Market Outlook 30th October

Oct 29, 2013 No Comments by

RBI acted as per market expectation increasing the repo rate by 25 bps, decreasing the MSF by 25 bps and keeping the CRR constant. The markets were expecting the exact same thing. Before the policy Nifty was trading almost flat. As soon as the policy came out it zoomed up closing at 6220 levels. The rate changes were already discounted in the market. Nifty has been closing in red for the past 5 sessions. Everyone on the street was expecting this repo rate hike. The market would have broken down only if RBI had surprised with a 50 bps repo hike instead of 25 bps.

RBI has made it very clear again that containing inflation is its first priority. It has lowered the year long GDP growth guidance to 5%. However, it is expecting the growth to pick up in the 3rd and 4th quarter. As per the recent statement, blindly making policies to contain inflation is not its motto. RBI is looking at growth of the economy also. After such a long time we have a Governor with so much spine that he does not care what the markets will do. He has some vision for the country and doing his best to make policies to realise that vision.  Kudos to Mr Rajan for sticking to his stance from the last RBI meet. The more we read about this man and observe him, the bigger admirer we become.

Now, these events are one day events. The news came, the markets rallied. Its impact is over now. We have expiry in two days. The beauty of expiry is that the option writers try to move market in the direction which will benefit them the most. If options expire out of money they gain the whole premium. So, here the role reverses. Bulls would be writing put options of lower strike prices and bears calls of higher strike prices. Both will try to move the markets in the direction which will benefit them the most. So, it will be a war between the bulls and bears.

We have the FOMC meet in next two days. Now US shutdown and debt ceiling problem has created a sense in the market that QE tapering would be deferred to next year. Any surprise by Fed on this stance, even a hawkish tone to start the tapering next month will lead to a negative reaction in the market.

The fundamentals take a back seat in such wars and technicals come in play. These high levels are unsustainable but the next two days Nifty might go to 6300-6400 also or 6100-6000 also. Now telling which way it will go will be pure speculation. We do not believe in such speculations. Our advice is not to trade in October contracts. If you want to take any position take it in November option contracts. We are still bearish on the markets. Such high levels are unsustainable. So, still going long is very risky. The momentum is on the positive side. So, any new shorts should be initiated once this momentum fades out. The best thing would be to sit out and enjoy expiry volatility.

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