We believe any directional move in the Nifty has to be triggered by the banking index. Till the banking index does not surpass 25,300, ongoing consolidation in the Nifty may continue.
Amit Gupta
For the fourth consecutive week in a row, the Nifty50 ended positive and remained firm above 10,500 despite some weakness in the banking space on account of a surge in bond yields. India 10-year G-sec yield again reached 7.80 percent, the level from where it had fallen towards 7.10 percent.
If banking results do not surprise positively, higher yields may lead to some profit booking in this space. Technology stocks have outperformed the market and been a major support to compensate the banking fall.
The Nifty50 10,500 Put has seen addition of more than 45 lakh shares in the last week. These are option writing positions as indicated by the decline in volatility. Hence, 10,450-10,500 should remain an important support in coming days.
India VIX has come below the crucial 14 levels despite the continuous depreciation trend of the rupee. We believe the Nifty should continue to consolidate in the vicinity of 10,500 till April expiry.
The Nifty has added long positions to the tune of 43 percent in the current series. Rollover of these positions into May series may keep the markets stable during the current expiry week also.
Bank Nifty: Move above 25,300 to trigger short covering
The Bank Nifty remained sideways throughout the week underperforming broader markets. It failed to surpass 25,400 despite many attempts and finally moved below 25,000 on Friday.
PSU banking stocks continued to remain laggards along with select private sector heavyweights. As the index hovered above 25,000 for most of the week, major Put writing was seen at 24,800 strikes.
The major Call base for the ongoing settlement is now placed at 25,500 followed by 25,300 strike indicating hurdles placed at higher levels. We believe any change of bias in the banking space should be formed only below 24,800.
As quarterly results of IndusInd Bank failed to cheer the Street, all eyes will be on HDFC Bank results on Saturday. We believe the next round of move in the banking index will be triggered by private sector heavyweights.
The current price ratio of Bank Nifty/Nifty has moved to its lowest levels in a year. The next support level for the price ratio is placed near 2.34.
We believe any directional move in the Nifty has to be triggered by the banking index. Till the banking index does not surpass 25,300, ongoing consolidation in the Nifty may continue.
Geopolitics, trade war continue to keep FIIs at bay:
Trade wars and geopolitical tensions continued to dampen risk sentiments for the week. However, commodities staged a strong up move. While base metals gained post-Russian sanctions, crude continued to move multiple years high ahead of OPEC meeting and escalation in geopolitical tensions in the Middle East.
During the week, FIIs continued to withdraw from the cash segment and took out USD 413 million from Indian equities. Outflows were also seen from other EMs with Taiwan seeing an outflow of USD 271 million.
Indonesia and Thailand also saw outflows in excess of USD 100 million each. However, Brazil saw inflows of USD 104 million.
In the F&O setup, the cautious undertone continued. There was fresh short in index future to the tune of USD 468 million. The index option reduced to USD 75 million.
While markets continued to remain focused on trade wars & geopolitical tensions escalation, there is another more pertinent component in the equation, namely US bond yield surge. Bond yields on US 10-year again has surged sharply to 2.91 (4 bps away from February 2018 highs).
The surge in yield is mainly triggered by (a) rising in inflation expectations, with US 10 year break-even inflation rate moving to a four-year high of 2.2 percent & (b) rising crude and commodity prices post Russian sanctions and the Middle East tensions.
While the base metal surge may abate in the coming week, the surge in crude and bond yields may continue and keep risk-on sentiment at bay.
The important thing to watch will be the velocity of rise. If the up move is in a quick time frame, then it may trigger higher cross-asset volatility and resultant positive correlations in most asset class moves. This will warrant continued cautious tone be FIIs.
