The highest Put base for the Nifty is placed at 10,600 strike, which remains an important support. The Nifty is expected to spend more time above these levels and eventually move towards the highest Call base of 11,000 strikes.
The Nifty is likely to consolidate considering the pattern of lower volatility. The index had fallen before the Reserve Bank of India’s monetary policy meeting. Hence, the interest rate hike was factored in the market. That is why post-event the markets saw some pullback.
The Nifty had started the June series with 20 percent lower open interest with subdued roll spread. This meant short rollover from May to June series but with lower aggression. The sustainability of highest Put base is likely to bring more short covering in June series.
The highest Put base for the Nifty is placed at 10,600 strike, which remains an important support. The Nifty is expected to spend more time above these levels and eventually move towards the highest Call base of 11,000 strikes.
The regular support provided from various Nifty heavyweights has continued the consolidation. Towards the end of the recent week, pharma and oil & gas stocks started performing.
There have been other underperforming stocks, which have started witnessing short closure in the current range-bound index move.
The US equity index S&P BSE 500 index has seen their volatility index making a new low of 2018. This has really supported the S&P. It has been slowly moving higher which is supportive for emerging markets.
Bank Nifty: Level of 26200 remains crucial for up move to continue:
The index started the week on a dismal note where from 26,900 it corrected to 26,200 on Monday. However, 26200 acted as a support for participation continued in HDFC Bank along with Axis Bank and Kotak Mahindra Bank.
A short covering trend was also seen in the PSU pack. However, the index paused its up move after RBI’s Monetary Policy where the first rate hike of 25 bps was seen since 2014.
The index has started the series with higher open interest compared to last month whereas no closure was seen and short open interest is still open indicating. In case of correction, this short OI will get closed. This is likely to provide a cushion to the index.
There was a huge addition in 26,200 and 26,000 Puts last week. These positions are still holding in the current week as well indicating major support for the index.
Open interest concentration is higher in 26500 Call, which is also the midpoint of the last week. We feel the upside is likely to continue once the index manages to end above these levels.
The index underperformed the Nifty after a long time. The price ratio of Bank Nifty/Nifty has retraced towards 2.45. We feel this ratio has a support near 2.44. Once the index closes above 26500, the ratio is likely to pick up the pace and move towards 2.49.
Global outlook: EM currencies continue to stay weak
On expected lines, the MSCI reverted from strong support level and ended over more than 2 percent higher. However, this weakness spread to Brazil.
As a result, Brazil’s central bank sold extra foreign-exchange swap contracts for a second time this week, boosting investors’ protection again further declines in Brazilian Real.
Turkey also surprised by tightening monetary policy on Thursday for the third time in less than two months. Similar actions were also seen in India and Indonesia.
Broadly speaking, EM policymakers continued to shore up their defences to fend off its biggest test since the 2013 taper tantrum. Hence, key variable, namely currency, still remains MSCI EM FX Index, which is still wobbly as it ended unchanged (continuing the weakness trend)
Hence, FII flows have remained country-centric. While outflows were seen from Brazil (USD 305 million), Thailand & Indonesia also saw outflows of over USD 110 million each. Inflows were seen in Taiwan of USD 937 million.
In India, FIIs’ bearish bias continued. In the cash segment, buying was seen of over USD 430 million. However, removing the HDFC Bank buying (block) there was again a selling figure for the week.
In the F&O space, FIIs created fresh shorts over USD 100 million. In the index option segment, there was buying of over USD 800 million. However, DII inflows of over USD 300 million continued
As long as the EM currency complex does not exhibit a synchronised recovery, FII buying in EM may be very selective and thin. Additionally, in the upcoming week, both US Fed & ECB are expected to deliver its policy statement. Both are expected to deliver a hawkish outlook (not completely priced by market).
If there are three further rate hikes by Fed and suggestion of QE coming to end by ECB, then EM attractiveness would further weaken and, hence, remain a key data point from FIIs fund flow standpoint.
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