Tag Archives: inflation

Market Trade Setup 15th April #Nifty

The shortest trading week of the year so far is here. This is a 3 day trading week with market shut on Wednesday due to Mahavir Jayanthi and on Friday due to Good Friday. In-between you have a weekly expiry on Thursday. So, today and tomorrow are the only normal trading days. The most important news that we would be looking at today is the IMD forecast for this year’s monsoon that will come around 3 PM. Skymet has given a disappointing figure now we will look at IMD to see what it says. If we look at the global markets, they are all celebrating due to strong macro data coming from China, especially the exports going up by 14% and imports coming down. Shanghai market up close to 2% and all the other markets like Taiwan, Korea, Singapore, Hong Kong and Japan all in deep green with Japan and Hong Kong both 300 points in green. US markets also added fuel on Friday with Dow closing close to 270 points up.
Coming to domestics, if the data took China and other Asian markets up, it is the same data that will put pressure on us and we are likely to start flat. The IIP data for February came after markets closed at 5.30pm and it was a big disappointment. IIP grew at just 0.1% vs 1.7% seen in January and this is the lowest in the last 20 months. Manufacturing has actually contracted by growing at -0.3% and thus the demand for electricity came down and it just saw a growth of 1.2%. Electricity usually grows more than 4-5% during the beginning of the summer months. The only saving grace was inflation data for March that came at 2.8% vs expected 3% and the food inflation finally came to positive at 0.3%. The best data is from services inflation which was down to 5% from 5.3% seen in February. On the Q4 results front, while TCS has met the target Infosys has disappointed with margins coming lower and growth guidance also is lower. So, we still have mixed Q4 results.
Coming to derivatives, there was some buying that happened on Friday as Nifty started to pick up in the afternoon due to weekly short covering. The overall long positions in Nifty futures now stand at 63%. Coming to the options market, there was demand for puts and that is visible in Nifty put-call ratio going up to 1.57 from 1.49 at the beginning of the day. 11600 put added maximum open interest of 8.1 lakh and 11500 put added 4.3 lakh positions and 11550 put 3.6 lakh positions. 11600 put still continues to have the highest open interest indicating that 11570 is a support level. On the call side, 11750 call added 2.6 lakh positions and 11800 call added 2.3 lakh positions while 12000 call added 1.9 lakh positions. 11700 call continues to have the highest open interest and a distant second is 12000 call. So, 11740 zones will be a strong resistance for this week’s expiry. But on the April monthly expiry, still 11500 put and 12000 call continues to have the highest open interest indicating that 12000 is possible this series. But 11800 is fast catching up, so it can act as a hurdle on the upside.
What is the Nifty call for the day?
A weak macro data and a disappointing Infosys data means we will start flat in the 11640-11660 levels and on the downside 11570-11580 might offer strong support and if the fall doesn’t happen then 11680-11700 might act as the first resistance. On Friday, we have taken the 11680 as a target and those targets were reached, and you would have exited your positions. Today is a day of uncertainty, so I would suggest not to take any positions today. But if there is a correction to 11570-11580 levels and Nifty stabilizes there then you can go long with 11650 as the target. Else, it’s better to wait and watch if 11680-11720 zone is taken out or not before deciding on further action.

Market Trade Setup 13th July #Nifty

Markets and News
Weekend, Friday, the 13th the unluckiest day of the year. But the week looks good and all that is needed is for the market now is not to lose what it had gained this week and close with the gains intact, if not increase the gains. Dow closed in the positively last night with 200 point gain, Europe also closed positive and Asia is also looking green except Shanghai market which is 0.5% down back on the US trade sanctions. Brent Crude saw further fall and now it is below 74 dollars and can we said it touching 70 dollars? We need to wait and see.
Domestic Cues
On domestics, there are a lot of domestic cues to look at. The first is the CPI inflation for June that came at 5%. That number looks uncomfortable for many, who saw 2% and 3% inflation in last many months but if you look at it carefully it comes on a base of 1.46% seen last May which is a very low base. The best news for me is Food inflation which comes at 2.9% vs 3.1% in the previous month and -2.1% in May 2017. Imagine a 2.9% figure on a negative base. It means Govt did a fantastic job in controlling food prices. The only worry is the core inflation which is non food and non fuel inflation which comes at 6.3% vs 6.2% in the previous month. This could mean RBI will go for another rate hike in their August policy.
We had another macro data in the form of IIP for May, that came in yesterday and it came in at 3.2% vs expected figure of 3.9% and vs 2.9% seen in last May. Manufacturing is still lower at 2.8% and the bad news is from the FMCG sector which had a negative growth of -2.6% vs 9.7% seen in the May last year. The good news is however from capital goods at grew at a healthy 7.6% vs -1.6% seen in the same month last year. And coming to Q1 results we are going to have Infosys coming up with their Q1 in the evening after the markets close. So, you can see the reaction only on Monday.
Derivatives Action
On the derivatives front, yesterday things went bullish again as Nifty crossed 11000 and the overall long positions in the futures also crossed 50% and now we are net long with 51% long positions and 49% short positions. The options market also saw a huge surge in the bullish positions and the nifty put call ratio surged to 1.73 from 1.67. 1.73 is a overheated zone where puts will give you profits 73% more than calls. That got proved with 11000 put adding 15.4 lakh contracts and 11000 call unwinding 4.7 lakh contracts. Now 11200 call is active with 5.9 lakh contracts getting added there. So there is a feeling that Nifty will not fall below 10920 and will go as high as 11220 in this series.
What is the Nifty call for the day?
The cues look good but yesterday afternoon the market fell a lot especially the mid caps and that might have an impact on Nifty today. Nifty might open around 11050 and might go to 11080 but beyond that Nifty will find it difficult to go. 11000 might come as a support zone and also the 10950 which might act as a very strong support. I would suggest today, to go for a short position at the open around 11050-11060 levels with 10980-11000 as the target as it is a friday and lot of covering of positions might happen in the afternoon.

