High volatility likely to continue in coming days

Spooked by the spread of coronavirus epidemic and YES Bank imbroglio, markets witnessed hyper volatility during the week ended.

The Sensex ended the week down 1,340 points at 37,576 (-1.92 percent); while the Nifty slipped 351 points this week to end at just below the 11,000-mark at 10980 (-1.89 percent).

Broader market underperformed as the BSE Small-cap index plunged 2.7 percent followed by the BSE Mid-cap index which was down 2.55 percent in the same period.

The spread of the novel coronavirus, is coming to country's advantage, at least, in the oil sector. A $ fall in crude oil price results in reducing India's import bill by almost Rs 2,900 crore while a rupee fall in value of currency against $ results in increased spending by up to Rs 2,700 crore.

Near term trend will be dictated by the flow of news on Coronavirus, developments over resolution of YES Bank issue, domestic macro-economic data which includes inflation rates, industrial production and manufacturing data, FII and DII activity, the movement of rupee against the dollar, crude oil price movement and global cues.

For the week ahead, chartists predict trading range of 36,500-38500 and 10,700-11,250 for the Sensex and the Nifty respectively. For several months it was 'buy the dip', 'buy the dip', 'buy the dip,' but now it is becoming 'sell on rallies', 'sell on rallies', 'sell on rallies', say observers.

FUTURES & OPTIONS

Mirroring the painful turbulence in global markets, many stocks fell like a pack of cards in the derivative segment. Many traders expect the stock gyrations to continue as the ramifications of the virus remain unclear.

On the derivative front, call writers seen adding heavy open interest build up in 11000,11100 & 11200 call strike which clearly indicates limited upside in coming sessions. The Implied Volatility (IV) of calls closed at 21.32% while that for put options closed at 25.50%.

The Nifty VIX for the week closed at 25.64% and is expected to remain volatile. PCR OI for the week closed at 0.85. With both the indices well below their 200 days exponential moving average on daily charts and trading with negative bias on broader charts as well, present weakness may persist for much longer time than feared.

Expect huge volatility to continue in coming sessions as well and on any bounce towards 11200 to 11300 in Nifty will cap any sharp upside into the prices.

However, on downside 10800-10700 zone would be immediate support for Nifty while 27500 to 27000 zone would act as support for Bank Nifty in coming sessions.

Markets are closed on Tuesday March 10th on account of Holi. Stay invested in Divi Labs, Dr Reddy, Cadila Healthcare, Glenmark and Biocon.

Technology stocks are back on the radar of funds. Weak rupee and robust growth in the sector spell good visibility of earnings in next few quarters.

Buy TCS, Infosys and HCL Tech. Use declines to buy Biocon, TCS, Pidilite Inds, Cadila Healthcare, Mindtree, Glenmark Pharma, HDFC Bank.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)