September Derivatives Settlement as anticipated!

It was anticipated that this month Derivatives Settlement will be around 5000 levels on Nifty, based on the average weighted price of Nifty from previous settlement till the date on which previous report was written on 23rd. Today the Nifty settled at 5015, with see saw movement during this entire week owing to overseas news flow and volatility in currency movement. Tomorrow being the last trading day for the month, quarter and half year, it is to be seen whether Nifty will close above 5000 levels as it closed exactly at 5001 on the last day of august.

Germany's lower house has passed the Euro Stabilization Fund with good majority during market hours by afternoon, which has helped the sentiment in European markets, and this has helped in some short covering in the last 2 hours of trading. The subject will be put up for vote of approval tomorrow at the upper house, and this will send some calmness for overseas markets and currency temporarily. The real issue of debt default crisis which is haunting European countries, cannot be solved with these short term measures, unless the respective governments tighten their fiscal situation, creating environment for moving towards growth, as the global recession is almost certain, with all the data supporting this happening, if not already in place?

Coming to our economy and government action it is very disturbing with falling IIP Numbers, raising Interest Rates and Inflation, the investment climate is disturbed. There is disconnect between high commodity prices, while the recession is gripping global economies. Sudden sharp correction is overdue in Indian bourses, which are holding 4720 level so far during this year, I therefore see that higher volatility will continue till Diwali (26.10.2011) as the advance tax numbers do not suggest better performance by corporates for the quarter ending Sept 30th. There might be some built up in positions anticipating better performance from IT sector, leading in to Infy results in view of the weakening of rupee, and the markets might face downward pressure post the announcement of results and the guidance for the next quarter, which is generally the shortest one, owing to the holidays and also the business outlook from US and Europe in view of the present slow down being experienced there.

The financial sector, Banking in particular faces NIM contraction, raise in provisioning due to loan deliquencies, raising pension payment and above all firming of interest on long term dated securities which shall call for higher provisioning, as government has announced higher market borrowing for next half year amounting to Rs.52,800 crores, while retiring Rs.15,000 crores of Short Term Securities ( Treasury Bills).

Breach of 4700 and close below 4650 will push markets to further lower levels, as most of the long term investors and funds are supporting this level for the past one month. The capitulation move will happen sooner than later, if the uptrend now fail to breach 5181 level, as the Nifty turned downwards already 3 times, therefore, investors should be light on long positions, and sell on rallies until Nifty consistently trades above 5360 with all round participation and volumes, which can confirm medium term bottom around 4700 - 4750 zone, for this calender year.

Strategy for next Series: Investors can buy Straddle of 5000 and watch the volatility to book profits.

Happy Trading!