Monetary Policy Review

Monetary Policy August 2nd 2017

Big day today in the history of Indian Economy because the Monetary policy created a record today. Heartfelt congratulations to the Indians because the central bank of India that is RBI has cut interest rates by 25 percent to bring it to 6.00% which is the lowest in 6 ½ years. A Big achievement and economy well in course of growing big. Celebrations can begin, people can enjoy. Maybe after reading this post completely….

Let me take a minute and explain a little about Monetary policy. Monetary policy is a process by the which central bank of the country controls the supply of money by doing various activities which are related to demand and supply creation. Most important factors taken into consideration are Inflation and Production. In India RBI is the authority which holds responsibility of Monetary policy, this monetary policy can change the game of growth to huge extent for any country. India has system of Bi-monthly monetary policy which means six policies in a year.

Now about the D-Day Monetary Policy that happened today on 2nd August 2017!

The base interest rate of India now stands at 6.00% which as I said earlier is 6 ½ years low figure. Such big thing that India has achieved and we all should be proud of that fact. Now you can have lower Home Loan interest rates, Lower EMI’s and so on … What if I say this is all something that had to happen almost 10 months ago which means 5 policies ago in October 2016.

Yes, you heard it right. The rate cut that was to come way back in October 2016 has come today and clearly Markets were in no mood to accept this fact and saw a fall end at of the day. That also means the growth of India for 10 months is now gone for toss. We start all over again.

Mr. Governor – Urjit Patel

Mr. Governor you have given lame reasons for not giving rate cut all this while and today when you give rate cut to make up for the messed-up situation. Are you given that role to ponder over past events or to predict future and act accordingly!  You spoke about increasing inflation and you see that inflation never hit 4% and today it is 1.5% and that is when you wake up or is this realization after Government hammering you for your dumb decisions taken in last policy. Other reason you talk about is the crude oil hitting 60$ which looks like a far stretched dream of yours.

Now after giving a small rate cut of 25bps which is of no use you talk about 18-24 months inflation and vegetable prices. When the policy decisions are taken looking at 2 months past data how are you balancing it with next 2 years?

People may enjoy this cut and celebrate it but I am bitterly disappointed and feel sad for Government and people of India for having a person like you as Governor.

CPI, WPI & Interest Rates

Inflation – Inflation, as everyone understands, is the key economic term which talks about the gap between supply and demand. The rate of inflation for example at 4% means the price of products will go up by 4%.

Inflation is again of two types they are 
CPI Consumer Price Index – Inflation that is measured at the point of Purchase.
 WPI – Whole Price Index – This is the supply side Inflation where it deals with measuring the inflation at the point of production.

CPI figures come out at 3.65% for the month of Feb-17 which looks decent and under control of RBI but consider the point that CPI last month was at 3.17%. Keeping aside CPI for some time let’s move onto WPI. WPI numbers come at 6.55% for Feb-17 which is the highest in last 18 months. The gap between the CPI and WPI inflation is 2.88% which is a very big difference for any country.
Always for the economy, CPI is found to be more than WPI but for last few months, the WPI in India is found to be more than CPI.

So, which is better?

CPI greater than WPI or WPI greater than CPI.

WPI as understood is the supply side inflation where it decides how much to produce based on demand. The increase in WPI inflation means actual supply is lesser than the expected supply. The reasons are completely depended on the economic conditions at that time. CPI inflation is higher when there is not enough supply to meet the increasing demand.

To understand it clearly supply happens in the form of production and moves to the point of purchase that is CPI. If there is a change in the demand that increases the inflation in CPI. The increased demand triggers increase in supply at WPI and keep the inflation at WPI lower. So, a higher CPI always encourages higher production and higher production triggers higher GDP growth.

A Higher WPI inflation means lower supply and the lower supply means lower growth and lower GDP.

How do you increase the Supply? 

Your supply will be more when the interest rates are lower. This is because at the lower interest rates the cost of production will be lower and you can make profits by producing more. So, WPI should always be lesser than CPI.

But Why WPI came at 6.55% and CPI came at 3.65%? Whom to Blame?
This is because of no rate cut decision was taken by RBI in the last monetary policy. RBI did not go for a rate cut and lost the chance of increasing the supply. The reason is RBI was worried rate cut would increase the demand at CPI. This will further increase the inflation if supply doesn’t go up. But now also inflation is increasing from WPI side because of lack of supply.
Thus, RBI not decreasing the interest rate did not serve the purpose.

What should be done on next RBI policy on 5th April?

I want RBI to wake up and cut the interest rates by least 50basis points. This decreases the interest rates to 5.75%. It will also boost the stock market which is at an all-time high. RBI should stop worrying about Crude oil prices and demand worries.

To conclude Nifty has already reached its all-time high after Modi wave in UP elections. Now it’s the time to take it to a higher level by improving the macroeconomic fundamentals. If this happens I’m sure we will celebrate this Diwali with a 10,000 on Nifty.

#Mission10k #Nifty #Inflation #RiskforReturns