Edelweiss - Daily Market Outlook Feb 21

Market Snapshot

The Sensex opened on a positive note. However, selling pressure at higher levels with concerns arising from a hike in domestic interest rates and worries that the government may raise short-term capital gains tax in the budget saw the index slip into negative zone. Selling re-emerged in late noon deals and the index slipped to a low of 14,230. The Sensex finally settled with a loss of 150 points at 14,253 while Nifty lost 58 points settling at 4,106.

The NSE cash volumes were slightly better compared to the previous day at INR 78 bn while the BSE cash volumes were lower at INR 38 bn. The F&O volumes were significantly higher compared to the previous day at INR 394 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 26-29% levels. The WPCR of Nifty Options decreased to 1.00 compared to the previous day while the 5 day average is 1.10. The February futures are now trading at 9 points premium. The Nifty Futures OI has increased by 2%.

Outlook

We expect the market to remain volatile ahead of the expiry and the fiscal budget. Yesterday’s fall was triggered by ONGC and the markets can take cues from the Bank of Japan’s decision on the interest rates. However, we see limited downside from these levels with intraday volatility being observed till the budget.

The market wide rollovers at 41% marginally lower than the previous expiries. However Nifty rollover continues to see the shift in March at 48% on the second day of expiry week. The roll cost has been slightly lower at around 68 bps.

On Nifty rolls, we expect the pressure to continue from the short rollers and would thus advise short rollers to aggressively roll their positions at the current levels. Long rollers can see some contraction as the current levels might go up to 4 plus points.

Nifty has an immediate support at 4067 and believe the uptrend to continue until the Nifty sustains above this trend line support. Nifty will face an immediate resistance at 4160 followed by 4176.


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