"Markets are focused on trade war escalation that is adversely impacting financial conditions and the global growth story. Hence, FIIs could adopt a wait-and-watch mode until more clarity on trade war abatement emerges," says Amit Gupta of ICICIdirect.
Amit Gupta
The Nifty50 encountered resistance at 10,200 during the week and finally slipped below the highest Put base of 10,000. It is getting affected by adverse domestic and global news flows.
The volatility has not responded to the market decline and remained almost flat at 15.45 percent in comparison to the previous week. If volatility declines below 14 percent, it would provide some comfort to the current jittery market conditions
The week’s market fall was mainly contributed by banking heavyweights. The Bank Nifty made a new low a day before the Nifty on Friday. As the Nifty has come close to the highest Put base of 10,000, some consolidation may be seen in the upcoming truncated week.
The Call writing was seen at 10200 strikes may not let the index move above this strike even if some short covering is seen in it. However, if the Nifty recovers above 10,050, some short covering may be seen in the settlement week.
Bank Nifty: Selling spree continues as index slips below 24,000
The index slipped nearly 1100 points for the week on the back of selling in both the private and the public sector pack. As the US raised interest rates by another 25 bps, this did not go well with market participants.
However, post the trade war talks between US and China, the index witnessed its highest intraday fall for the week where it started below the important support levels of 24,000 and closed near the week’s low.
IVs remained muted for the week. However, last Friday it spiked nearly 3.5 percent. On the options front, additions were seen in 24,000 strike Call, which is likely to be the key hurdle, going forward.
However, looking at the set-up on the Put side, we feel that the index is likely to rest near 23,500. A close below these levels would open more downside as volatility will be extremely high on the back of short week and pending rollover activity for the April series.
As expected, the current price ratio of Bank Nifty/Nifty has slipped towards 2.36 levels from 2.41 levels. As the index has a major hurdle near 24,000 unless the index closes above these levels, the upside is likely to be capped while a fresh leg of short additions can pull down the ratio towards 2.31 levels in coming days.
Fed driven rate volatility to subside as global trade war hogs spotlight:
In the latter half of the week, the stock markets fell across the globe. Perceived havens such as government bonds and the yen gained as investors rushed to safety after US President Donald Trump announced long-promised tariffs on Chinese goods, stoking fears of a global trade war.
Mr. Trump signed a presidential memorandum on Thursday that could impose tariffs on up to USD 60 billion of imports from China although the measures have a 30-day consultation period. China unveiled plans on Friday to impose tariffs on up to USD 3 billion of US imports in retaliation against US tariffs on Chinese steel and aluminium products.
During the week, MSCI world equity index ended 3 percent lower while MSC fell less than 2 percent. The decline in EMs was supplemented by FII selling.
Outflows amounting to over USD 200 million were seen from South Korea and Indonesia. Outflows continued from Brazil and Thailand that averaged USD 150 million. As visible, selling was not very pronounced from EMs.
In the domestic equity segment, FIIs had been continuously selling in February and the first fortnight of March. However, in the last week, there was buying of over USD 150 million, suggesting some bottom fishing.
However, in F&O set up, positions were not that encouraging as FIIs created shorts worth over USD 740 million that were also supported by index option buying of over USD 130 million.
With the US Fed maintaining the three rate hike projections for 2018 (coupled with a less hawkish tone), the US Federal Reserve drove rate volatility is likely to ebb in the near term.
Now, markets are focused on trade war escalation that is adversely impacting financial conditions and the global growth story. Hence, FIIs could adopt a wait-and-watch mode until more clarity on trade war abatement emerges.
