Expect Another Range Bound Session Ahead Of RBI Policy

Indian equities started the June F&O series on a relatively flattish note with lack of triggers.  However there are quite few positive factors that have merged in the preceding week on the global front. Even on the start of the new series the Indian markets remained very range bound. If we take  close look at the markets movement of leading Indices, the markets ended the last session of the week and the first day of the June derivatives series on a monotonous, albeit choppy, note in the absence of any enthusing cues from the global front.

The Sensex was stuck in a narrow range of around 150 points before ending at 24,217, lower by 16 points and the Nifty ended below the crucial psychological support level of 7,250 at 7,230, down five points. However, the midcap index ended at 8,467, higher by 32 points and the small cap index ended at 9,015, up 30 points.

But considering that on Thursday, the Nifty had surprisingly posted its largest single-day decline in nearly four months and the Sensex recorded its highest fall since February 3 this year, this should be regarded as a positive session by the market participants. Moreover, with the markets slipping into a consolidation mode since May 16, one would have to look at the credit policy on June 3, the Budget in the beginning of July and/or some big-ticket reform measures on the part of the new government to give further direction to the markets.

On the derivatives front, one of the leading derivative analyst suggested that traders rolled over fewer positions into the June derivatives series, signaling that they could have taken some risk off the table following sharp gains in May. The rollover percentage of Nifty futures in the May series onto the next month was 60 per cent, in line with the previous month expiry but lower than its three-month average of 65 per cent. Market-wide rollovers stood at 64.5 per cent as against the three-month average of 62.7 per cent.

On the monetary front, the rupee was stronger at 58.9600/58.9650 versus its previous close of 59.03/04, as dollar inflows from Yes Bank's share sale for 500 million dollars aided the rupee's gains.

In economy-related news, Reserve Bank of India (RBI) Governor Raghuram Rajan said on Friday he expected to join hands with the country's new government to bring down dangerously high inflation. Rajan, speaking at a seminar in Tokyo, said the new government's plan to curb food inflation seems sensible and that he expects the public's inflation expectations to fall in the future.

On the global front, Equity markets worldwide rose for a fourth month, as economic growth picked up and tensions between Ukraine and Russia eased. Bloomberg reports suggested that, forecasts for a rebound in US growth in the second quarter and stimulus from central banks in Japan and Europe, along with higher-than-estimated corporate earnings, helped indices move northwards. The major US Indices finished the month of May on a mixed note. The S&P 500 added 0.2%, locking in a monthly gain of 2.1%, while the Nasdaq Composite closed down (-0.1%). As on the last trading session of the week, Dow closed at 16717 (Up 0.11%).  

As for the Asian markets, Asian stocks rose after a gauge of China’s manufacturing expanded at the fastest pace in five months and the nation’s policymakers said they will cut the reserve requirement ratio for some banks. China’s Purchasing Managers’ Index rose to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. This is the highest level since December 2013. Nikkei is trading with gains of 1.70% followed by Straits Times 0.17%.

The SGX Nifty is trading with miniscule losses of 0.01%. We expect the Indian equities to open on a flat note and remain under pressure for rest of the day ahead of the RBI Policy announcement tomorrow.