Premarket analysis: 29 July 2020
Global liquidity supporting all asset classes
Progress in vaccine development
DIIs selling to meet withdrawals by clients
Worries about economic recovery are growing
India could soon surpass other nations in new virus infections
Global Markets: -Green again
US and European markets ended almost flat. US markets were slightly in red while European markets were mixed yesterday. Federal Reserve’s two-day meeting is underway that will conclude today. Policy decision will be announced tonight. Markets seems to be on hold awaiting FED’s decision. Expectation is continuation of ultra-loose monetary policy and support from FED. Forward guidance on economic recovery and money printing is what markets are interested in. A confident FED about the future of economic recovery could send markets even higher.
Risk assets: Risk assets are on hold as well. Emerging market equity ETFs traded in US, Emerging Asia local government bonds and currencies were all on sideways coil yesterday. Copper was flat while industrial metal index was down.
Safe heaven assets: Dollar index and Japanese Yen paused and closed flat. Gold continued its relentless up move. India Volatility index closed lower while US VIX was steady and closed flat.
ASIA this morning: - Mixed
Asian markets are trading mixed without direction. Markets are likely to coil sideways and close flat in view of FED’s meeting. SGX Nifty is trading about 30 points above yesterday’s Nifty futures’ close.
Federal Reserve’s policy meeting will conclude tonight and decision announced.
Quarterly result season is in full swing. Some of the heavy weights declaring results today are Maruti, Dr.Reddy, Airtel, Glaxo and TVS Motors.
India: - Economic and virus worries are coming to the fore
There are few negative news to start with. Brokerages have downgraded Reliance industry due to high valuations. The oxford economics’ study has casted doubts on economic recovery in India. There is also news about mutual funds facing relent less withdrawal pressure. July could be the first month in many to face a net drop in AUM of mutual funds. In addition, bad loan worries of the banking sector were flagged by RBI a day before.
FIIs seems to have moderated their buy in cash market that could be linked to FED’s policy meeting. DIIs continued to book profit to the tune of 1K Crore almost on daily basis. It is now clear that these selling is to meet the fund withdrawals. Therefore, DIIs are unlikely to stop the selling unless withdrawal pressure eases. Derivative open interest shows FIIs continue to hold net long position while DIIs. Large proprietary traders have reduced their net short position. The client category and FIIs seems to be very bullish on the market.
How will Nifty perform today?
Nifty broke out of the right range in spite of DIIs selling heavily and FIIs not offering big buying support. Possibly, breakout above 11250 have attracted momentum traders yesterday. The cash segment volume in both Nifty 50 stocks and broader Nifty 500 stocks were higher. However, the FIIs are likely to be on hold today awaiting Fed’s decision while DIIs may continue to sell. This leaves the fate of the market today to the momentum and retail traders.
NIFTY -Technical Bias: Positive
Nifty price action:
11250 is decisively broken without much of institutional support. The retail euphoria and momentum traders could cause the market open in positive territory today. Market direction during the day is likely to be decided by the amount of DIIs selling as FIIs are likely to stay away from largely. The support resistance has shifted. 11050 is a good support. Close below this level could be considered as breakout failure. There are no immediate resistance for Nifty other than 12K levels.
Support: Immediate support is at 11050
Resistance: 12 K.
Continuation of bullish spreads are appropriate. However traders need to watch out for price action at 11050 levels