Thanksgiving Thursday! Rolling over cautiously
The thankful receiver bears a plentiful harvest - William Blake
A plentiful harvest is a distant dream for most investors who will just be more than thankful for the recovery in markets especially in the last couple of days. The US indices saw their third day of gain ahead of the Thanksgiving Day holiday. The dollar has been on a one way street strengthened by expectations of higher interest rates from the Fed sooner than later. The languishing rupee is down nearly 3pc in November giving heart-aches to importers and some comfort to export-oriented companies. Foreign investors have offloaded nearly Rs.12000 crore net in equities and almost similar amount in bonds during November. The outlook is a tentative start as F&O expiry gets underway. The usual volatility may set in towards the close of trading. Signals are mixed from Asia even as the Japanese stocks continue to appreciate. The rollovers have been the lowest in half a year, especially the Bank Nifty. Few notable sectors seeing better rolls include pharma, auto, metals and real estate.
DERIVATIVES STRATEGY
Rollovers (D–1) Nov'16
Huge quantum of ETF outflows, on back of sharp rise in Dollar index after Trump victory in US election induced selloff in emerging markets currency/equities. Nifty cracked 7% in November series with wild swings seen during the month on back of global cues and domestic news flow on higher denomination currency demonetization.
FIIs continues to liquidate their long index futures position in the last two series, as sentiments turn negative. Currently FII's index futures long to short positions have trimmed down to net 45k (as against 97k contracts in October expiry D-1 days) along with sharp fall on Nifty, indicates long liquidation. Options traders scrambling for cover as rise in VIX accompanied with delta move, made OTM put writers nervous. During the series, they shifted maximum puts open interest from 8500 puts to 8200 and then at 8000 puts.
On rolls, Nifty rollover stood at 44% as against 51% on previous expiry at D-1 days indicates short fall in rolls. Market wide rolls stood at 56% as against 58% in previous expiry however total open interest rolled decreased by 12% when compared to previous expiry. Maximum combined open interest at 8000 strike along with lack of rollovers likely to provide last hour volatility in index largely on sell side.
Technical Track
Though Nifty gave up early morning gains, it managed to regain 8000 levels and formed higher high and higher low chart formation. Index has also witnessed positive break above sharp angled short term trend line connected from the peak of 8598, suggesting plausible range bound action in short term. Nifty breadth turned positive, as renewed buying interest emerged in selective stocks. Index also ensured a close above 50% move of the tall bar (seen on 21st November). 180 degree move from recent low of 7916 could see Nifty attempting 8095. So a positive follow up move above 8050 could trigger further recovery towards 8100-8130. Failure to do so will invite range bound activity with important support placed around 7900.
Bank Nifty relatively underperformed yet again by settling the session in red ahead of November F&O expiry.
Derivatives Diary
· Nifty settled above 8000 for the consecutive session, Bank Nifty underperformed. SGX Nifty indicating negative opening below 8000.
· Massive open interest additions were seen at 8050 call and 8000 put. Rollover for Nifty/Bank Nifty stood at 43.97/32.52% on D-1 day.
· FIIs index futures long/short ratio seen at 1.35x vs 1.37x with addition of 7.4k long and 6.9k short futures contracts.
· Focus will be on stock specific, Energy and Pharma stocks are likely to outperform
Fixed Income Synopsis
The 10Y benchmark 7.59% GS 2026, closed lower at ~6.37% vs previous close of 6.41% and the 6.97% GS 2026 ended at 6.27% vs previous close of 6.31%. Gsecs recorded total trading volume of ~Rs.1.75tn.
The demand at the fixed Repo window was Rs. 22bn, while the supply at the fixed Reverse Repo window was registered at Rs.72.13bn. The Call WAR closed higher at 5.98% vs previous close of 5.95%.
The benchmark five-year OIS closed lower at 6.10% vs. previous day's close of 6.12%, while the 1-Y OIS closed lower at 5.96% vs. previous day's close of 5.99%.
The Reserve Bank of India's Reference Rate for the US Dollar was Rs.68.47 as on November 23, 2016, while the corresponding rate for the previous day (November 22, 2016) was Rs.68.23.
Commodity & Currency Cues
Precious pack plummeted, as persistently intensifying strength in US dollar has substantially dented the safe haven appeal of metals like gold and silver. Minutes of US FOMC policy meeting on November 1-2nd aggravated the selling pressure. In this regard, the minutes conveyed that a rate hike in December is very much on the cards. Fed members expressed that rising inflation is a growing concern as there is a possibility of consumer prices surpassing the Central Bank's target sooner than expected. Market participants now sense that there can be a series of rate hikes in 2017, with the subsequent hike coming as early as March 2017. In the credit markets as well, a steeping US yield curve is reflecting the market expectations. US 2yr sovereign bond yield hit a 6 & ½yr high of 1.51%, while the 10yr registered a 16 months high of 2.417%.
In the non-ferrous pack, most of the metals are persisting with the recent blistering rally. However, it seems Chinese authorities are initiating aggressive measures to curb speculative buying by raising trading margins and limits in various commodity derivatives.
The greenback continues to register substantial advances against major currencies, with Yen and Euro being the prominent losers. Chinese Yuan is also sinking, with values tumbling to a record low of 6.9378 against US dollar at one point of time yesterday in the offshore markets. We infer that US dollar index will witness further gains, with values expected to hit 105 in the coming weeks. Euro seems to be the most vulnerable, influenced by the uncertainty over Italian constitutional referendum in first week of December.
Corporate Snippets
· Larsen & Toubro (L&T) has laid off 14,000 employees across businesses during April—September period this year, was necessary to stay "agile and competitive". (BL)
· Sun Pharma has entered into an agreement to acquire 85.1% of JSC Biosintez, that makes and markets pharmaceutical products in Russia and the CIS region. (BL)
· Cipla Ltd is divesting its minority 16.7% stake in Chase Pharmaceuticals Corporation, to a subsidiary of Allergan Plc. (BL)
· Wockhardt Ltd said that the USFDA has issued a warning letter to C P Pharmaceuticals Ltd, Wrexham, United Kingdom, a stepdown subsidiary of the company. (BL)
· Aurobindo Pharma, Cadila, Mcleods Pharmaceuticals are among the 39 Indian drug companies that have been blacklisted by Vietnam for quality standard violations. (ET)
· Zee Entertainment Enterprises Limited (ZEEL) has acquired the general entertainment broadcasting business of Reliance Big Broadcasting Private Limited, Big Magic Limited & Azalia Broadcast Private Limited, all part of Anil Ambani led Reliance Group Entities. (BL)
· Infosys has put in Rs316mn in Stellaris Venture Partners, founded by former Helion Advisors partners, the second such move in a venture capital firm through its USD500mn Innovation fund. (BS)
· Tata Steel is set to commission its 55,000tpa ferrochrome plant at Gopalpur in south Odisha on November 30th. (BS)
· Indian Oil Corp unit plans to invest USD5.5bn to gradually raise the capacity of its smallest refinery co-owned by Iran to 300,000 barrels/d (bpd), to help meet a surge in demand for refined products in the world's fastest growing major economy. (ET)
Economy Updates
· The government has allowed National Bank for Agriculture and Rural Development (NABARD) to disburse Rs210bn to cash-starved farmers, helping them sow winter crops like wheat ahead of the sowing season. (BS)
· Finance ministry sources said as much as Rs200bn has been deposited in Jan Dhan accounts since November 8. (BS)
Results table
| Rs m | Revenue | YoY % | PAT | YoY % |
| Siemens | 29,903 | (7.5) | 24,670 | NM |
Happy Investing!
Amar Ambani
Head of Research
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