Nifty’s dance at a record peak
NIfty has touched new highs, but the key question is one of sustainability. As much as 26% of the nifty 50 stocks fell below their respective five-day low prior to ending the expiry week. Despite VIX sinking to 15, we have not seen a risk appetite strong enough to trigger sustained rallies across the board among Nifty 50 stocks. Clearly, the bulk of November has seen risk-off trades surfacing with each leap, though dips have been enthusiastically bought.
Given low IVs across Nifty 50 stocks, the jumps have not been sizeable to encourage traders to chase rallies. In other words, the 18604 mark is not a breakout level. We could see 18800-19000 but could still get to sub 18000 level before a more sustainable rally emerges. Subdued VIX was a major reason why most of November’s intraday moves never got enough momentum for a directional move. And on most days, gains were substantial overnight, only to be neutralized intraday. Along Nifty options, maximum activity, as well as maximum OI, were at 18400 and 18300 for CEs and PEs respectively reflecting an excruciatingly tight trading range, and how traders’ expectations have gone limp, just a week ahead of November expiry.
Dollar holds the key
The dot plot for Fed’s December meeting is presently projecting only less than a 20% probability for a 75bps hike as opposed to a 64% probability a month back. The sharp pullback in the Dollar Index that has been on since hitting a 10-year high in late September certainly amplifies the argument that a policy pivot is near. However, one wonders if it is too early to assume so, given the fact that Fed appears to have been behind the curve in fighting inflation so far. In fact, even before this argument came to the fore, there was enough reason for the present decline in the dollar index, as it has been on a relentless uptrend since May 2021 from 89 levels.
“The sharp pullback in the Dollar Index that has been on since hitting a 10-year high in late September certainly amplifies the argument that a policy pivot is near. However, one wonders if it is too early to assume so, given the fact that Fed appears to have been behind the curve in fighting inflation so far.”
That surge was strong enough to pierce a 7-year parallel trading range, and a breakout of such magnitude will certainly have more legs. This theory will have its first approach to 104, the breakaway point, which also meets the rising trendline that has held prices since May 2021. If the upswing thereof succeeds in breaching 110, we could see another hot streak of upsides aiming at 128. Further, with consensus opinion gravitating towards a softer rate hike regime, a firmer rate hike would be a surprise that could rein in Nifty’s charge.
Bank Nifty’s support
Clearly bank nifty has been a standout performer in November. Surprisingly the run-up has been dominated by state owned banks, putting the private banks to a shade. The mid and small cap names in the PSB index gathered good steam, giving more legs to Bank Nifty even as Nifty faltered on approaching its record peak.
Bank Nifty requires a treatment different from Nifty, as it has only a few stocks in the index, and the weightage is skewed towards a handful. Most of the biggies are close to their ATHs (all-time highs), but those in the midcap space continue to attract buying interest despite having rallied steeply, as they continue to trade at a significant discount to their respective ATHs. Usually, it is the large caps that help indices surge past record peaks, and mid and small caps follow. But with buying yet to become broad-based across other sectors, the mid and small cap banks may have trouble sustaining the positive vibes.