Tag Archives: monetary policy

Market Trade Setup 7th February #Nifty

Market Setup 7th February

Yesterday I was talking about whether the Nifty will break the 10980 resistance or not which Nifty tried 11 times before. Finally, it was broken and broken emphatically. Now 10980 will be a support to watch out for. But the point is the break out has to sustain and today is the day we will see that. US markets closed flat last night with Dow Jones falling 20 points after a 170 points up on two days. The Q4 data is coming positive in US with important companies like General Motors coming with a good results. Asian markets are shut even today on account on Chinese lunar new year and Japan which is the only trading market is 100 points down. Brent crude is still at 62 levels. 

Coming to domestics, today is the monetary policy day at the mid day you will have market reacting in full measure to the policy. This is new Governor’s first policy and three things are important. First is the rate cuts, second the tone of the policy and third are the forecasts. On the rate cuts there is a very slight chance of a 25 bps rate cut, coming now or in April policy. The tone of the policy is going to be changed from calibrated tightening to neutral. And third the inflation forecasts are going to be revised to 4% for first half of 2019 and if all this happens markets will surely rally. Today’s Q3 results include Aurobindo pharma, Britannia Industries, Cadila health, Coffee day, MRF tyres, Suzlon energy and Tata Motors.

On the derivatives front, yesterday saw a fantastic action in the Nifty Futures market where a plenty of long positions were added as Nifty climbed the 11000 mark. There were 34 long positions taken for every short position and that brought the Nifty futures long positions from 46% at the start of the day to 52% by the end of the day. Now we have more longs than shorts in Nifty futures. On options front also the Nifty put call ratio surged to 1.82 from 1.68 level with 10900 put adding 12.2 lakh contracts and 11000 put adding 13.8 lakh contracts. 10700 put has the highest open interest and its closely followed by 11000 put. On the call side 11400 call added 2.2 lakh positions and 11300 call added 2.1 lakh positions. 11000 call still has highest open interest and we need to see whether 11200 call can gain some open interest today or not. 

What is the Nifty call for the day?

Today we will have a flat opening to Nifty around 11030-11060 kind of opening and with the put call ratio in over heated zone of above 1.8 we need to see if this level can sustain or not. 11000-11020 is a crucial support level and if it holds then we can look at Nifty going up to 11100 level. So, I would suggest you to wait for a dip to come around 11020 levels and take a long with 11100 mark as the target, either today or in the coming days. Understand that monetary policy is coming at 11.45 and if required wait till that point to see if 11000 holds or not before taking the long position. Don’t rush into it and get trapped, even if you take a position before 1PM also it is fine. The targets can be extended to tomorrow also if required. 

Market Trade Setup 5th February 2019 #NIFTY

Market Trade Setup 5th February 2019

A good Monday which saw the Nifty climbing the peak of 10900 and closing above that gives way to a challenging Tuesday. Today is all about whether the momentum gained late in the afternoon yesterday will sustain or not. The global cues are looking very positive with FAANG (Facebook, Amazon, Apple, Net Flix and Google) close 2% higher on New York Stock Exchange last night and Dow Jones closed 170 points higher. Today is the lunar new year for China and Korea and most of Asia except Japan and Singapore are shut. Those markets are absolutely flat. Brent crude is touching 63 dollars and that is a bit of a worry for our markets. 

On the domestic front, the Political factors are going to play their role as the 3 judge bench led by CJI is going to hear the CBI plea of contempt of court against the commissioner of Police, Kolkata. That will keep markets on tenterhooks and apart from that focus has now shifted back to Q3 results. Today’s Q3 results include Aditya Birla Capital, ACC Cements, Adlabs, Apollo Tyres, BHEL, Bombay Dyeing, Century ply, Dish TV, DLF, HPCL, Inox Leisure, Kamat Hotels, Punjab National bank, Sobha developers, Tata global, Tech Mahindra, Torrent power, United bank and Zen labs. So far the Q3 results have been average and we need to see how today, which has the core economic stocks come up with their numbers.

On the derivatives front, there was an equal amount of buying and selling that has happened in the Nifty futures market and the overall long positions in Nifty futures still remain at 45%. The futures market contributed 61,900 Cr turnover yesterday while options contributed 5.46 lakh crore turnover taking the total to 6.08 Lakh Crore. The Nifty put-call ratio also went up to 1.67 from 1.63. 10800 put added 5.3 lakh positions while 10900 put added 4 lakh positions. 10700 put still continues to have the highest open interest. On the call side, 11100 call added 3 lakh positions while 11000 call added 2.1 lakh positions and 11000 call still has the highest open interest. So, today is going to be interesting where we have to see if 11000 will be touched or not.

