Premarket analysis: 06 August 2020
Worldwide economic recovery is gaining steam
Dollar weakness helping fund flow into emerging markets
Dis-connect in Indian economy between economy and valuation.
DIIs continue to sell
Global Markets: -Positive
Global markets rallied again yesterday. Both European and US markets registered decent gains. Expectations of economic recovery is gaining ground. The optimism was confirmed by Purchasing manager’s index for the month of July.
Risk assets: High yield bonds continue to raise. The Emerging market ETFs traded in US recorded impressive gains yesterday. However, fund continues to flow out of local government bonds of emerging Asia. Copper and industrial metal index registered another day of solid gains.
Safe heaven assets: Dollar index continued to struggle yesterday and heading further lower this morning. Japanese yen and gold rose against dollar. Volatility indices were down.
ASIA this morning: - Mixed
Rebounding global economy is helping Australian indices while trade and political tensions between US and China is suppressing Chinese markets. Korea and Taiwan indices have broken out of range and are pushing upwards. European and US futures are trading in green in the Asian session. SGX Nifty is flat
RBI-MPC will announce its policy decision on interest rates and monetary policy today. Forex reserves and bank lending data will be released by RBI tomorrow after markets close. US government is expected to agree on the extension of unemployed benefits package. Service Purchasing Manager’s Index that came out yesterday was little better than previous month. However, at 34.2, it is far below recovery zone.
Adani Enterprises, Adani Power, Piddilite Industries and Lupin are some the companies that will declare their results today.
India: - FIIs support is disappearing as well.
Markets are beginning to pay attention to the economic problems that India is facing. Bloomberg reported that the disconnect between gloomy economy and stock valuation is biggest in India. While Nifty achieved its all-time price-to- earnings ratio yesterday, Indian economy is still in contraction zone. Economic recovery is faltering and lagging behind other major economies. Nifty's PE for trailing twelve months stood at 30.2.
The FIIs who had been offering support so far, had stopped buying and actually net sold a small quantity yesterday. DIIs continued to off load at cash market and net sold about 665 crores yesterday. FIIs have long position on index derivatives while DIIs and large proprietary traders continued to be short.
How will Nifty perform today?
Yesterday, markets could not sustain higher levels due to absence of institutional support. The positive mood in global market is not translating into strong buying support for Indian markets. Today again the global market mood is positive but I expect FIIs to stay away while DIIs sell in every opportunity that they may find. Markets have mixed expectations on RBI policy decision today.
In addition to RBI policy decision, weekly expiry will also add to volatility in the markets today. Although SGX Nifty indicates flat opening, today’s session could be volatile.
NIFTY -Technical Bias: Losing steam
Nifty price action:
Nifty although tried to pull back, could not sustain higher levels. The sideways coil could continue for today. Bank nifty’s downward trend is still intact and yesterday sell off from higher levels indicates that BN will struggle to move up while strong support exist at around 21K.
Markets are likely to coil sideways with volatility. Hence range bound strategies are appropriate. Traders need to watch out for RBI policy and expiry related volatility.