How to trade the Nifty Bank ahead of RBI's policy meet?

Hardening inflation and global developments may prompt the central bank to opt for status quo at its first bi-monthly monetary policy for 2017-18 on Thursday. Most analysts do not see a significant upside from current levels for both Nifty and Nifty Bank, but there is no sharp downside either.

April 05, 2017 / 07:58 AM IST

The Indian market rose to a fresh record high earlier this week and all eyes are on the outcome of the Reserve Bank of India’s (RBI) two-day policy meet which starts today.

Hardening inflation and global developments may prompt the central bank to opt for status quo at its first bi-monthly monetary policy for 2017-18 on Thursday.

Most analysts do not see a significant upside from current levels for both Nifty and Nifty Bank, but there is no sharp downside either. The next big trigger for the market will come from corporate earnings from India Inc. which will start coming out next week.

On the technical charts, Nifty Bank registered a ‘Dragonfly Doji’ kind of formation on Monday after a ‘harami’ pattern witnessed in previous trading session at the upper boundary of its one-month-old ascending channel.

“When we read last three trading sessions of price action, we can also safely conclude that it is consolidating, ahead of RBI policy meet, by making an inside bar pattern as it is moving in a range of 21,696-21,331 levels registered on March 30,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told moneycontrol.

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“Unless range of this ‘mother bar’ is surpassed, Bank Nifty may not witness a directional move. Banking bulls naturally shift their focus towards the monetary policy to draw clues about future direction. Hence, this event is going to determine the next leg of swing for this index,” he said.

Nifty Bank closed 103 points higher or 0.48 percent at 21,547. Important Pivot level which will act as crucial support for the index is placed at 21,449, followed by 21,350, and 21,292. On the upside, the key resistance level is 21,605, followed by 21,664 and 22,762.

The foreign institutional investors (FIIs) seem to be pretty balanced in the run to the RBI policy. Since the derivates expiry is just behind us, the overall positions are pretty light.

The FIIs are holding net long positions in the index futures to the tune of 1.71 lakh contracts, as against around 1.99 lakh shorts in index options as well as 2.88 lakh stock futures on the short side. (The actual figures could vary)

We have collated a list of views from various analysts on how to trade Nifty Bank ahead of the RBI policy review:

Pushkaraj Sham Kanitkar, AVP - Technical Research at GEPL Capital

Both the Nifty & Bank Nifty are at all-time highs and as far as the RBI policy is concerned, “status-quo” is what the majority of the consensus estimates state. We too would stand by it and feel most of it is discounted in the prices. The triggers may probably set in only around the results season.

Investors can sell NIFTY-APR placed at 9,260 and buy NIFTY-APR-9300-CE at 75 (as of 3.15 PM on 03.4.2017). The maximum loss is 115 points (40+75) or 1.25 percent, whereas if the correction sets in fast one may see a gain of around 250-300 points from the current level.

Bracket caveat is that this is a contra-trend strategy and needs to be deployed with appropriate hedges as mentioned above.

Vijay Singhania, Founder-Director, Trade Smart Online

Avoid any position on the event day, or have neutral strangle, i.e. buy 9300 Call and buy 9100 Put options in Nifty. Banks to be avoided. Investors can deploy arbitrage strategy between Index future and stock future also as mostly in stock future FPIs are seen having sell OI while in Index future they may have a buy or sell position both.

Sneha Seth, Equity Derivative Research Analyst, Angel Broking Pvt Ltd.

In the Index Futures segment, FIIs have been adding a good amount of long positions since last four successive series. As per the options data, we do not see any major hurdle before 9,450-9,500 mark.

Thus, taking into consideration the overall data, we expect the market to remain optimistic in the near term. Traders are suggested to trade with a positive bias and utilize decline to form fresh longs as the base has now been shifted higher to 9,000 – 9,050.

Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in

We recommend traders to go long if Bank Nifty trades consistently above 21,700 levels atleast for one hour, after policy announcement, for a bigger target of 22,200 levels.

Contrary to this if the index breached 21331 levels after the policy then short position can be created with a stop above policy day’s high for targets close to 21000 levels

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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