F&O Expiry To Keep Markets Volatile

Ahead of the Derivatives expiry for Month of June today, the equity markets remained range bound yesterday with some negative bias. Equity indices ended lower as investors turned cautious and booked profit ahead of the expiry of June F&O series. However auto stocks firmed up in late trades on reports that the lower excise duty on auto and capital goods has been extended till December. Amid all this, Sensex ended down 55 points at 25,314 and Nifty ended down 11 points at 7,569.

While it was a range bound session yesterday, today we expect volatility in the markets. First and the foremost factor that is likely to affect the market sentiments is deferment of Gas pricing hike for next three months. In a setback to gas producers like Reliance Industries, the government today postponed revision in natural gas prices by three months pending a "comprehensive" review to make a controversial pricing formula more palatable. The current USD 4.2 per million British thermal unit rate for gas, which would have jumped to USD 8.8 if a formula approved by the previous UPA government was implemented on July 1, will continue till September-end, Oil Minister Dharmendra Pradhan said. Pradhan, did not say if a new expert committee or a ministerial group will be constituted for the review. In course of these discussions, it was clear that the new government was looking at making some changes in the formula, proposed by a panel headed by C Rangarajan, as it would have led to Rs 2 per unit increase in power tariff and Rs 12 a kg hike in CNG rates besides jump in fertiliser subsidy outgo. Here we are of opinion that with price hike being deferred, RIL and ONGC are likely to open Gap down. With these two companies having higher weightage in Indices, we expect some weakness in the Indian equities today.

U.S. stocks rose for the first time in three days as investors speculated the economy is recovering from a first-quarter contraction and Monsanto Co. announced a $10 billion stock buyback plan. The Standard & Poor’s 500 Index added 0.5 percent to 1,959.53, rebounding after a 0.6 percent drop yesterday. The U.S. equity benchmark is up 1.9 percent in June, poised for a fifth month of gains. The Dow Jones Industrial Average climbed 49.38 points, or 0.3 percent, to 16,867.51. Economic data yesterday showed that the US gross domestic product shrank 2.9 percent in the first quarter, the worst reading since 2009. However orders for business equipment climbed in May, a sign that corporate investment is helping revive the economy after a slump at the start of the year.

As for the Asian markets, Asian indices rose, led by technology shares, amid optimism the U.S. economy is emerging from a worse-than-estimated contraction last quarter. While Nikkei is trading with gains of 57 points (Up 0.37%), Hang Seng is up by 154 points (0.67%). Taiwan Index is up almost a percentage point And Shanghai Composite is up by 6 points (0.30%). SGX Nifty is trading in red with a loss of 7 points (0.09%).

We expect Indian equity markets to open on a weak note as gas pricing deferment issue would be playing on the investors mind. Further with June Month expiry for F&O happening today, high volatility is expected.