Coronavirus fears may overshadow RBI's monetary policy steps

Shrugging off "disappointing" Union Budget 2020 and Coronavirus fears; enthused by interesting and experimental steps in RBI Monetary policy review and buoyed by positive global cues, markets recovered sharply from Budget day lows during the week ended.

The Sensex gained 1,407 points to close at 41,142, the Nifty moved up by 437 points to end at 12,098. It is pertinent to note that for YTD (Year till date), while the benchmark indices the Sensex and the Nifty are still in negative by 0.3 and 0.6 percent; the BSE Mid-cap index and the BSE Small-cap index are up by 6.3 and 8.3 percent.

The Reserve Bank of India's (RBI) latest monetary policy refrained from a rate cut but unleashed a stimulus package through a string of actions that should bring down the cost of money for banks and encourage them to lend to the stressed sectors such as real estate, automobile and macro, small and medium enterprises (MSMEs). The RBI has kept the door open for more easing but, any future rate cut can happen only after CPI comes down to around 5 per cent.

Near term trend will be governed by flow of news on Coronavirus between headlines and fears, Q3 results, domestic macro-economic data, FII and DII activity, the movement of rupee against the dollar, crude oil price movement and global cues. However, the rising toll of the coronavirus has begun to worry global investors.

For the week ahead, chartists predict trading range of 40,500-41,900 and 11,875-12,325 for the Sensex and the Nifty respectively.

FUTURES & OPTIONS

Brisk trading was seen in the derivative segment. Post budget, both the Nifty and Bank Nifty charted a V shape recovery after sliding well below 200 DMA. In the derivative segment, heavy writing was seen in 12100 put strike indicating strong support for the markets in coming week at that level. The Implied Volatility (IV) of calls closed at 14.03% while that for put options closed at 15.10%.

The Nifty VIX for the week closed at 14.17% and is expected to remain volatile. PCR OI for the week closed at 1.25. The near-term trend of Nifty is positive. Techies indicate pattern in past week suggests an upside bounce and chances of more upside in the coming weeks. Observers point similarity of market action during last General Election 2019 and recent Union Budget 2020.

Minor weakness is likely in the early next week and there is a possibility of sharp upside bounce from the lower supports (12000-11960) in the mid part of the next week. Punters feel that if the momentum continues which it should, traders should not get surprised to see record highs in the February series.

Expect stock specific action on the back of ongoing result season and news driven activity. Charts indicate good tidings for L&T Finance, Jindal Steel & Power, SBI, Grasim, Cholamandalam Finance, Tata Global and REC.

Prospects of two IPOs from SBI stable and "preferential" treatment to shareholders may keep stock price of SBI on firm track. Target price of Rs 450 in medium term is not ruled out.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)