From the current levels, the set up remains constructive for Nifty. The index is likely to move above the 11,500 level, which is currently its highest call base.
The Nifty50 and broader markets continued to build on strong risk-on sentiment. For the week, Nifty closed nearly 4 percent higher, while mid and small cap closed with gains of over 2.5 percent each, respectively.
With this move, Nifty is just 3 percent away from record highs. However, mid and small cap stocks are almost 20 percent away from the record high levels.
Even from the current levels, the set up remains constructive for Nifty. The index is likely to move above the 11,500 level, which is currently its highest call base.
While at the same time, Put Option base has shifted towards 11,300 Put strike, suggesting this level to act as strong momentum support for the Nifty.
However, with over 7 percent move in Nifty already, the move from current levels may be more stock specific as many sectors/stocks have room for a strong recovery.
With market sensing of a clearer mandate in the upcoming elections, it has propelled the fund flow activity strongly.
In Q4FY19 till now the aggregate equity inflows (FII + DII) has exceeded over Rs 25,000 crore which is almost equal to the total inflow of Rs 29,000 crore seen in the first nine months of FY19.
Volatility Index continued trading above 15, and is likely to inch higher in the coming month as well. However, this should not construe as a risk-off indicator because higher volatility could be due to election hedging of the mid and far month. Instead, FII fund inflows should be a taken as an indicator for ongoing risk sentiment.
Bank Nifty: Immediate support for Bank Nifty placed near 29,000 levels
Banking index witnessed one of the sharpest moves in the last couple of years and gained almost 1,600 points during the week. With continued buying seen from the FIIs, almost every stock observed sharp gains where IndusInd Bank saw a surge of almost 12 percent during the week.
While other private sector banks saw gains of around 6 percent. The open interest in Bank Nifty has swelled sharply along with the up move and the current open interest in the index is the highest seen since August 2018 suggesting long build-up.
In the last week itself, more than 30 percent open interest was added in the banking index. Due to recently formed leverage position and sharp up move a round of profit booking cannot be ruled out. However, possible consolidation can be seen as a follow-up above 29,000 levels.
From the options space, the highest Put base is seen at 29,000 strikes for the upcoming weekly settlement. On the other hand, due to sharp upsides, no major Call base is visible.
We expect these levels to remain crucial support in the shortened week. Bank Nifty, being the leader of the current move, the price ratio of Bank Nifty/Nifty has also moved to its life high levels of 2.57.
Some cool-off towards its previous highs of 2.55 cannot be ruled out in the coming sessions. However, this decline should be utilized to buy the Banking index once again.
EM equities rise as global risk sentiment improves:
Global equities continued to move higher with US major S&P index testing 2019 highs as sentiment remained favourable. Rising expectations of a positive outcome from US-China trade talks as well as the possibility of delayed Brexit supported risk sentiment.
ECB has indirectly signaled towards stimulus to banks which would boost liquidity
Fund flow picture remain mixed in most EMs. While inflows were in the vicinity of $215 million and $1.3 billion in South Korea and India, respectively. Thailand and Indonesia saw outflows in the vicinity of $96 million and $160 million.
Risk sentiment would hinge on next development on Brexit as well Fed’s monetary policy meeting next week. Further hints of Dovish assessment would provide a flip to markets.
Domestic markets have seen decent inflows in March till date. Equities and Debt flows are currently near $3 billion. Moves in crude oil price would be keenly watched going ahead.
It has tested 2019 highs near $68 billion. Further sharp rise in oil price could be negative for importer nations like India.
(The author is Head of Derivative from ICICIdirect)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.