What is the Nifty call for the day?

Yesterday, Nifty behaved as per the script and if you have taken a long at 10840-10850 you are now sitting on a 60-70 point profit. Today will open between 10920-10940 range which is the resistance zone. The resistance goes all the way up to 10980 and there can be a correction at any place between 10940-10980. Unless it is crossed there is no point in taking fresh long positions at these levels. If you still have yesterday’s positions open close them between 10930-10960 levels and exit. No trading today and we will have to wait till the Nifty crosses 10980 and closes above that. Till then we have to wait and watch.

Govt of India appoints shaktikanta das as the new governor of rbi! uncertainty ahead??

Indian news channels are on fire and a lot of action has been taking place in the country. India’s win over Australia, Exit polls and results, Extradition of Christian Michel and Vijay Mallya and the resignation of RBI Governor are the top ones to consider. So much of action in all aspects from all the sides, to the BJP it’s a combo of victories and defeats. But the possible disaster that clearly seems to be taking a shape is the appointment of new RBI Governor. Latest news of Shaktikanta Das appointed as 25th RBI Governor is a point to worry about. The retired IAS officer Das was an economic affairs secretary in the Government before being appointed as Governor of RBI.

Before talking about why Das may not be the right choice, let me tell you why Urijit Patel was removed from the role. Urijit Patel was removed from the role of Governor for his dissent towards Govt on issues related to the Liquidity and the survival of NBFC’s. Govt of India wants RBI to release money from its reserves as it feels that with easing inflation India needs more money to float in the market which could help in achieving higher GDP growth. This would also make the business activities running, apart from that Govt wanted to bring back stability in the life of NBFC companies by funding them and bringing them out of NPA turmoil. Once these things were not agreed by Urijit he was made to leave RBI. This is the biggest event in the history of Indian Central Bank history, at least in the last 2 decades.

Now am taking you to something you need to clearly glance at. What am putting is the qualification of previous RBI governors.

I will explain the logic after you finish reading this list.

1. Dr. Urjit Patel (2016-2018) Masters in Economics, PhD in Economics 
2. Dr. Raghuram Rajan (2013-2016) PGDM Finance, PhD London School of Business
3. Dr. Subba Rao (2008-2013) MA Economics, PhD Economics
4. Dr. YV Reddy (2003-2008) MA Economics, PhD Economics
5. Dr. Bimal Jalan (1998-2003) MA Economics, PhD Economics 
6. Dr. Rangarajan (1992-1997) M.Com, PhD in Economics

You can see that clearly, those who have had the longest time in the office of RBI are all the Doctorate holders in Economics or in the field of Finance. Finance and Economics are two crucial areas for any of RBI Governors. The RBI governor deals with both the micro and macroeconomic parameters of a nation like Inflation, Crude Oil, Money Supply, GDP, Trade date, Currency etc; that’s the reason why the Governor must and should understand the Finance and Economics in equal measure. Let’s now look at the qualifications of Shaktikanta Das. Das is a graduate (BA) and a postgraduate (MA) in history. That’s the core of Mr. Das. Now, he had done advanced financial management course from Indian Institute of Management Bangalore and development banking and institutional credit from the National Institute of Bank Management. Apart from these, he also had attended few finance-related management short-term courses. All these are less than 1year duration and doesn’t add value or understanding to the complexities involved in decision making at RBI. Nothing against the extremely talented person like Mr. Das. But Sir, just because you have been part of EAS of India for a year and a half you are not surely eligible for this post. You might have got short courses in Finance and Banking but not that’s not enough.

RBI functioning is a lot different especially from the time Rajan took over. We now have Monetary Policy Committee (MPC) which composites of 6 members including RBI Governor, Deputy Governor, 3rd RBI person and 3 others from academics and private bodies. Right now in the 6 people, Viral Acharya is the Deputy Governor has got years of experience in Banking and his PhD from New York University. The other members include professors from IIMA and Delhi School of Economics.

With this being the Committee what would Mr. Das do? Will he understand the language of LAF, Open Market operations and the currency exchange?

These are a few things which I feel Mr. Das might not be able to connect to and needs a lot of time. Would be happy if things go the other way and Mr. Das takes excellent decisions, but as of now, things look worrying and not a wise move from BJP. Govt needs to re-think on this before it turns out to be another embarrassment like letting go of Rajan in 3 years and Urjit Patel resigning in 2 years!

