Edelweiss Daily Market Outlook

Market Snapshot

The Sensex opened with a positive gap of 50 points at 14,071, but selling pressure forced the index into the negative zone. Unabated selling, mainly in bank, cement and pharma stocks, saw the index drift to lower levels as the day progressed. The index tumbled to a low of 13,568 before finally settling with a significant loss of 389 points at 13,633. Nifty lost 101 points to 3,939.

The NSE cash volumes were significantly lower compared to the previous day at INR 103 bn while the BSE cash volumes were better at INR 45 bn. The F&O volumes were significantly lower compared to the previous day at INR 359 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 27-29% levels. The WPCR of Nifty Options decreased to 0.84 compared to the previous day while the 5 day average is 1.07. The February futures are now trading at 5 points discount. The Nifty Futures OI has increased by 11%.

Outlook

Nifty breached crucial trend line support of 3965 on the last trading session. The tone of the market is of abundant caution before the fiscal budget and we expect volatile movement to continue after last week’s fall. Significant OI addition was seen across strikes in the Nifty puts signaling hedging of long positions. At the same time, call IVs have decreased slightly indicating covered calls being written in the market.

Also, Rail Budget will be announced today. Any kind of positive surprises on Capex front would augur well for the market and might trigger small pull back till Union Budget is announced on Wednesday. Capital Goods and Engineering sector is expected to see lot of action today on expectations of Rail Infrastructure Capex. High metals prices at LME will strengthen metal stocks.

A close below 3965 indicates intermediate term bearishness as predicted. It completes the bearish lower top, lower bottom pattern. The immediate support of Nifty is 3880 and the next at 3880. On the upper side Nifty has a resistance at 3965, followed by 4014.

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Thanks Yash