Markets likely to remain volatile

Rattled by geopolitical tensions in Middle East after the standoff between US and Iran; the benchmark indices posted their biggest single day fall in nearly a year during the early part of the week ended.

However, markets staged sharp comeback moving up quickly from "fear" to "greed" after easing of tensions between US and Iran.

On a weekly basis, the Sensex rose 135.11 points (0.32 per cent) to end at 41,599.72, while the Nifty added 30.15 points (0.24 percent) to end at 12,256.8.

Despite the rollercoaster ride in large cap stocks, ahead of Union Budget 2020 heightened activity was seen in the broader market on hopes and expectations. The BSE small-cap index gained 1.13 per cent, and the BSE mid-cap index also rose 0.29 percent.

The mid and small caps have got battered the most amidst the liquidity crises and have undergone massive correction over the past two years.

Volume pick up in the broader indices indicates that worst is over for midcaps and small caps.

Check valuations before buying midcaps and smallcaps. Barring any escalation in issues between the US and Iran; attempts by the Government to revive the economy, FII inflows coupled with expectation of a "rejuvenating" Budget in February are expected to keep markets steady in medium term.

However, in near term Q3 result season and expectations from the Budget 2020 will keep bourses extremely volatile in next few weeks. Track how the trade deal pans out between the US and China.

Near term trend will be dictated by Q3 results, domestic macro-economic 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 40,750-42,250 and 12,050-12,400 for the benchmark indices.

Support for the indices evident at 41,200 & 40,850 and 12,150 & 12,050. The markets are likely to remain volatile as many indicators are in the uncharted territory and some are overbought zone on short term charts.

It is important that the markets consolidate at the current levels for sustainable gains from hereon. Follow-up buying support is necessary for further gains.

FUTURES & OPTIONS

Derivative segment witnessed brisk and volatile trading during the week ended. In the options segment, the highest open interest was seen at the 12,500-strike call option and 12,200-strike put option.

The Implied Volatility (IV) of calls closed at 11.90 per cent while that for put options closed at 12.20 per cent.

The PCR OI for the week closed at 1.38 which indicates OTM put writing. The near-term trend status of Nifty is bullish.

Punters point that lot of outstanding short position in Nifty and Index calls may trigger another round of short covering.

Some chartists say the presence of key overhead resistance and the sluggish pattern of daily/weekly RSI could dampen any effort of upside breakout in the next week. Minor downward correction within a broader range (12350-12100) is likely in the next week.

Good buying interest was seen in Metals, IT, Power and Pharma stocks. Auto and Bank stocks were on a weak wicket. The recent rupee depreciation would also benefit some companies in the IT and Pharmaceuticals sectors.

Stay invested in IT biggies like TCS, Infosys, Wipro and TechMahindra for further gains from current levels. Snugging 52-week highs, key Pharma stocks like Divi Labs and Dr Reddy look good for further gains. Be overweight on the sector with medium term view.

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