Back To Back Trading Holidays May Add To Market Volatility

Mumbai, 7th April 2020: Trading week beginning from Tuesday is going to be the truncated week due to trading holidays on the first day of the week (Monday) and last day (on Friday, April 10) on account of Good Friday. The week comprising of only three trading sessions is expected to remain highly volatile not only because it is going to be truncated one but also because it will close with the expiry of weekly derivatives settlement on Thursday.

Markets continued to succumb to the bears past week post a short bounce back the week earlier. Such dead cat bounces shouldn’t be mistaken as beginning of bull market rallies; yet there are indications that markets are expected to witness another short-term bounce in the coming weeks. Firstly, the selling pressure has continued although to a lesser extent which shows that FPIs have reduced their quantum of selling. 

India VIX which is the fear barometer is also showing signs of fear ebbing resulting into receding volatility. Open interest is also down by 50-60 per cent in Nifty and stock futures which is a good sign that the market is light in terms of leverage.  

US equities too are showing a reduced correlation between the stock price decline and the heightening of COVID-19 positive cases. This indicates that sanity is slowly prevailing and markets have assumed that it will take a while before the covid19 cases peak driving markets into a wait and watch mode. Major Asian and European indices ended with significant gains on Monday, while writing this report, major US indices were trading in positive territory with gains close to 6 per cent. 

Decline in crude oil has led to first wicket down in the US,Whiting Petroleum Corp has filed for bankruptcy proceedings. If there is no conclusion between the warring nations, price of crude can induce system wide risks in the economies worldwide.

Markets have fallen sharply from their record highs in the last three months but prevailing weakness in the banking pack alongside auto, IT and metal are pointing towards the negativity to extend further. 

Nervousness continued in the equity markets last week, after fast-spreading COVID-19 cases increased across the globe including India. Besides, continuous outflow of the foreign fund, depreciating rupee (cross 76 mark v/s US$) continued to impact investors' sentiments. This dragged the benchmark indices southwards, wherein Sensex and Nifty ended lower by 7.5 per cent and 6.7 per cent respectively. The Sensex and Nifty ended previous week at 27,591 and 8,084 points respectively. 

Ajit Mishra, VP - Research, Religare Broking said, “We believe 7,500-7,600 zone would continue to act critical support zone in Nifty, at least during this week and it would face hurdle 8,700-9,000 zone, in case of any rebound”. 

Commenting on the market movements during the week, JimeetModi, Founder & CEO, SAMCO Securities & StockNote said, “It can reasonably be expected that the Government will announce a second round of economic relief package before the lock down is lifted by mid-April.  However, in anticipation of such package markets are likely to witness bounces”.

On the data front, participants will be eyeing Markit Services PMI for March and IIP data for February on April 6 and April 9 respectively. Needless to say, the focus area would remain the COVID-19 spread and its impact on the economy. The exponential rise in the fresh cases has been haunting markets across the globe including India.

Traders should continue with the “sell on rise” approach and prefer trading through options strategies.  At the same time, investors should keep their shopping list handy and utilise further correction to accumulate fundamentally sound counters in a staggered manner, Mishra said. 

Pharmaceutical look resilient and seems to be little affected by the lock down, traders can take long positions in this sector. Financials may rebound after the relief package is announced so one can wait and watch for the time being. 

Modi said, “As an asset allocation strategy going for quality corporate bonds with yields of around 12 per cent or higher would be a good option in these stressful times. Investors are advised to continue their SIPs which would help them take advantage of the irrationally beaten down prices”.