Monetary policy, F&O settlement imp triggers for this wk

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How do things shape up for the index?
 
It is an interesting juncture right now and there are too many issues in the next few days, which can swing or make or break the Nifty's movement because it has made that big dash from 3,800 to more than 4,500 and then has recoiled to about 4,300.

My own sense is that it is premature to write off this intermediate uptrend, which is not to say that everybody should be feeling ra-ra about the market this morning but I would not be surprised if the Nifty put in a fight maybe a little bit lower from here because this pullback had to happen in any case. You cannot rally 700 points on the Nifty in what is still a fairly sticky equity environment and hope to just rally on one way. A pullback always on the cards, so you have lost a couple of 100 points from the top and of course events always conjure up to trigger off those corrections, which are due in any case but if the Nifty slips a little bit more maybe another 50-100 points around 4,200-4,250, I think at least a show of resistance should be put in place and the Nifty may try to claw back and recover some of its lost ground second part of the week.

It will help if the news from the monetary policy is good tomorrow. That is why I say there are many important events like the policy is benign or if crude cools down below USD 120/bbl over the next few days, if some of these things happen then I think you will see the Nifty trying to get back to where it fell from.

Conversely of course those events all have the power to peg it back and to mark an end to that intermediate uptrend. There is just too much by way of news triggers over the next few days to take a clean call. My best guess is that the Nifty may slip a bit more and then try and find some support and try and resume the rally if all other things are equal. 

Is there any directional support from the internals for this week?
 
Not quite, because there is institutional selling and it is interesting because you have got a Rs 560 crore sell figure from (Foreign Institutional Investors) FIIs on Friday provisional, you have got a Domestic Institutional Investors (DII) sell figure for the last couple of days, Thursday and Friday both, domestic institutional investors were selling, which is not a great sign at all and the Nifty futures premium is now 18 points. Part of it could be indicative of the fact that short covering is done but my sense is that there is quite a bit of cash market selling which is the reason probably why the Nifty futures has been left behind at a fairly significant premium. Not to take away from the fact that FIIs have sold about 1,200 crore on the Nifty futures as well.

So fresh shorts perhaps have been created on the Nifty, cash market selling from institutions, this going into a settlement with a premium is not the best of things to happen, which is why tomorrow's event probably assumes some more importance because now probably these shorts are out of the system most of them at any rate and you have got a premium on the Nifty and not an insignificant one, so the market's ability to digest bad news if indeed if it were presented with that maybe is a little weaker off than it was 7-10 days back because then you had lot of cushion of shorts in the market and right now you do not have that.

So keep your fingers crossed and hope that things pan out okay over the next couple of days with the news flow if that does not happen then the internals are not entirely supportive.
 
On the monetary policy tomorrow:

It's a tough one to call this time because one could argue both ways but Dr. Reddy will do what he has to do and all of us can keep guessing. But one thing is for sure or seems reasonably sure that the big 50 bps kind of things will not happen. It would be very surprising if there is any 50 bps move on either the repo or on the Cash Reserve Ratio (CRR) - that one can rule out for the moment.

The call is now between whether there is no move or whether there is a 25 bps move. Let's talk about what would be a positive surprise and what would be a negative surprise. The positive surprise of course is if there is no move on CRR or repo, one cannot take that for granted at all but if that were to happen would there be a small rally in the stock market or even a modest intermediate rally? I think it's entirely possible that that will happen because there is an element of surprise there.

The negative surprise would be if we got both 25 bps on CRR and on the repo, that under the circumstances with crude at USD 123/bbl might and inflation having just plateaued off the last couple of days will seem quite hard for the market and one might see a modest sell off happening in both the market and on the interest rate sensitive stocks.

If there is only 25 CRR and only 25 repo not the both, I think that's the no man's land; one is neither negatively surprised nor positively surprised then I think the markets will probably digest it and move on and the event probably be a bit of a no event.

The only thing here is that part of the market has started anticipating a no move from the Reserve Bank of India (RBI) and to that extent there could be lingering disappointment if there is any move at all because the prospect of RBI not moving at all has been discussed and therefore it's in the open and therefore at least the equity markets will hope that is what is delivered. So interesting policy tomorrow and one could see a bit of turbulence because no camp is totally sure what will be delivered by Dr. Reddy.