Investors looking to RBI decision on Repo rate

Witnessing severe bouts of volatile trading amidst Adani Group indictment in the US, the geopolitical tensions, MSCI rebalancing and moderation in FII selling; the domestic stock markets gained for a second consecutive week. BSE Sensex added 685.68 points or 0.86 percent to close at 79,802.79 points, while NSE Nifty rose 223.85 points or 0.93 percent to finish at 24,131.10 points. However, the broader indices extended their outperformanceover the main indices for the second consecutive week. The BSE Midcap and Smallcap indices added 2.3 percent, five per cent, and 1.6 per cent, respectively. On the sectoral front, the Nifty Media index added 5.5 per cent, Nifty PSU Bank index rose 4.7 per cent, Nifty Oil & Gas index went up four per cent, and Nifty Energy index added 2.6 per cent. On the other hand, Nifty Auto and Information Technology indices shed 0.5 percent each. The Q2 GDP data puts RBI in a very uncomfortable position on Dec 6 when they announce the monetary policy. Given that the inflation-targeting framework requires them to bring inflation to 4 per cent (+/-2%), it can hardly cut rates when the last available inflation number at 6.2 per cent is above the upper limit of its target range of 2-6 per cent. In the next policy meeting, the RBI could find a via media by cutting the cash reserve ratio (CRR) to 4 per cent from the current 4.5 per cent. That will immediately release one lakh crore of liquidity into the banking system. On the global front, geopolitical tensions, particularly the Russia-Ukraine situation, remain a concern. Despite the small recovery in the last fortnight, there is no firm trend visible due to lack of fresh positive triggers. Observers expect the market to continue making a sideways movement for next few weeks so that the earnings catch up with the valuations.

F&O/ SECTOR WATCH

Witnessing a heightened volatility triggered by allegations on Adani Group in a US Court, the settlement week saw brisk trading in the derivative segment. Rollovers in Nifty futures improved at 79 per cent (last month 73%), above 3-month average of 76 per cent. On other hand, market wide rollovers stood at 91 per cent (last month’s market wide 89%). Rollover Cost is at 0.54 (above 3-month avg. of 0.52); Nifty cost at 0.89 (above last 3-month avg of 0.55). This signals strong momentum for the December series. Similarly, the Bank Nifty’s December rollover rate stands at 76.82 per cent, which is up from last month’s 69.36 per cent and above the three-month average of 68 per cent. This suggests a robust momentum for Bank Nifty as well, compared to the previous series. Looking at Nifty’s option data, the highest Call Open Interest was observed at the 24,500 and 24,300 strikes, while Put writers were at the 24,000 and 23,800 strike. For the Bank Nifty, significant Call Open Interest was at the 52,500 strike, while for Put Open Interest concentrated at the 52,000 and 51,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 13.59 per cent, while Put options concluded at 15.37 per cent.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)