FIIs shorted index futures worth $150 mn; Consolidation expected within 9800-10000
A move above 14 in India VIX is expected to bring some weakness in the market. Otherwise, the current range bound scenario should remain for a while
The Nifty is expected to find good support at 9,800. However, 10,000 would remain a hurdle in the ongoing series. In the last week, the highest Put base remained at 9,700 but the 9,800 Put strike has also added writing positions.
Hence, the Nifty has support near 9,800. However, the Call base still remains high at the 10,000 strike. The volatility has also subsided from 14.5 percent to 13 percent. This has led to consolidation in the index within a range.
A move above 14 in India VIX is expected to bring some weakness in the market. Otherwise, the current range-bound scenario should remain for a while.
The Nifty futures started with almost the same open interest as seen at the start of the last series. However, Nifty Bank open interest has declined 35 percent in comparison to the start of the August series. This shows some skepticism among market participants after the Nifty reached 10,000 levels.
We believe certain index heavyweights could support the Nifty. In the last series, a major setback was seen primarily from PSU banking stocks and select private banking stocks along with Infosys.
As Infosys is stabilising and PSU banking is trading near support, we expect the index to find support on declines. Index heavyweights like L&T have already seen a pullback while ITC is also trading near support.
Selling pressure likely to continue in Nifty Bank
The recovery in Nifty Bank was subdued. It has failed to surpass even 24500. Along with PSU banks, fresh weakness among private sector heavyweights has kept the index in check.
We believe fresh positive bias should be formed only if the Nifty Bank moves above 24500 in the days to come. The 24500 Call strike for the weekly Nifty Bank expiry is the highest option base, which also suggests these levels will remain crucial in coming sessions.
On downsides, the Put base at 24200 may act as an immediate support. A further decline towards previous lows of 23900 can be expected if these levels are breached.
The open interest in Nifty Bank remained low even after one week of August expiry. Lack of accumulation in the index amid a low basis suggest fresh longs are not being formed in the index.
The price performance trend (Nifty Bank/Nifty) has been hovering near 2.45 in the past two or three weeks. We feel this ratio will move towards 2.42, which may be due to weakness in banking stocks.
FIIs continue to sell in EMs
A mildly dovish ECB policy statement along with a sharp surge in initial jobless claims in the US coupled with geopolitical uncertainty and natural calamity in the US drove the dollar to a multi-year low towards 91.
This helped EM risk-on sentiment while the MSCI EM Index climbed to 1090 level. However, FIIs seemed unwilling to buy into this optimism as the bid for safety continued (lower bond yields and higher gold prices). FIIs sold equities in most EMs.
From India, there was an outflow of USD 500 million while outflows of over USD 300 million were also seen from South Korea, Indonesia, and Taiwan.
In the F&O space as well, there was a pick-up in bearish sentiment. FIIs shorted index futures worth over USD 150 million coupled with index option buying worth over USD 1 billion (to hedge their equity portfolio)
Going ahead, the risk sentiment will derive its cues from the hurricane situation in the US and geopolitical worries. An ebb in these worries could see a reversal in the dollar and may lift the developed market risk on sentiment.
However, FII inflows into EMs may pick up once the demand for other risk-off assets (bond and gold) ebbs. At the current juncture, looking at the commodity recovery and stable forex regime, the set-up for EMs continues to be conducive for a strong up move(Disclaimer: The author is Head of Derivative from ICICIdirect. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.)