underperforming sectors like techs and autos are bouncing back, their numbers should not come as a rude shock. The bears will be hoping that the earnings will hold some sign of slowdown to which they can cling on to, slaughtered as they have been this month.
Equally importantly, there are macro triggers, both local and global. There is a US FOMC meeting and there again the street is a bit divided, which raises the odds of a surprise. Some believe that the Fed cuts again in October, others believe it won't. You know the outcome the last time Bernanke surprised on the upside. There is an RBI monetary policy announcement as well. The jury is out on whether our central bank toes the Fed line and starts cutting rates, or at least hints at an easing bias. Given the sharp rally in rate sensitives like banks, real estate and autos, this meeting could be crucial for the market.
The bulls are going in red hot into the series. The October Nifty futures is at a healthy premium, the opening open interest stands at a tall 68000 crores. More importantly there is a 40,000 crore stock futures book. Momentum is on the side of the bulls after their decisive victory in September. It's just been a rally of astonishing speed so one worries about negative surprises. There may be none and the market isn't bracing itself for any, on current reckoning. It will be interesting to see though if such perfectly bullish conditions spark off some volatility in this series.
(The writer is Executive Editor, CNBC-TV 18)