The volatility has not shown any sign of a reversal despite the recent market recovery. Any positive bias in the broader index should be formed only if India VIX moves below 14% levels.
By Amit Gupta
The Nifty witnessed a sharp recovery on Monday (last week) from the lows of 9950 and then consolidated in the range of 10100-10200 while settling the financial year above 10100.
With the closure of the financial year, pessimism related to long-term capital gains should have gone. Now, the focus will be on global triggers.
For the April series, the maximum Put base is placed at the 10000 strike with almost 30 lakh shares. Looking at the inception of the series, the base seems to be on the lower side and weakness may extend towards 9800 if the Nifty fails to hold 10000 levels.
On the higher side, we believe 10250-10300 may act as an immediate hurdle where incremental Call writing was observed. At the same time, March series VWAP placed below 10300 should act as a resistance.
The volatility has not shown any sign of a reversal despite the recent market recovery. Any positive bias in the broader index should be formed only if India VIX moves below 14% levels.
Sectorally, along with banking, energy also failed to witness any major recovery. Further, selling pressure in this space cannot be ruled out.
Bank Nifty: Crucial support at highest Put base of 24,000
After moving below 24,000 last week and witnessing follow-up selling, the Bank Nifty index witnessed aggressive short covering this week and moved well above 24000.
A mixed bag of activity was seen where HDFC Bank continued to remain a leader while the supportive action was also seen in the PSU pack. However, a few midcap banks witnessed a fresh round of short additions.
The index ended the March series expiry on a flat note as post the negative start, it remained lacklustre and ended almost flat. Open interest build-up was seen in 24500 and 25000 strike Calls of the April series whereas on the Put side huge concentration of open interest is seen near 24000 strikes.
IVs continued to remain choppy indicating range bound movement in the near term with strong support near the highest Put base of 24000.
The current price ratio of Bank Nifty/Nifty witnessed support near 2.35 levels as marginal outperformance was there in the banking stocks vis-à-vis Nifty.
As the index is likely to move towards 24500 and 24700 in coming weeks, we feel the ratio will also move upwards and the current leg of outperformance is likely to stretch for a while.
The recent low of the ratio is likely to act as a strong support. This, in turn, provides a cushion to the index near its recent lows.
Despite escalating global trade wars, fund inflow seen in Indian equities:
The week has, so far, triggered a marginal recovery in developed and emerging market equities. However, fund inflows for EMs are still missing. As the Nifty recovered over 2% from its 2018 lows, the fund inflow action is seen from FIIs & DIIs.
In the trailing three trading session, FIIs have bought equities worth over US$305 million while DIIs bought equites worth over US$470 million.
The stable currency and cool-off in global and domestic bond yields have comforted the risk-on sentiment for Indian equities. Hence, from a fund inflow standpoint, the recent Nifty low of 9950 holds the key support.
In the F&O setup, short covering was seen in the index futures segment and positions worth over US$730 million saw closure. However, index option buying of over US$560 million was seen mainly in April series options.
We reiterate that despite the US Federal Reserve maintaining the three rate hike projections for 2018 (coupled with a less hawkish tone 2019 and 2020), the Fed-driven rate volatility is likely to ebb in the near term.
US 10 year has come down below 2.8% while 30 years has also fallen to 3.02% (lowest level since February 7, 2017). Markets are focused on trade war escalation that is adversely impacting financial conditions and the global growth story. This is coupled with the sell-off in tech stocks of the US on data privacy concerns.
Also impacting weakening financial conditions is the Libor-OIS blow out (currently at highest levels since 2009), that is causing concerns in the credit market. With risk-off of variables at play, FIIs could continue on a wait-and-watch mode until there is an abatement in these concerns.
