Despite rallying, India underperformed all it's regional peers yesterday. Most Asian markets closed between 5 and 6% higher, we barely managed 2%. The looming political uncertainty may have reined in the momentum or it could be a fear that the bottom is still not in place and global volatility will drive us back to retest Friday's lows.
Either way, investors seemed reluctant to buy afresh, and it was only short covering which helped the Nifty keep its head above the 4200 mark. The way the Nifty futures discounts vanished in late trade suggested that even the short sellers used the intra-day dip to cut positions. Now the cushion of Nifty shorts seems to be gone with the index still having important resistances to cross on the way up. This is not to say that more upside is not possible, especially if global markets hold up for the next day or two. Rather to point out that strong momentum has not been rediscovered despite the bounce from Friday's lows. A lot more work needs to be done.
On the political front, the jury is still out on whether we are headed for a serious crisis at the Centre. For the moment the market is eyeing it with suspicion but not pricing in the worst possible outcome, which is fair. If talks threaten to break down in the next few days, more nervousness may be visible. The global space will be very interesting to watch too. While equity markets have rallied, the US bond and credit markets have not given a big thumbs up to the Fed move. Rightfully so. The CBOE VIX is lurking around the 30 mark, not suggestive of a complete cool-off in volatility, just yet. On both these counts, local and global, uncertainties linger.
There are a couple of IPO listings tomorrow: Central bank and SEL manufacturing. Central Bank of India should be an interesting one. It did its issue at 102 and unless global markets tank, should go on to list between 130 and 140. That's a very healthy premium, in percentage terms. At 140 though, it would trade at a price-to-adjusted book value FY08(P/ABV) of 1.6 and a PE multiple of 10 times. Beyond that, it could certainly be an investment grade stock for longer term investors but the low hanging fruit would have been plucked.
(The writer is Executive Editor, CNBC-TV 18)