The Nifty showed resilience amid the adverse news from the domestic political front and the depreciating rupee move towards 69 amid continuous devaluation of Chinese currency Yuan
After reaching 11,000 at the start of the week, the Nifty consolidated near this level for the entire week. The index showed resilience amid the adverse news from the domestic political front and the depreciating rupee move towards 69 amid continuous devaluation of Chinese currency Yuan
The volatility increased amid various news flows. India VIX moved up from 11.5% to 13.5%.
It has come closer to a crucial resistance of 14 percent. A move above this may bring some nervousness in the market. On the downside, the Nifty has good support at 10,930 from July expiry perspective.
The highest Put base is placed at 10,800 and the open interest at 11,000 Put strike is higher than 11000 Call. This may lead to consolidation at higher levels of 11,000 in the expiry week.
Bank Nifty move above 27200 would bring good momentum in the market. The decline in crude prices has softened the India 10 year G-sec prices to 7.75 percent, which means the underperforming banking stocks can witness short covering in the coming week
Bank Nifty: 26700 remains key support for week:
After moving above 27200, the index faced difficulty in continuing in the same vein. A sharp reversal was seen on the weekly expiry day as the rupee further depreciated and ended at a record low against the US$.
Added pressure was seen on the back of the opposition tabling a no confidence motion against the government. Private sector banks continued to roar whereas the short covering trend was also seen in a few PSU banks.
DIIs continued to pump in money in the cash segment whereas huge buy figure by FIIs in the index option segment is likely to trigger some volatility in the expiry week
Despite all the volatility, IVs remained choppy, which gave more headroom for the option writers. Put writing positions shifted to 26700 strike from 26500 strike, which can act as a key support in the expiry week.
However, a sizeable addition was seen in 27200 Call, which may attract consolidation at higher levels. The price ratio of Bank Nifty/Nifty remained near 2.44 levels.
We continue to feel that support can be seen near 2.42 levels while outperformance can be seen in banking stocks. Once the Index manages to end above 27200. We may see an aggressive short covering trend
Sharp Chinese Yuan deprecation kept EM currencies weak:
While the MSCI world equity index closed in positive zone for the week, the Emerging Markets (EMs) equity closed negative. The main reason for this decline was the weakness in EM currencies that declined over 1 percent. INR also hit record lows of 69.12 in the process.
US-China trade war also continued to flare up and kept risk sentiment in check. All this kept the risk-on sentiment for EM equities in check (despite of decline in Crude prices) despite most markets in oversold zone.
Emerging market equity, as a result, saw outflows; however, the pace was mild. South Korea ($312 million), Thailand ($ 65 million) and Malaysia ($45 million) saw outflows. Indian also saw an outflow of over US $ 100 million.
In the F&O space, weak bias continued from FIIs. In the Index option space there was buying of over US $ 650 million (mainly in puts, to hedge the declines) and Index futures also saw the addition of over US $ 400 million.
In the upcoming week, market participants would continue to track trade rift between the US and its major trading partners especially China & Europe. Reaction to (a) decline in crude prices and (b) “negative” remark on a higher dollar and rates will also be watched out.
If Chinese currency deprecation halts, then lower (1) US yields (2) US dollar and (3) crude is a positive set for EM equities.
Currently, the EM equities are near 2018 lows and in an oversold zone and if there is a resumption of stability in EM currency markets, then EM equities are due for a strong pullback.
