Hopes of a good monsoon and rate cut pull traders to sectors that benefit from rural economy
Traders have built bullish positions in derivative contracts of select banks and auto that benefit from the rural economy, encouraged by better-thannormal monsoon so far. Analysts said hopes that these stocks may remain firm even if the recent rally fizzles out have prompted them to build these bets.
Extending gains to the six straight day, the Sensex rose as much as a percent in the morning on Friday but gave up a portion of their gains ahead of the weekend. The index closed 200 points or 0.74% higher at 27,316 on Friday. Nifty gained 50 points or 0.62% to end at 8,224.
“There is a degree of expectations that with good monsoons the RBI might reduce interest rates in September-October,“ said Saurabh Mukherjea CEO, institutional equities at Ambit Capital “With the monsoons finally kicking in and reasonably healthy industrial output numbers for April, there is some relief rally in the markets.“
Traders have built fresh long positions in interest-rate sensitive counters and sectors such as Axis Bank and Yes Bank and covered their short positions in PSU banks such as Punjab National Bank and Bank of Baroda.Among the automobile counters, Maruti and M&M witnessed aggressive long positions from traders.
“We have seen traders' positive interest in banking, automobile, capital goods, and oil & gas stocks. Savvy traders in derivatives market have initiated fresh long positions in stock futures, while covering up their previous short positions,“ said Chandan Taparia, derivatives analyst at Anand Rathi Securities.
Stock market sentiment revived last week after Indian Meteorological Department (IMD) said that monsoon rainfall has been 11% above average in June so far, and it's expected to remain normal in the month.
The volatility index, NSE India VIX dropped 5.81% to 15.08 on Friday. The index has dropped about 28% in past one month, suggesting uncertainty has subsided.
“FIIs have turned strong buyers in futures and options segment over past three sessions, and that has changed sentiments in the derivatives market,“ said Alex Mathew, head of research at Geojit BNP Paribas. “The improvement in put call ratio towards 1 has also given traders confidence that markets are bottoming out.Nifty may test 8,355 levels on the upside, which also happens to be its 200-day moving average.“
Institutional traders are aggressively writing put options for Nifty 8,000 and 8,100 strikes, which suggest that markets will stay around these levels. The maximum concentration in Nifty in call options is seen at 8,400 and 8,500 strikes, which suggest that markets are unlikely to move beyond these levels in the near term, said analysts.
“We might have seen built up of long positions in select stocks such as RIL and banking shares, but the rally won't sustain unless FIIs come any buy aggressively in cash markets,“ said Siddharth Bhamre, head of equity derivatives and technical at Angel Broking. “We don't expect Nifty going beyond 8,400 levels in the immediate term.“
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