3 Weekly Nifty Analysis

Indian markets closed weaker on Friday marking another week of inching backwards. The struggles of Indian markets in the recent weeks raise the question whether the enthusiasm on the back of government’s fiscal and FDI reforms that helped the Sensex surge 7.7% in September have begun to fade away. Friday’s fall was attributed to worries surrounding Reliance Industries’ outlook for refining margins. There was also some profit booking on stocks such as HDFC that had witnessed at extended rally.

Market participants were cautious on Friday as a two-day European Union summit got under-way in Brussels. Sentiment early this week was also boosted by reports that the Department of Disinvestment is likely to launch the first batch of ETF units in mid-January and is expected to mobilise around 15bn. The results remain a mixed bag with RIL coming in line with expectations and ITC recording an impressive performance.  All eyes are now on the RBI and what it does at the end of October in its policy review. Analysts don’t have high hopes of any significant rate cut. The high level of inflation doesn't give the central bank the requisite elbow room for a rate cut. The broad consensus on the street is of a 25 bps cut in CRR. Rupee slid to a one-month low on Friday due to massive dollar buying by state-run oil and defence companies, along with demand from foreign banks. The anxieties around the rupee have resurfaced. There are fears of euro’s decline thanks to continued fears that Spain might seek a bailout. 

Markets for the week traded in tight range of 5629-5752 turning leading to ‘Doji star’ on candlestick and closed with marginal gains. A ‘ Doji star’ at higher levels explains indecisiveness, however since Nifty has managed to maintain closing above 5629 levels , the sentiment is tilted towards positive bias. Nifty has bounced back from 5629 for couple of times in past few weeks and will act as make or break levels in the near term. Huge call writing was witnessed in Friday's trade at 5800 strike. Nifty Weighted average price is at 5720 and Bank nifty at 11480. Bank Nifty and Nifty witnessed some short rollovers in Friday's trade. Highest OI is at 5600 put and 5800 call. Despite high intraday volatility, significant writing at ATM and OTM index options kept the implied volatility in check. Significant writing at near month and mid month options forced the volatility index to witness its lowest close till date. It closed at 14.54. Nifty Oct Call 5800 and Put 5600 strikes saw noteworthy addition of open interest along with fresh writing in November series 5500 Put and 5800 Call strikes. The continuous decline in implied volatility also indicates writing among these strikes

The FMCG and Consumer Durables had seen healthy participation outperforming the broader market. Whereas, Metal, Realty and Energy stocks remains subdued. Long positions can be assumed in Banking, FMCG, Capital Goods, Utilities, Consumer Durables, Cement, Realty and Auto sectors if markets hold 5629 levels. Short positions can be accumulated in Pharma and Metals if the Nifty fails to sustain above 5629 levels or below 5600 levels.The results will continue to pour in the coming week with stocks like ICICI Bank, Kotak Mahindra Bank and HDFC in focus. The movement could be choppy with the F&O expiry. The holiday truncated week will also see hectic activity in bank stocks ahead of the RBI policy meet on October 30. WPI inflation touched a 10-month high in September due to the diesel price hike. What’s worse, core inflation remains sticky. The FM and India Inc. have been clamouring for a rate cut to shore up growth.

Nifty: Due to ongoing earnings season and upcoming settlement week, Nifty may witness volatile moves. The highest Put base of 5600 strike should be crucial support on downsides. At the same time, a move above 5722 should prompt short covering towards the settlement.

Bank Nifty: The Bank Nifty is hovering at its straddle formed at the 11500 strike. From a trading prospective, 11200 level is expected to act as strong support in the near term while 11700 would be critical resistance on the higher side.

Key Levels for Nifty :


Buy Nifty(Spot) above 5722 T1: 5760 T2: 5798 T3: 5836 T4: 5875 T5: 5913 T6: 5952 SL: 5629
Sell Nifty(Spot) below 5629 T1: 5596 T2: 5559 T3: 5522 T4: 5485 T5: 5448 T6: 5411 SL: 5722

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