Comment | Resilient markets can push indices to new high

Shishir Asthana

All quiet on the northern front, so it seems if one looks at the markets. As news flow from the India Pakistan border dwindles equity markets also are relaxing. Markets in both India and Pakistan have eased even as firing continues at the border.

The surprise move came from Pakistan when on Wednesday the Karachi Stock Exchange which was down nearly 4 percent during the day recovered its entire loss and closed only 0.3 percent lower. Today both Indian and Pakistan markets are trading flat.

There are other indications that markets are perhaps looking beyond one of the worst standoffs between India and Pakistan in decades.

First is the volatility index represented by India Vix which had increased by 25 percent over the last two days has eased a bit. During the opening session, it was down 5 percent but has increased marginally.

Second is the FII data. Despite the high volatility, foreign investors continued their buying on both Tuesday and Wednesday. Over Rs 2,000 crore of stocks were bought by FIIs during these two days, taking their monthly total to over Rs 10,000 crore. In fact, it was the domestic investors who were scared and sold on Tuesday, the day Indian Air Force struck the terrorist camps.

Today is the last day of settlement for the February series of derivatives, market expectation was of an extremely volatile day. This was supported by the data that rollover of an existing position in February series to March by arbitrageurs was taking place at spreads of around 40 basis points. At these levels, arbitrageurs do not generally rollover their position and would rather sell them in the market.

However, since Thursday morning, after the market opened in a positive zone, the rollover spreads were 60 basis points indicating that traders were not scared of rolling their position to the March series.

Technically too, despite the series of negative news markets have held on pretty well. It continued to remain in a tight range and did not try to test the lower boundaries. During previous such standoffs, the market reacted positively despite the tension in the market.

Unless some extreme developments take place over the next few days, markets look to be building a strong foundation for a new high.