By Ruchit Jain
Post last week’s expiry, our markets corrected with a gap down owing to negative global cues and breached the 17500 mark. The index recovered some of the losses ahead of the U.S. FOMC meet and witnessed a high volatile session on the expiry day to end around 17630. Market participants were waiting for the Fed policy outcome ahead of the expiry day. Although the rate hike was much anticipated by market participants, the global markets reacted negatively and the rise in Dollar index led to a breakout in INR which was consolidating in a range since last few weeks.
The rupee registered a new low which led to a negative sentiment for equities and hence, we witnessed selling pressure in the markets on the expiry day. Although Nifty did not witness significant correction, Bank Nifty witnessed formation of short positions which resulted in a correction of about 570 points. Now if we look at the derivatives data, the FII’s have mainly traded within a negative bias in September series and we witnessed short formations ahead of the global event by them. Their ‘Long Short Ratio’ is now around 28 percent, which still indicates their bearish stance on the markets. On the flipside, the Client section has 62 percent long positions in this segment.
As per the options data, the open interest concentration indicated support around 17500 and resistance around 17800 and 18000. If the index breaches 17500 support, there could be a price-wise correction towards 17200 in the near term. On the other hand, the immediate support for Bank Nifty index is placed in the range of 40300-40200 and if the index breaks this support range, then it will not augur well for this index as well. Some long formations were seen in selective FMCG and Pharma names as they are considered to be a defensive space during times of uncertainty and hence, stocks from these sectors could see some relative outperformance in the short term.
Hence, the above data indicate that until we see any reversal in the Dollar Index, the stronger hands are likely to continue with their short positions which would restrict the upmove in the markets. Until the data is reverse, traders should continue to be cautious on equity markets and stay light on positions.
(Ruchit Jain is the Lead – Research at 5paisa.com. The views expressed are the author’s own. Please consult your financial advisor before investing.)