As the Nifty has been absorbing global headwinds in the current up move, the upcoming quarterly results on the domestic front would be keenly watched.
The Nifty is likely to consolidate above the important support of 10,350. We have seen writing in 10,300 and 10,400 Put options. Hence, any decline in the Nifty should find immediate support above 10,350 for some time.
As the Nifty has been absorbing global headwinds in the current up move, the upcoming quarterly results on the domestic front would be keenly watched.
The technology pack has provided some momentum in the last few sessions. This space may have limited declines in coming days. The index heavyweights from capital goods, FMCG, auto and oil & gas are expected to support the index in case of any intermediate profit booking.
Open interest in the Nifty has increased with current upsides, which means longs are formed in the index. Also, the lower Nifty premiums do not justify the fact that market is getting overvalued in the short-term. Positive bias should remain till the April expiry.
Better monsoon expectation is another trigger, which has led some pullback in rural-specific stocks. Positional short traders seem to be exiting these stocks. Hence, they can see good upsides in days to come.
The surge in crude prices and geopolitical tensions in the Middle East may lead to market consolidation. Otherwise, adverse news flows from a trade war perspective from the US and China are getting absorbed by the Nifty.
Bank Nifty: 25000 remains crucial level:
Starting the week on an optimistic note, the index finally managed to end well above 25,000, which was the previous week resistance.
A short covering play was seen in a few banking stocks whereas private sector banks witnessed a fresh round of long additions in which IndusInd Bank and Kotak Mahindra Bank made new lifetime high levels whereas Axis Bank and HDFC Bank also supported the up move.
As the index moved above 25,000, writing positions of 24,700 and 24,900 Put strike have shifted to the 25,000 strike whereas open interest is well distributed in the 25,300 to 25,500 strike Calls, which has kept the index move in check near 25,300.
IVs remained choppy for the week. This is likely to trigger some positive sentiments, going forward. We feel a close above 25,300 is likely to take the index towards its sizeable Call base of 25,500.
The current price ratio of Bank Nifty/Nifty continues to remain near 2.40 levels. Last week, the index added huge open interest on April 12. Thrice in the week, bears tried to dominate but levels of 25,000 continued to act as a decent support.
We feel that unless the index holds above 25,000, the outperformance in banking stocks is likely to continue. Going forward, the ratio is likely to move towards 2.44.
Geopolitics, trade war risks continue to keep FIIs at bay:
Trade wars and geopolitical tensions marred the week. However, towards the end of the week, the constant escalation/de-escalation rendered these news flows to mere rhetoric and risk sentiment stabilised to favour risk-on.
In a U-turn, Mr. Trump asked to take a relook at re-joining the Trans-Pacific Partnership, a multinational trade pact from which he withdrew the US in 2017.
During the week, FIIs continued to withdraw from the cash segment and took out US$250 million from Indian equities (in April their tally is over USD 500 million till now).
Outflows were also seen from other EMs with Taiwan seeing an outflow of USD 320 million. Indonesia and Thailand also saw outflows in the vicinity of USD 90 million each. However, South Korea saw inflows of USD 595 million.
In the F&O setup, the cautious undertone continued. There was fresh short in index future to the tune of USD 245 million. Index option buying of over USD 750 million was also unusually large, suggesting caution among participants.
Markets continue to remain focused on trade wars and geopolitical tensions escalation that is adversely impacting financial conditions and the global growth story.
The key gauge for assessing risk sentiment revolves around S&P 500, which despite the risk of shocks continues to hold February lows of 2535. Going ahead, this will continue to be a key pivot point.
If the index is able to move higher and end above 2675, it could trigger risk-on for other risk assets as well. This could very well reignite FIIs’ fund flow action into EMs as other variables like bond yields and dollar seem well anchored.
MORE WILL UPDATE SOON!!
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