Volatility is expected to further increase as we head towards January F&O expiry when traders will roll over their positions from January series to February series.
The S&P BSE Sensex breached its crucial support placed at 36,000 while the Nifty50 broke below 10,700 levels in the second half of the trading session on Monday. Remember, both Sensex and Nifty closed lower by about 1 percent each for the week ended January 25.
Top Nifty gainers include ZEE Entertainment, Bharti Infratel, TCS and Coal India while sharp sell-off was seen in Adani Ports, Bajaj Finance, Indiabulls Housing Finance, ICICI Bank and Yes Bank.
Here is a list of top 5 factors which could be weighing on D-Street:
Populist measure coming in Budget:
With just a few days away from the interim Budget, the voices of the populist measure have grown only stronger. The pressure to further expand the farmer welfare programme ahead of the 2019 national elections is high for PM Modi.
“A possible announcement of a nationwide direct farmer support scheme is quite likely in the Budget on February 1. A Telangana-style scheme could cost ~Rs 1.2 trillion, further complicating fiscal math, as it could be a recurring liability. The RBI’s possible large dividend might help just one time,” said a CLSA report.
Digital media agency, Reuters in a report quoting sources said that the ruling Bharatiya Janata Party-led alliance will woo rural and urban middle-class voters with farm relief measures and tax cuts, said officials privy to plans for the final budget.
The electoral compulsions mean that major economic reforms, such as tax cuts for bigger companies and plans to bring down the budget deficit, could be put on hold at least until after the election, the sources said.
India VIX moved up by 6.44 percent at 17.69 in the last week and started to hold above 16 zones which is giving a roller coaster ride in the market within the broader trading range. It rose another 7 percent in intraday trade on Monday and is now trading above 19.
"India VIX, a barometer of fear and greed, spiked during the week to 18 mainly due to a rise in margin requirement along with hedging by institutional investors. A continued rally in India VIX could put downward pressure in the market," Shubham Agarwal, CEO, and Head of Research, Quantsapp Private Limited told Moneycontrol.
The rise in India VIX is not giving enough confidence to the bulls to take control of D-Street. Volatility is expected to further increase as we head towards January F&O expiry when traders will roll over their positions from January series to February series.
Banking stocks crack:
The S&P BSE Bankex saw a cut of over 2 percent weighed down by losses in ICICI Bank, Yes Bank which were down by over 5 percent each, followed by IndusInd Bank (down 2.7%), and Federal Bank (downn2.3%).
Bank Nifty saw unwinding of longs by about 5 percent. Both PSU and Private bank saw a fresh round of selling emerging from a higher level. A downward shift in the option band along with rising volatility points at possible acceleration in selling pressure.
Option data shows the highest accumulation at 27,500 Call whereas Put writers remain spread out at 27,000-26,500 strikes.
“A sharp sell-off in the last two days of the week saw aggressive writing at 27,200-27,400 strike whereas Call writers were active at 26,800 shifting base to 26,800-27,200 level,” says Agarwal of Quantsapp Private Limited.
“Hence, low-risk Bear Put spread is recommended for Nifty Bank. A Bear Put Spread is a bearish strategy where we buy 1 lot of Put, and Sell 1 lot of lower strike Put,” he said.
Small & Midcaps crack:
The S&P BSE Small-cap index and Mid-cap index were down by over 2 percent each. Over 350 stocks have hit new 52-week low which include names like Aban Offshore, ABG Shipyard, Adani Ports, Andhra Cements, Arvind, Ashok Leyland, Balkrishna Industries, Bharat Forge, Cipla, Coal India, Dena Bank, Dish TV, Grasim Industries, Gruh Finance, HCL Infosystems, Hero MotoCorp, Vodafone Idea, IL&FS Transportation Networks etc. among others.
In terms of volume, the top losers were Vodafone Idea which tanked 7 percent hitting a new 52-week low. The stock was trading with volumes of 2,046,271 shares, compared to its five day average of 1,338,414 shares, an increase of 52.89 percent.
TVS Motor Company, JSW Steel and Grasim Industries were lower by 3 percent each. TVS Motor was trading with volumes of 102,154 shares, compared to its five day average of 262,302 shares, a decrease of -61.05 percent.
JSW Steel was trading with volumes of 143,328 shares, compared to its five day average of 240,280 shares, a decrease of -40.35 percent.
Cipla was trading lower by 2.5 percent while Bharat Forge shed close to 2 percent. The other losers included names like Hero MotoCorp, Mahindra & Mahindra and Tata Steel.
The Nifty50 is now trading below its crucial short and long term moving averages. It formed a bearish candle on the daily charts for the week ended January 25.
The index has been struggling to surpass 10985 zones from last nine weeks while supports are intact at lower levels with the formation of higher swing lows at 10333, 10534, 10628, 10692 and 10756 marks.
The index has got stuck in a broader trading range and requires a decisive range breakout for the next leg of the rally. A close below 10650, 10628, and 10692 could take the Nifty towards lower levels 10500, 10333, suggest experts.
“If Nifty manages to respect previous swing lows of 10628 zones then again a positive to range bound bias could be seen in the market while a decisive hold below 10777 could open the decline towards 10692, 10650 and even lower levels while on upside hurdles are placed at 10888 then 10925-10985 zones,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.
“Bank Nifty has negated the formation of higher lows of last four weeks and finding hurdle near to 27350 and 27500-27600 zones from last two weeks. It has to cross and hold above 27350 zones to attract some buying interest or stability towards 27600 while on downside support are shifting lower to 27000 then 26850-26666 levels,” he said.
On the options front, maximum Put OI is at 10800 followed by 10700 strikes while maximum Call OI is at 11000 followed by 10900 strikes.Meaningful Call writing is seen at 10,800 followed by 10,900 strikes while Put unwinding is seen at all immediate strikes. Option band signifies an immediate trading range in between 10,700 to 10,900 zones.