The word on the street is that the worst is over for
Indian markets. Budget coinciding with expiry was seen as a climatic event with
selling reaching its exhaustion. There are a few data points which actually
support that view.
First, the market has found support at budget day lows and
for last 3 days has been closing at day’s high. Secondly Nifty has rebounded
from the mid-point of its 100 and 200 DMAs (daily moving averages). Then of
course, the midcap screen is looking much better than it had looked all of February.
And the most important one, the pullback
from budget day low has been led by Bank Nifty and strong banking stocks which
leads one to believe that the market may be a bit more constructive. Even on
the F&O side of the market, the Nifty futures have kept pace with the spot
and are trading at decent premium. And while stock futures have shed nearly 10
cr shares in Open Interest over last 2 days, that’s only because of NHPC.
Excluding NHPC, stock futures have actually added Open Interest.
However, one look at Tuesday’s FII number would suggest
that something is amiss. The way Reliance, TCS and ICICI Bank rallied on Tuesday,
I was expecting to see an FII buy number of over Rs 1,000 cr. But the number is
actually Rs 220 cr. On top of that, DIIs actually sold Rs 245 cr. On a net
basis, institutions sold in cash markets. There was no great buying in the
futures markets either and that’s where I get most of my cues.
There was big buying by FIIs in Nifty options and if you
see the build-up, it was mostly in Puts. Now conventional wisdom would suggest
this is Put writing and hence positive for markets – the texture of the market
over last few months has changed with a bias of buying options rather than
selling them. Even individual stocks are not giving the comfort that they could
be bought again.
Also, let’s keep the global setup in mind, the market has
been underperforming the globe this year. While most markets are near all time
high with US markets actually right there, the Indian market is still a fair
distance away from that. The rupee market has not stabilized at all and is
giving an indication that a move towards 56 is on.
So the big question – how to trade this market? The best
strategy would be to identify weak stocks and keep building your shorts at
every minor pullback. Some examples could be the likes of IFCI, Unitech, HDIL,
IVRCL, Welspun Corp, Adani Power. Now keep in mind, some of these stocks could
have big intra-day bounces and hence the best way to play these stocks would be
via Put options, which are very liquid in most of these stocks. As for Nifty,
you should ignore the first 3-4 days of a new series in determining a trend,
which would emerge next week. My sense, looking at the internals is that
another wave of selling is coming our way and the Nifty may head towards 5550,
where the mother of all support of 200 DMA comes in.
Hearing from you after a long gap Anuj. Please share some stories from the mid-cap carnage of past month.
ReplyDeleteThere were so many busts - HDIL, Arshiya, Core education, NHPC... what is happening.. When one see this, even I, who has been a champion of equity investing even through this 5 years of no return, feels its become a total "satta bazar" as my grandfather calls it. One's belief in capital markets is repeatedly challenged by these going-on's.
Its high time govt/SEBI/Finmin wakes up to this. Start by making stock manipulation a criminal offence. What use is banning some people and entities for a couple of years from capital mkts. Straight put them behind bars and see how fast all this non-sense reduces.
Hi Pi,
DeleteThanks for the comment. Yes, frankly the bull market in India ended in 2008. Since then, its been more of a satta bazaar.
Well as far as these busts are concerned, these are instances of a severe fight between 2 cartels, names of whom are subject to debate. You only need to see the derivative data of NHPC since October last year to figure out what was happening. A single stock having Open Interest of over 10 crore shares consistently and that too in next series in the middle of ongoing series!!!
I totally agree that there should be a probe in some of these cases.