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The Sensex and Nifty jumped on Thursday, extending gains to the third straight session led by shares of lenders after the government unveiled a Rs 1.7 lakh crore relief package that includes direct benefit cash transfers and free cooking gas to protect the poor from the impact of the 21-day lockdown.
Investors were disappointed that the government did not extend the package to the stressed industries but that did not halt the pullback on Thursday, helping Indian markets outperform other Asian and European markets.
The rollover in Nifty futures rollovers on a provisional basis to the April series was 62 per cent. In Bank Nifty futures, the rollover was 55 per cent. The rollover in both the contracts were way below their three-month average. Nifty ended up 323.60 points or 3.9 per cent at 8,641.45 and the Sensex ended up 1,410.99 points or 4.9 per cent at 29,946.77.
“Some closure of positions was seen recently as Nifty was looking oversold around 7,500-8,000 but majority of left-over positions were on the short side, which have been rolled into the April series. The pullback has been supported by the BFSI segment which has seen the same pattern,” said Amit Gupta, head of derivatives at ICICI direct.
Bonds and the rupee remained stable as the relief package is not seen to dent the government’s finances in a big way. India’s benchmark bond yield dipped eight basis points pushing prices up. The gauge Thursday closed at 6.22 per cent compared with 6.30 Tuesday. Bond and currency markets were shut on Wednesday due to a local festival.
“The first response fiscal package from the government is targeted and smaller than what was being indicated by some initial reports,” said Suyash Choudhary, head of fixed income at IDFC Mutual Fund. “This provides some comfort to the bond market from a fiscal perspective for now, even as general pressures on the deficit visibly remain.
“The expectation next shifts to the RBI which is expected to respond substantially both to this new growth shock and, more importantly, to the recent virtual freeze in the bond and money markets,” he said. During the day’s trading the benchmark yield jumped as much as 6.34 per cent.
The rupee gained 1.25 per cent or 95 paise to close at 75.15 per dollar amid speculated central bank intervention.
“In a thin market, the Reserve Bank of India sold dollars through the futures market pulling up the local unit’s value against the greenback,” said KN Dey, founder of United Financial, a Mumbai-based consultancy firm. “With limited banking dealing room operations (OTC), the central bank’s intervention via this route yielded more than desired results,” he said In Asian markets, Nikkei closed 4.5 per cent lower, Shanghai Composite fell 0.6 per cent, Hang Seng and Strait Times fell 0.7 per cent each and Kospi index fell 1.1 per cent. Taiwan’s Taiex gained 1 per cent. Major European markets were down 0.8-1.2 per cent on Thursday evening.
In the past three trading sessions, the Nifty has rebounded 13.5 per cent and the Sensex has bounced 15.3 per cent. Foreign portfolio investors sold for the twentythird consecutive session on Thursday, but the sell figure — at Rs 484.78 crore — was the lowest since March 2. These investors have been selling shares worth Rs 3,000 crore daily on an average in the past one month.
Volatility index (VIX) has also cooled off, ending down 7.8 per cent at 71.5, from over a decade high of 86.6 seen earlier this week.
The precipitous decline over the last few weeks due to the Covid-19 pandemic led to Nifty logging its worst derivatives expiry since October 2008, with a decline of 26 per cent. Most of the positions carried forward were on the short side even though there was closure of positions seen recently due to the market bounce back. Besides closure of positions, short-selling restrictions announced by markets regulator SEBI also impacted the overall rollover percentage.
Some analysts, however, believe that the market bounce may start cooling off immediately.
“The bounceback seen in the last three days may see cooling off from Friday. Market participants were still active in the expiry week but could seen activity coming down on the back of country lockdown and travel restrictions,” said Yogesh Radke, head of alternative and quantitative research at Edelweiss. “We may see low liquidity and higher volatility in the coming days. Impact of the shutdown on economy and number of new cases will be important factors to watch. Nifty may have a upside till 8,900 and 9,300 but downside could be seen till 7500,” said Radke.
The market has important support at 7,500-8,000 in the April series and on the upside, the gains can extend to 9,300, said Gupta of ICICIdirect.
On the options front, maximum open interest among call options is at 9,000 strike followed by 10,000 strike while maximum open interest among put options is at 7,500 strike and then 8,000 strike.
Markets are now watching the RBI policy. The monetary policy committee meeting of the RBI is scheduled during April 1 and 3. Besides, any relief measures for businesses hit by the outbreak and subsequent shutdowns will also be keenly watched, said experts. The uncertainty over the rising number of cases still looms on global markets, said money managers.
“I don’t know if this is just a relief rally. Markets are either moving up sharply or falling sharply, so volatility is still there,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
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