Market Wise, Be Wise…!!

The market recorded good gain of approximately 3.50% in previous week. Inflation numbers released in India and abroad were reported higher than expectation. Meanwhile, US Fed, in its minutes have remarked about slowing down the bond buying programme. This may have an impact on emerging markets across the globe. Moreover The GDP data of Japan was also disappointing as it recorded -1.3% Q-o-Q. PBoC has kept rate unchanged at 3.85%. In US, Fed Manufacturing Index fell sharply at 31.5% which shows manufacturing activities shrunk there. However, initial jobless claims fell significantly at 444K against the estimate of 450K. However, inflation rate higher than what expected has spark the potential of tightening of monetary policies by US FED. The spurt in commodity prices, both industrial and consumer, has hinted towards the higher inflation. However, higher than expected inflation weighed in market. Both Fed and PBoC has stated that they will put efforts to control the inflation. This may spark selloff in metal and energy prices. Back at home, domestic markets also underwent huge swing before closing the week at its high. The benchmark indices gained approximately 3.5% percent whereas banking index gained 7.58%. The changes in benchmark indices and Bank Nifty week-on-week areas under

Index Current Week Previous Week Change in Points Change in %

Nifty 15,175 14,678 497 3.39%

Sensex 50,540 48,733 1,808 3.71%

BankNifty 34,607 32,170 2437 7.58%

During the week, sectoral rotation took place whereby Interest rate sensitives such as Banks, Financials, Auto and Realty sector outperformed the market and Metal, Pharma, IT and FMCG underperformed the market. Nifty manged to close above 15,150 whereas Sensex and Banknifty also closed above 50,500 and 34,600 respectively. VIX closed at 19.08 at the end of the week. On currency front, INR remained sideways to positive against dollar. Dollar likely to subdue against global currencies in upcoming sessions.

Q4 results for index majors are being announced in the next week. The level of 14,750 expected to provide good support in the coming week. VIX stands at 19.08 on closing. The VIX value of Nifty in points is 402 points, which denotes, Nifty can move 402 points either side during the week. Therefore, as per VIX, level of 15,550 expected as resistance on upper side, and support at 14,750.

Banknifty outperformed the benchmark indices. On technical charts, the Banknifty had a good breakout and had buoyed structure. Longs suggested for Banknifty on support levels. Levels to be watched in banknifty are 35,400 and 36,000 on upside, whereas on lower side, 34,000 and 33,600 seems good support.

On derivatives front, the higher open interest concentrated at strike 15500CE and 15000PE, suggesting range for movement of market in very short term.

The UPCR reads at 0.25 and at option chain undergone Puts Blast over Calls, therefore, Nifty may see higher levels followed by profit booking. However, the position of FIIs in derivatives is not much effective, hence supply seems near 1535-15400 area..

The major players, who generally dominate the market direction, are FIIs. The change in trade sentiments of FII in derivatives segment is worth noting to predict the market movements. A summarised decoding of trades undertaken by FIIs (in number of lots) is mentioned as under:

Instrument Long Traded Short Traded Friday’s Net Analysis

Index Future 62188 48498 Long Long Added

Index Call Option 1651462 1637825 Long Long Added

Index Put Option 1228012 1250951 Short Long Unwind

Stock Futures 249531 266111 Short Long Unwind

On analysing the trades made by FIIs in derivatives segment, it seems that the FIIs added long bets on Index Call options and Index Futures whereas Long unwinding seen in stock futures and Index put options. FIIs reshuffled there position and seems booked out the stock futures significantly. As FIIs are still long on stock Futures, stock specific movement may prevail in addition to movement on account of Q4 results. The position of FIIs in Index Futures is not at all effective. Hence, cautious approach need to be adopted.

The VIX is trading at 20 and hence investors and traders suggested adopt cautious view. As discounting for Q4 results likely to witness in market, traders advised to keep hedged position as market volatility increased.

(The author, CA. Amit Chandak is a Chartered Accountant and Market Expert. Views shared by the author are based on academic study and shall not be construed as trades or investment advice. Readers are suggested to consult their financial adviser before acting on the aforesaid view. The author has no position or holding in the shares referred in above)