Monetary policy has done what budget did in July. Post monetary policy, the markets which were flat and looking to move towards 11400 mark have suddenly changed course and collapsed. Nifty broke the 11250 which is the 200 dma, effortlessly and went below 11200 mark thus giving up 50% of the gains that it made due to corporate rate cut news.
Now Nifty is at 11180 mark and we need to see what happens from here. US markets on Friday have seen a decent recovery of 370 points, even after the news of Trump impeachment and US-China trade talks. It could so happen that US markets really want Trump to be out and a Democratic President in the office next term. Asian markets are in the mixed zone on trade tensions with Japan down 70 points. Hong Kong market is shut for the day.
Coming to the domestics, the biggest news and the trigger for the fall that we saw on Friday was the monetary policy committee’s decision of cutting Repo rate by 25 bps to bring it to the lowest level in 9 years at 5.15%. The expectations were a 40 bps cut, especially after it gave 35 bps in the last policy. Growth is a major concern now and with RBI not giving enough cut for banks to pass on to consumers, demand for fresh loans cannot be created.
Apart from this RBI has also cut the GDP growth rate for this fiscal to 6.1% from 6.9%. This week is important for markets as we will have the IIP and CPI inflation numbers, as well as Q2 results of companies, will start coming in. The consumer confidence index for September quarter fell to 89.4 from 95.7 in July quarter indicating a rapid fall in demand.
On the derivatives front, there is relentless selling that is happening from FIIs in the futures market after the RBI declared its monetary policy. The overall long positions in Nifty futures dropped from 34% before the monetary policy to 32% by the time we closed the trade. In the options market also there was more bearishness than bullishness as Nifty put call ratio plunged to below 1 to close at 0.97 from 1.17.
There were more puts bought than calls on the buy side, while on the sell-side nearly 5 calls were sold for every 2 puts. 10900 put added 4.6 lakh positions followed by 11100 put which added 2.4 lakh positions and 11000 and 11000 put have highest open interest on put side. On call side 11300 call added 14 lakh positions while 11500 call added 11.1 lakh positions and 11500 call has the maximum open interest on the call side.
What is the Nifty call for the day?
After a weak first week, we are starting the second week on a flat note and whether market will see the festive cheer or not needs to be seen. We are likely to open around 11180-11200 mark and there is a possibility of Nifty touching 11250 which is the 200dma, if it stays above 11200 mark.
So, the trade for the day is going to be a very narrow one, where I suggest you to go long if Nifty is above 11200 mark with 11250-11260 as the target. If Nifty drops to 11150 and goes below that, then we are on our way towards 11000 mark and it is better to stay out. The long trade will open only if Nifty stays in 11180-11200 mark.