Market Trade Setup 6th December #NIFTY

Market Setup 6th December

Fear has no bounds! It can come at a time when everything is alright and take away everything that is alright! We were seeing a handsome recovery and US was showing a lot of signs of growth with GDP coming higher in last few quarters and the Fed made lot of positive statements. Just 2 months ago everything in US was looking bright with jobs data at its highest in a decade and the unemployment at its lowest. Suddenly, fear of whether this growth will sustain or not grips and takes away everything that has grown till now. Global fears are still ruling the markets across the world. US markets were shut yesterday in respect of George W Bush but Dow Futures which are trading in other markets are giving negative cues. Even now Dow futures are down 300 points. Result is every Asian market is in deep red.

Domestically, we are going to vote tomorrow and the campaigning in all 5 states is finally over. The last phase of polls and Exit polls will come tomorrow after market hours. But what is important today is the OPEC meeting today where there is an expectation of supply cut. Will it result in Crude prices going up needs to be seen. There is a global growth scare that means lesser demand to crude so supply cut might not impact that much. Yesterday was the monetary policy day and the policy is more or less on expected lines, including the SLR cut. As I predicted SLR is cut by 150 bases points in multiple quarters by 25 bases points starting from January 2019. So, monetary policy failed to make any impact on the market that is gripped by global growth scare.

On the derivatives front, there was a massive selling that happened in Futures market especially by FIIs who sold more than 1100 Cr in the derivatives market. The overall long positions in the Nifty Futures market has come down from 51% yesterday morning to 49% by the end of the day. In the options market the Nifty put call ratio dropped as there was a lot of demand for the calls and Nifty put call ratio dropped to 1.63 from 1.69 seen at the beginning of the day. Open interest got added at maximum at 11100 call to the tune of 2.5 lakh positions and 11200 call added 2.4 lakh positions and 11300 call added 1.1 lakh positions. Still 11000 call has the maximum open interest but on the put side is still at 10000 put followed by 10500 put. Smart money is preparing for a BJP victory as well as defeat in all the 3 states where it is in direct competition with Congress. 

What is the Nifty call for the day?

Things are not at all looking good for the market and today we will open close to 10700 mark and that will take us below the 200 day moving average and if we quickly dont recover to 10750 levels then we might actually go into temporary bear zone unless the exit polls tomorrow show a decisive victory for BJP. You already have a position at 10820-10840 levels and that will be in deep losses. Hold on to it for sometime as we have every chance of recovery. There are days when you have to sit tight and today is one such day. Stay out of the market and see where this growth scare will take Nifty to. No trade for today.

Market Trade Setup 5th December #NIFTY

Market Setup 5th December

There was a huge scare that we woke up to. Dow Jones has plunged 800 points overnight. This is the worst fall for Dow Jones since 2011. This is coming on the back of the global growth scare. Added to that is the doubts that US-China trade truce might not last for long.

The main point is, why did Dow lose 800 points? The answer came from the flattening of the Yield curves of 2 yr, 5 yr and 10 yr bonds where the interest rates have narrowed so much that 5 yr yield fell below the 2 yr yield curve for the first time since 2007 and the spread between 2 year and 10 yr yield curves went to the narrowest of 11 bps for the first time in 10 years. This according to Rabo bank is the signs of the recession coming as soon as June 2020. All the Asian markets also are trading in negative on the back of this terrible news coming from the US.

On the domestics front, we have a different fundamental to deal with and that is going to the RBI credit policy which is going to come at 2.30pm today. Three factors are important here. First is what will happen to CRR, SLR and Repo rates. According to me, RBI will not touch CRR and Repo which are at 4% and 6.5% now but they can actually look at reducing the SLR, which is the money that can be parked by banks in Govt securities. This is at 19.5% now and RBI might bring it down to 18.5% to allow more liquidity in the market, which is what Govt wants now. Second is the tone of the policy, which might be changed to “neutral” from “calibrated tightening” and RBI might sound dovish in it statement. The Third is the inflation and growth projections. RBI might bring down its inflation forecast by upto 50 bps which is good and the growth forecast from 7.5% to 7.4%. 

On the derivatives front, there has been a lot of action seen in the Futures market both on the long side as well as short side. The options market has the Nifty put call ratio going up to 1.70 from 1.68. 10800 put added 2.8 lakh positions while 10600 put added 2.2 lakh positions. Still 10000 put continues to have the highest open interest while 10500 put is also picking up the open interest. On the call side 10900 call added 76,000 open interest and 11000 call still continues to have the highest open interest of 27.2 lakh and 11200 is also slowly picking up in the open interest. 

What is the Nifty call for the day?

The global growth scare will make the Nifty open today in the 10810-10840 range and what happens further needs to be seen. If you have taken positions yesterday around 10840 odd levels then wait for 10900 to be reached before closing positions. If you have not taken any positions, then wait for Nifty to stabilize at 10780 zone and go long with a 50 point target. Today’s monetary policy will add some volatility and use that to exit positions not enter. 

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.