Markets To Consolidate Further

Indian equities slumped on May series futures and options contracts expiry day as investors rolled over positions into the near-term June series. May 2104 series rollover data suggests that consolidation will continue going ahead. Market expressed its concern over top level executives’ exiting the software giant -Infosys, amid continued under performance by the index bellwether. The stock fell almost 8% reacting to the exit of B G Srinivas, Infosys' president and board member who was widely expected to take over as the chief executive officer (CEO).

Sensex closed 322 points lower and the Nifty slipped below to 7,235 levels, down 94 points. Broader markets too surrendered its early gains and both the mid and small-cap indices ended 0.3-0.4% lower. On the currency front, the rupee was trading at 59.01 versus its previous close of 58.93/94, with dollar selling by some corporate seen but month-end demand for the greenback from importers limiting the rise.

We have been constantly stating that, with the uncertainty of elections behind us, markets are awaiting direction from economic policies from the government. Indices have not yet penetrated the very high trading range on the day of the election results. NSE's CNX Nifty traded between a high of 7,563.5 and a low of 7,130.65 on the day of the results. These peaks have not yet been breached after 10 trading days.

But what is important is the mood going forward. Derivative data throws light on what market expects going forward. If traders are willing to hold on to their view for a longer period of time they would roll over their derivative position. There should off course enough liquidity in the new month for traders to roll over their positions. If on the other hand they feel they have waited long enough, they would prefer to square off their position. Rollover data from the month of May to June gives an impression that consolidation is expected to continue in the broad market. There is no urgency seen in traders taking new position in the market. In short the trend continues as what was visible over the last few days, but the real direction in the market will come ones the election results day peaks are taking off. Currently, markets are sliding slowly towards the lower end of the range and might attempt to test it before a move higher.

A pre-budget rally can take the previous peak off, but for that to happen there are no visible signs yet on the derivatives scanner. Not too much interest is visible in frontline stocks which can take the indices higher. Further consolidation is the only message that can be inferred from derivative data.

As for the US markets, the S&P 500 index climbed to its third record closing high in four sessions yesterday as traders shrugged off data that showed the economy shrank in the first quarter and bet on improvement in the second quarter. New claims for unemployment benefits fell more than expected last week, pointing to a strengthening labour market and giving investors a reason to buy U.S. stocks. Data from the Commerce Department showed that gross domestic product contracted for the first time in three years in the first quarter, although signs indicated it has rebounded. The Dow closed at 16698 (Up 0.39%) and the S&P 500 index closed at 1920 (Up 0.53%).

Asian markets took cues from the US markets to trade in a positive zone. However Nikkei is trading in red (Down 0.21%) now after opening on a positive note. The Hang Seng continued its outperformance and is trading with gains of 0.46%. Shanghai Composite is also in red with loss of (0.14%).  

As for the Indian markets, the SGX Nifty is trading with loss of 0.08%. We expect similar sort of opening for the Indian equities today. However as stated earlier, consolidation would be order of the day as markets are still seeking new triggers.