FII frenzy and F&O volatility

Going up too fast is never considered prudent. Stay cautious as the external environment remains fragile at best. Key regions like the US, Europe and Japan are just limping along.


Our passion and principals are constantly in a frenzy, but begin to shift and waver, as we return to reason. - Laurence Sterne.



The bull run continues on the Indian bourses. The reason? FII frenzy at its best. The net overseas portfolio investment in Indian equities this year has surpassed last year’s record figure of $17.5bn. Given the bright prospects for India and uncertain external scenario, final FII figure for 2010 could look different. Mind you, the FIIs may unload some of their investments if the global situation worsens.

Today, the start is likely to be flat to steady, as global markets have witnessed some softening. US stocks retreated as did European markets. Asian markets are mixed. Things could change by the close of trade. Intraday swings are a given in F&O expiry week. Immediate support and resistance for the NSE Nifty are likely at around 5950-6080, respectively. We would continue to urge caution as the market appears overbought. Locking in some gains at higher levels won't be a bad idea.

Large caps will continue to dominate the proceedings. While you cannot write off the side counters, be extra cautious while dealing in small- and mid-cap shares.

AstraZeneca Pharma will be in focus as its plan to delist shares seems to have come a cropper. IDFC might gain amid reports that it is looking for a foreign partner for its AMC unit. Cement firms could rise amid reports of price hikes in the key Western Region.

Suzlon is likely to be in the spotlight as reports suggest it is keen to buy an additional 9% stake in REpower. Jet Airways is another stock to watch out for, as its low-cost arm JetLite has been directed to pay a service tax of Rs700mn.

RCOM will seek shareholders' clearance for raising funds through equity. IRB Infra is looking to raise debt to finance a road project in Karnataka. Fertilizer stocks may also attract some attention as a government committee has suggested freeing the prices of urea and inclusion of the fertiliser in the new nutrient-based subsidy scheme. Disinvestment news could drive some of the PSU stocks as well.

The FIIs were net buyers of Rs11.36bn in the cash segment on Monday (provisionally), according to the NSE web site. Local funds were net sellers of Rs10.54bn. In the F&O segment, the foreign funds were net sellers at Rs3.46bn.