Mar 10, 2018 10:57 AM IST | Source:

Heads up! FIIs create fresh short in index futures of over $145 mn

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

Moneycontrol News @moneycontrolcom

Amit Gupta

Indian markets remained under pressure and did not witness any major pullback despite a recovery seen in the global markets. The Nifty50 ended the week with another 2.4 percent loss at 10,225. It is the lowest weekly closing since the first week of December 2017.

While banking remained a major laggard, auto and metal stocks also succumbed to the pressure while long liquidation was observed across sectors.

Only because of the pullback among select heavyweights like Reliance Industries, HDFC and L&T and the Nifty50 was able to end above 10,200 this week while most index stocks closed in the red.

The market breadth has remained weak throughout the week. Despite a recovery of almost 100 points on Thursday, a negative breadth clearly suggested prevailing scepticism in the market. Thus, selling pressure may continue at higher levels in the coming sessions.

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

Till these levels are not taken out, any major recovery seems unlikely.

As fresh shorts are not evident in data, any change of bias in the Nifty may be seen only if fresh long additions were observed or Call writers start unwinding their positions.

At the same time, sudden depreciation in the rupee also weighed on equities as it moved above 65 against the US dollar once again.


Bank Nifty: 24000 remains crucial for the coming week

Volatility remained extremely high for banking stocks because for the third week in a row there was no respite for PSU banks. The index corrected sharply and moved towards 24,000.

However, on the weekly expiry day, the index witnessed a sharp bounce on the back of short covering and moved towards 24,500. However, once again towards the end of the week, it turned negative and ended well below 24,500.

As implied volatilities (IVs) remained high, huge volatility was seen in OTM options. Call option premium rose nearly 70 percent on the weekly expiry day whereas in the absence of any follow-up buying, premiums got eroded significantly and fresh writing positions were seen forming in 24600 and 24700 Call, which is likely to keep the index move in check.

However, on the Put side, major open interest concentration was seen in 24000 strike, which is likely to be a support in the coming week. A close below these levels would open the gates for more downside.

The current price ratio, Bank Nifty/Nifty remained intact near 2.38. As the index has a major hurdle near 24,700, we feel that unless the index moves and closes above these levels, the ratio is likely to consolidate near the same levels. Eventually, it is likely to slide towards 2.35 levels.

Price recovery in EMs not supported by FII inflows

Adverse news flows globally and domestically kept the strong recovery in risk assets in check. On the global front, there was news of tariff plans from US administration and a populist vote in Italy.

On the domestic front, the PNB led fiasco kept the Indian market's recovery in check. MSCI World and MSCI EM Equity Indices recovered almost 2 percent each (outperforming the Nifty).

The recovery in emerging markets (Ems) was not backed by fresh FII inflows into EMs. Outflows amounting to around USD 200 million each were seen from Indonesia, South Korea, Thailand, Taiwan, and Brazil.

Hawkish tones emanating from US Federal Reserve and ECB’s hawkish ECB assessment of quantitative easing (despite the populist Italy move) has partly kept EMs up move in check.

In the Indian equity segment, FIIs had continuously sold in February. The trend at the start of March is not very encouraging yet.

In the last five sessions, as per the Sebi data, their buying aggregated to a paltry sum of USD 16 million. They created fresh short in index futures segment amounting to over USD 145 million.

Portfolio hedging was also strong as they bought index options worth over USD 450 million.

On the watchlist will be Donald Trump’s tariff plans and stability in the risk sentiment for risk assets. Unless these variables stabilise, EMs are unlikely to see any meaningful inflows from FIIs.

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