All eyes on RBI policy meet for next cues

Spooked by the US credit rating downgrade news, rising US bond yields, consistent FII selling, no positive surprises in corporate earnings and disappointing other global cues; markets continued their downward journey in the equity markets for the second consecutive week. The BSE Sensex corrected 439 points to close the week at 65,721 points, and the NSE Nifty declined 129 points to close at 19,517 points. The broader markets performed better than benchmark indices, with the Nifty Mid-cap 100 and Small-cap 100 indices gaining 0.7 percent and 0.8 percent respectively. With FII selling weighing on sentiment, bouts of profit booking and selling was seen in auto, banking and financial services, FMCG, and oil & gas stocks. After consistent buying since March, FIIs have turned net sellers in the Indian markets for August, especially after the spike in US 10-year treasury yield to over the 4 percent mark, causing a southward move in the equity markets. FIIs have net sold Rs3,546 crore worth of shares in the first week of August, but DIIs fully compensated by purchasing more than Rs5,600 crore worth of shares in the cash segment last week. In near term, the RBI policy commentary and the interest rate decision by Monetary Policy Committee (MPC) meeting due on August 10 will be the most important factor dictating the direction of the market. Stock-specific action will continue on the back of the last leg of quarterly earnings season. Markets are likely to move in a broader range with some volatility in interest-sensitive sectors.

F&O / SECTOR WATCH

On the back of the heightened volatility triggered by the US rating downgrade, derivative segment witnessed sharp spike in volumes. The Nifty index closed half a percent lower, while the Bank Nifty saw a decline of over one percent. The Options data shows Maximum Call open interest at 19,600 strike, followed by 20,000 strike, and the Maximum Put open interest was seen at 19,400 strike, followed by 19,500 strike.The implied volatility (IV) for Nifty call options concluded at 9.79 per cent, while put options closed at 11.01 per cent. Additionally, the Nifty VIX, which measures market volatility, ended the week at 11.19 per cent. The Put-Call Ratio Open Interest (PCR OI) settled at 1.16 for the week. Data suggests a very high accumulation of Call OI between 19,800-20,000 levels and this makes the zone a formidable resistance for the index. The VIX, which came off by 5.47 per cent on the last trading day of the week continues to remain at dangerously low levels. Despite the retracement that we saw, India VIX has risen by just 4.32 per cent on a weekly note. Stock futures looking good are Balrampur Chini, Container Corporation, Canara Bank, Jubilant Foodworks, Marico, Petronet LNG and Voltas.Stock futures looking weakare ABFRL, BPCL, Godrej Properties, Vedanta, RBL Bank and UPL.

With increasing inflationary pressures specially concerns on food inflation; observers expect the RBI to turn extra cautious at the upcoming MPC meeting. Most experts expect the RBI to hold its repo rate at 6.5 percent and maintain its policy stance as a withdrawal of accommodation.