Rate hike fears still haunting markets

Amidst renewed FII selling, mixed earnings from major corporates, concerns over monsoon and a possible rate hike by US Fed in its upcoming policy meeting; the domestic market snapped three-week gaining streak and lost over one per cent during the week ended. Mounting uncertainty in both global and domestic markets has kept Indian equities highly volatile.

BSE Sensex fell 775.94 points or 1.28 per cent to end at 59,655.06 points, while NSE Nifty shed 204 points or 1.14 per cent to end at 17,624 points. However, the broader market showed good resilience and both the Mid-cap and Small-cap indices added 0.5 per cent and 0.3 per cent respectively. It is pertinent to observe that the Mid-cap and Small-cap indices rose 5.8 per cent and 7.7 per cent, respectively, since March 28. After three consecutive weeks of buying, the FIIs turned net sellers this week as they sold equities worth Rs4,643.05 crore. On the other hand, DIIs provided support, as they bought equities worth Rs3,026.27 crore.

In this month till date, FIIs bought equities worth Rs3,16.67 crore and DIIs bought equities worth Rs342.32 crore. More than 40 small caps give double digit return despite market falling one per cent. Experts believe that while interest rates seem to have peaked out, there may not be a runaway rally in mid and small-cap stocks across the board in near future. The movement will mostly be stock specific. A broader rally will happen only if interest rates fall and if investors who have made money in large-cap stocks turn their attention to mid and small-cap names. Indian market observers feel that from an economic perspective, the government has implemented significant policies to ensure that they can support the growth outlook.

Bankruptcy reform, streamlining the banking sector, the investment guidelines and the policies related to FDI flows into India, all mark very significant progress. Indian growth can be substantial because of the demographic driver and India is probably the only large country with largest population in the world and still population is growing. Everywhere else, the population is either shrinking or will be shrinking relatively soon and China is the best example of that. But this population or demographic advantage can turn into a demographic curse as well and the key there is employment growth. Mixed signals are emerging from the US, Europe, and Chinese economic data. In the near term, investors will continue to analyse the earnings outcome of the March quarter and closely follow the management commentary of companies for further cues. Besides, the global and domestic factors will continue to dictate the trend of the market.

F&O / SECTOR WATCH

Ahead of the expiry of monthly futures & options contracts in the week ahead, the tug of war between bulls-bears will continue with markets first reacting to Reliance Industries (RIL) and ICICI Bank quarterly numbers announced over the weekend. After witnessing three weeks of consecutive gains, market players were seen booking profits at higher levels. From the derivatives front, option writers remained active in both Calls & Puts strikes in the absence of any fresh triggers. On the Call side, maximum Call Open Interest was seen at 17,700 strike, followed by 18,500 strike, with writing at 17,700 strike then 17,900 strike, whereas the maximum Put Open Interest was seen at 17,000 strike, followed by 17,700-17,600 strikes, with Put writing at 17,600 strike, then 17,000 strike.

The Implied Volatility (IV) of Calls closed at 11.11 per cent, while that for Put options closed at 12.57 per cent. The Nifty VIX for the week closed at 11.94 per cent. PCR of OI for the week closed at 0.88 lower than the previous week indicates more call writing than put. Widely tracked companies like InduSind Bank, Nestle, Bajaj Finance, Maruti Suzuki, HUL, Axis Bank, Wipro, Tech Mahindra, Kotak Bank and Bajaj Finserv would be releasing their March quarter report cards this week.Stock futures looking good are Alkem, Bata India, Bajaj Auto, Coal India, DLF, Indigo and Trent. Stock futures looking weak are Coforge, ICICIGI, MFSL, McDowell, Metropolis and Zee Entertainment.

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