The current price ratio (Bank Nifty/Nifty) has been continuously declining from 2.50 to 2.42 levels in the past few weeks. However, the ratio has a decent support near 2.42 levels.
The Nifty was finally able to provide highest weekly closing despite a decline seen towards 10,400 in the past week.
Since the Gujarat election outcome, we have seen a sharp decline in volatility. During this period, the Nifty consolidated above 10400.
The highest Put base of the Nifty has moved from 10300 to 10400 strike, which shows that the momentum is shifting upwards as we are approaching the Union Budget.
Various under performing sectors have started performing due to the closure of short positions. This is particularly so for stocks from sectors like capital goods, cement and metals that are somehow related to the likely announcements to be made in Budget on infrastructure and rural development.
The Nifty future premium has declined to 26 points from the last series 55 points, which shows that market participants are still skeptical before the February event.
They have formed short positions in Nifty futures either speculatively or to hedge their long positions. This could lead to more short covering as we approach the current expiry.
The pullback seen in banking stocks on account of recap announcement has also pushed the Nifty into some momentum.
Bank Nifty: Index well placed to move towards sizeable Call base of 26000
The index consolidated in a narrow and tight band for a major part of the week. However, a statement by the Finance Minister to seek Parliament approval to issue recap bonds to the tune of Rs 80,000 crore went down well with market participants after which short covering was seen in PSU banks and provided required thrust to the index.
Axis Bank along with other midcap banks continued their northward journey. However, profit booking in HDFC Bank and Kotak Mahindra Bank kept the index move in check. Volatility continued to decline, providing more confidence to options writers.
Call open interest has shifted to higher strike from 25500 and 25700 strikes whereas open interest concentration remained high in 25500 Put.
Since the past two weekly expiries, additions continued in 25500 Put indicating major short-term support. However, in case of any major sell-off, selling is likely to get arrested near 25300.
The current price ratio (Bank Nifty/Nifty) has been continuously declining from 2.50 to 2.42 levels in the past few weeks. However, the ratio has a decent support near 2.42 levels.
We feel outperformance in banking stocks can be seen in coming weeks, which will take the ratio towards 2.46 levels
The first week of 2018 registers inflows in most EMs:
While trading action remained thin at the start of 2018, the initial price and fund flow into EMs continue to portray a positive set-up. MSCI EM index has moved up over 3 percent to 1192 (its highest level since June 2011).
This has been mainly aided by a soft US dollar, bond yields and the firmness in the commodity complex. Fund flow wise, South Korea and Taiwan led the pack with inflows of USD 1.32 billion and USD 718 million, respectively.
Other EMs also saw inflows wherein Malaysia saw inflow of over USD 170 million and India of over USD 100 million
In the F&O space, FIIs toned their bearish bets. Foreign investors (FIIs) covered shorts to the tune of USD 273 million in index futures while stock futures short covering totalled USD 45 million.
Yield differentials among global and emerging markets would remain key in 2018 as tightening global yields on the back of major central bank’s hawkish stance could see outflows pressure on EMs.
Inflation & growth in developed economies in 2018 will be key catalysts as we tread through 2018. With risk-on sentiment continuously gaining traction in equity and bond markets, the focal point becomes the US dollar.
A move below 90 on dollar index has the potential to push the bond market into a more attractive zone (a dollar index move below 90 is only likely to be triggered by a strong contraction in rate hike expectations). A weak dollar environment is likely to be accretive for EMs.
MORE WILL UPDATE SOON!!
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