Markets may take a pause

Buoyed by favourable State elections results, better-than-expected economic growth for Q2FY24, increase in full year GDP growth estimates by RBI, while maintaining status quo on policy rates, stable international crude oil prices and positive global cues; the domestic equity markets had a spectacular run during the week ended with NSE Nifty logging gains for sixth consecutive week and Bank Nifty also closing higher for the third straight week. The benchmark indices as well as Bank Nifty ended at fresh record closing highs.

The Nifty closed at 20,969 points, up 702 points or 3.46 percent, the biggest weekly gain since July 2022, while BSE Sensex rallied 2,344 points or 3.47 percent to 69,826 points. The broader markets also recorded gains with the Nifty Mid-cap and Small-cap indices rising 2.35 percent and 1.16 percent respectively. Observers expect the FII flows to continue given the increasing possibility of continuation in economic policies after BJP winning three key States elections, strong economic growth, falling oil prices and declining US 10-year treasury yields. True to expectations, the RBI held interest rates for the fifth consecutive time in its monetary policy stance review meeting. However, it signalled that rates will remain elevated to ensure consumer inflation retreats toward the central bank’s legally mandated target. It also bumped up the economic growth forecast for FY24 on robust demand. The RBI maintained its full year inflation forecast at 5.4 percent for FY24, citing food and weather related risks, while raising full year growth forecast.

Coming week will be laced by macroeconomic data like the CPI inflation on December 12, WPI inflation on December 14 and the bank loan & deposit growth, foreign exchange reserves and balance of trade data. After the consistent run up in past six weeks, the market is expected to take a breather and consolidate at current levels. Mild correction is not ruled out with major focus on the US Fed meet outcome and the Powell commentary.

F&O/ SECTOR WATCH

Following the bullish undertone in the cash segment, derivative segment witnessed robust volumes amidst hectic short covering by bears. Both Nifty and Bank Nifty indices managed to close at their record highs with sharp gains of more than 3.5% & 5.45% respectively. The maximum weekly Call Open Interest was seen at 21,000 strike, followed by 21,500 and 22,000 strikes; while the maximum Put Open Interest was at 20,900 strike, followed by 20,000 strike and 20,800 strike. Bank Nifty futures advanced 5.4 per cent last week to close at 47,500 points. Highest Call Open Interest is at 47,500 and the Put Open Interest is at 47,000 points.

F&O data indicates that the Bank Nifty is not as bullish as Nifty. Implied Volatility for Nifty’s Call options settled at 10.37 per cent, while Put options concluded at 11.25 per cent.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)