Dear All,
Oil on a boil! F&O short covering
Enquire not what boils in another's pot. - Thomas Fuller
India is well on its way to emerge as a major player in global economy, Finance Minister Arun Jaitley said reacting to the latest WEF's global ranking. India rose 16 ranks, faster than any other, to climb to 39 in FY17 among 138 countries. All concerns and apprehensions will take a back seat as sentiment has suddenly turned positive for the day. OPEC members agreed to cut output to boost prices despite differences between Iran and Saudi Arabia. Crude oil prices rallied taking with it global equity markets. The outlook is a strong start. The BankNifty could see further gains and short-covering could push the indices higher towards the end. The EPFO executive panel will meet today to decide on raising equity investment from the current 5%. ICICI Prudential Life Insurance IPO, which was oversubscribed 10 times will get listed today. Meanwhile, NSE will launch IPOs of 5 companies in the SME segment. Sebi has permitted commodity exchanges to introduce trading in options.
Derivatives Strategy
Rollovers (D–1) Sept'16
Nifty futures OI range has gone up by ~1cr shares in the recent expiry, a rise of ~40% jump when compared to 6m average of 2.4-2.7cr. The rise in index futures OI can be attributed to increase in FIIs net long position in index futures which currently stands at 3.08lac contracts as against a 3m average of 2.47lac contracts. However, with rising OI the Nifty has hardly been able to show much of traction as the gains in August/ September (D-1) expiry stood at 0.5%/1.2%. Infact, Nifty rolls on D-1 stood at 52% as against 61%/59% 3m/6m average indicating a short fall with coc dipping to 59bps as against 67bps previous expiry.
On stock future front, FIIs have added fresh short position to the tune of 126K contract in the current expiry as markets being positive this month, a major part could be due to fresh arbitrage position. Market-wide rolls stood at 60% in-line with 3M average, indicating today's VWAP trade could result in a minor dip in Nifty.
Technical Track
Confluence of gann support around 8700 came to the rescue yet again in Wednesday's trade. After marking a high of 8893 in last week's trade, sharp sell-off in following three sessions, brought the Nifty back to the support of its 35-DMA before reversing in yesterday's trade. So, 3 digit gann channel i.e. (8710-8860) continues to remain intact which has made life difficult for index traders. Only a decisive close beyond the above mentioned range would provide a directional move in the Nifty. PSU Banks made a comeback in Wednesday's trade after BankNifty on intra-day charts staged a breakout from neckline of an inverted head & shoulders pattern.
Derivatives Diary
² Renewed buying interest lifts Nifty above 8750, fresh longs seen in Nifty and short covering in Bank Nifty futures
² FIIs futures long/short ratio was seen at 4.38x with addition of 8k long and 5.3k short index contracts
² Massive addition at 8700 put and unwinding at 8800 call in Wednesday's session indicates Nifty may expire September series above 8750
² Rollover for Nifty and Bank Nifty futures on D-1 day stood at 51.7% and 48.3% respectively.
² Gap up opening possible, as SGX Nifty is trading at 8802 up by 44 points
Fixed Income Synopsis
The 10Y benchmark 7.59% GS 2026, ended ~1 bps lower at 6.92% vs previous close of 6.93%, and the 6.97% GS 2026 ended ~1bps lower at 6.78% vs previous close of 6.79%. Gsecs recorded total trading volume of ~Rs. 756 bn. Bond market traded range bound ahead of monetary policy scheduled next week.
The demand at the fixed Repo window was Rs. 79.10 bn, while the supply at the fixed Reverse Repo window was registered at Rs. 107.51 bn. The Call WAR closed flat at 6.42%.
The benchmark five-year OIS and one-year OIS closed higher, with the 5-Y OIS closing at 6.32% vs. previous day's close of 6.30%, while the 1-Y OIS closed at 6.44% vs. previous day's close of 6.43%.
The Reserve Bank of India's Reference Rate for the US Dollar is Rs.66.45 on September 28, 2016, while the corresponding rate for the previous day (September 27, 2016) was Rs.66.46.
Commodity & Currency Cues
Precious metals scaled lower, reacting to US Fed Chief Janet Yellen's testimony to Congressional committee for Financial Services. Yellen stated that although there is no fixed schedule for parting away with the accommodative stance of the monetary policy, the economy is ready for a rate hike by the end of this year. On the other hand, Chicago Fed President Charles Evans stated that hiking interest rates can hinder the process of attaining inflation target. Moreover, Minneapolis Fed President opined that interest rates will stay low for a while as inflation remains weak. There are mixed signals emanating within the Fed and the guessing game will persist till we approach the policy meet in December. On outlook, we expect the market focus to gradually shift towards the developments on US elections rather than what Fed intends to do.
LME base metals persisted with the firm tone, with Nickel particularly benefiting from supply side concerns emanating from Philippines.
Crude oil futures skyrocketed, with WTI values garnering an upside of more than 5%. The complex derived impetus from the announcement of a cap on output by OPEC. The oil cartel has agreed for production limit of 32.5-33mbpd, translating in to a moderate cut when compared with OPEC's current production estimate of 33.4mbpd. However, the announcement is devoid of any details on the output targets for any country. With Iran, Libya and Nigeria exempted from freezing output, it seems that Saudis are going to do the heavy lifting as far as production cut is concerned. More clarity on this price stability measure is expected to be announced at the cartel meeting in November. Meanwhile, there is no word from non-OPEC producer like Russia on its participation in limiting output levels. According to preliminary estimates, the country is pumping oil at optimal levels, reported at 11.1mbpd.
Convergent trends continue to persist in the currency markets, with Sterling and Pound inching higher against the greenback, while Yen losing ground. In the emerging market space, Chinese Yuan is back under pressure, with values above 6.7 level against US dollar in the offshore markets. Meanwhile, INR continues to remain resilient.
Corporate Snippets
² Mahindra & Mahindra, has decided to acquire the European two-wheeler subsidiary company of Mahindra Two Wheelers for EUR26.3mn (about Rs1.97bn). (BS)
² Reliance Power will double the capacity of its Rosa power plant in Uttar Pradesh to 2400MW and Butibori power plant in Maharashtra to 1200MW. (ET)
² Hindustan Copper is expected to shortly seek Cabinet approval to invest Rs22bn in a new project to extract copper using a technology that is being tried out on a commercial scale for the first time globally. (ET)
² Steel Authority of India Limited (SAIL) has called for a re-tender for developing and operating Rowghat iron ore in Chhattisgarh. (BS)
² Bharti Airtel launched international roaming (IR) packs offering free incoming calls, free calling minutes and texts to India to customers travelling abroad. The roaming packs also come bundled with data. (BS)
² Ahluwalia Contracts (India) has bagged order worth Rs1.51bn from Bharat Electronics. (BS)
² Infosys Ltd unveiled a mobile first and modular platform to drive e-commerce programmes across retail channels. (BS)
² Delta Corp is in exploratory talks to buy out a rummy website ace2three.com for approximately USD80-100mn. (ET)
² The Cabinet gave its nod to a consortium of IOC, Oil India and BPCL buying stakes in two Russian oilfields for a total of USD3.14bn. (BS)
Economy Updates
² The Centre has set the stage for the closure of 17 sick public sector units (PSUs), of which four are already under liquidation. (BS)
² India has climbed 16 places to the 39th rank on the Global Competitiveness Index prepared by the World Economic Forum as improved business sophistication and goods market efficiency pushed its ranking higher. (BS)
Happy Investing!
Amar Ambani
Head of Research
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