Markets and News
We are at the mid week and an important day awaiting us, as today is the credit policy day. The US markets have ended flat with Dow Jones ending in mild red while NASDAQ and S&P 500 ending in mild green. NASDAQ has hit a record high and now its above 7600 now. The Asian markets are also looking flat today in line with the US markets. Hong kong and Japan are in mild green while others are in red. The Brent Crude however has settled at 75 dollars and thats a good news. The dollar index also seem to have settled below 94 and that is keeping the rupee from sliding to 68.
Domestic Cues
Coming to domestics today is the credit policy day. Two years ago MPC used to meet just one day and used to announce monetary policy. A year ago they started to meet for two days and now they are meeting for 3 days. As the duration is increasing the inaction is also increasing. The last 4-5 policies nothing really has happened and now it looks like things are going to change with this policy. This policy will surely see a rate hike for the first time in 4 years. The only thing that needs to be seen is what is the vote with which we will have that rate hike.
The important points to be seen from the policy is the tone of the policy, whether its bullish or bearish and how many more rate hikes are they going to hint in this year. The forecast on inflation is also important as the Crude prices have now settled between 75 to 80 dollars compared to 55 to 60 dollars in the last policy. The market has already priced in the hike of 25 bps and that will not come as a big surprise. What might upset the market is the overtly hawkish tone in the policy or any of the MPC members voting for a 50 bps rate hike.
Derivatives Action
On the derivatives front, after 3 days of relentless selling, FIIs seem to have put a temporary halt to the selling and for the first time in 3 days Nifty futures have spent some time in premium. Otherwise they were in the deep discount and at one time it went even to 29 points. On the options front, the demand for the calls seems to be going up as Nifty is falling and the Nifty put call ratio dropped to 1.33 at the end of the day compared to 1.39 at the beginning of the day. 10100 put is still very active with 2 lakh positions created there and that always presents a risk of a big fall. This is also supported by the positions coming on call side especially 11000 call that has 5.9 lakh contracts and 10800 call that has 4.4 lakh contracts.
What is the Nifty and Bank Nifty call for the day?
Expect a flat start around 10600 and being a big fundamental day, it might remain in 10580-10630 range till the policy is declared. If the tone is hawkish then expect it to fall and test the 100dma of 10550 levels and we need to see if that holds or not. If it doesn’t hold then expect it to go to the 50dma of 10530. This should be a strong support zone. If the policy delivers a 25 bps cut and if the tone is not as hawkish as expected then dont be surprised if market moves to 10650 o 10680 zone. So, its a very tricky day and I advise you to wait and watch and plan for positions for rest of the series. The risk reward is not in our favour so wait and watch.
On the bank Nifty front, there is a chance of a put buying that can happen as the news of credit policy comes out and so wait for my tweet on that during the day, before going for it.