The the fact that Foreign Institutional Investors (FIIs) have not sold off far too many equities in August are giving experts reasons to be ontimistic on the Indian equity market.
There is a strong consensus building up in the market of 5700-5750 being the resistance level for the market in the week ahead, says Siddharth Bhamre of Angel Broking. However, given the fact that there hasn’t been much macro change in the economy, Bhamre advises investors to not Nifty soon.
In a discussion with Sanjay Sinha of Citrus Advisors on CNBC-TV18, Bhamre adds that the market has some steam left and is likely to rally in the days to come. Among the other aspects that are keeping Bhamre optimistic is the fact that Foreign Institutional Investors (FIIs) have not sold off far too many equities.
"There was a fear that the foreign institutional investors (FIIs) would withdraw from the country in the wake of the QE tapering. However, the amount they sold in the month of August was less than USD 1 billion out of about a USD 160 billion that they own in India. That also was a source of comfort for the market," says Sinha reiterating Bhamre’s positivity.
Below is the edited transcript of the discussion.
Q: Last week the excitement came in pretty much the latter half of the week after the Reserve Bank of India (RBI) governor’s speech but do you think this is any kind of inflection point in the market or it is still just a bear market rally?
Sinha: Actually, that would depend upon how the events unfold. One cannot deny the fact that despite the extremely articulate opening statement by the RBI governor, we also saw the rupee appreciating quite significantly this week. That has been one of the overhangs on the market for the last few weeks and if the rupee starts to appreciate that surely gives certain amount of comfort to the market.
Secondly, there was a fear that the foreign institutional investors (FIIs) would withdraw from the country in the wake of the QE tapering. However, the amount they sold in the month of August was less than USD 1 billion out of about a USD 160 billion that they own in India. That also was a source of comfort.
The last factor is that after a big lull, the government has managed to get few of the key bills passed through the parliament. So, all of this added up to the feel good factor for the market. There is obviously the headwind of the FOMC meet in the middle of the month and I think that will be a testing case for the market.
Q: How would you look at the data for the week and what would be your call as we head into trade next week?
Bhamre: This week has been quite volatile but it is not just us who are confused about this market that where this market is heading. Just two-three days back market was talking about 4800 and sub 4800 level and now today after two-three days we are saying that okay this market is reviving. So, the volatility is very high and if one looks at FIIs, they are also confused.
On September 3 when that significant fall happened which you were talking about, Rs 1850 crore of short index Futures positions were found by FIIs. September 4 and 5, they squared of exactly Rs 1850 crore of index Futures positions with a decline in open interest which clearly suggests that what negative stance they had formed two days before that has completely gone.
This is from statistics-perspective that what negativity FIIs were having they have moved out of that. We need to see whether they going long? We need to see that because till now the rally has happened because of short covering and we have not seen huge formation of long positions. In Friday’s trading session yes we did see stock specific formation of long positions but index in Futures we still have to wait.
If we look at the implied volatility with such kind of revival in market, if I take low of the market which is around 5100 and now we are sitting at 5700, IVs are still around 28-30 percent, it is quite high. We can read it in two different ways.
Firstly, one can say that IVs are still high and this means that the market is going to correct because people are not anticipating further upside from current levels. Secondly, people are again caught on the wrong foot. Most of the queries we are getting is on whether to short a particular option.
These high IVs suggest that people are not taking this rally seriously. Everybody is talking about 5700-5750 as a good resistance point, and market should not go above these levels.
What we are suggesting is that economic numbers have not changed and nothing has changed in the last three-four trading sessions, but even if one is on the short side, don't be in a hurry to short this market.
I think there is some more steam left. Though we may not play for it but be in no hurry to short this market.