Pre Market Report 11-Feb-2025

Key Concepts

• FIA (Foreign Institutional Investors): Entities investing in a country's financial markets from outside that country.
• Rupee Depreciation: A decrease in the value of the Indian Rupee relative to other currencies.
• OMO (Open Market Operations): A tool used by central banks to manage liquidity by buying or selling government securities.
• GIF Nifty: An index that provides an early indication of how the Indian Nifty 50 index might open.
• Call Writing: Selling call options, a strategy that profits if the underlying asset's price stays below the strike price.
• Short Covering: Buying back previously sold shares or options to close a short position, often triggered by rising prices.
• Fibonacci Retracement: A technical analysis tool used to identify potential support and resistance levels based on Fibonacci ratios.
• Sinex Expiry: The expiration of contracts on the Singapore Exchange (SGX), which can influence Indian market volatility.
• Long-Term Capital Gain Tax: A tax on profits from the sale of assets held for an extended period.

Market Overview and Rupee Stability

The presenter, PR Sundar, begins by emphasizing the importance of the Rupee's opening price due to significant selling pressure from FIAs (Foreign Institutional Investors) the previous day. He notes that the Rupee's stability is crucial for overall market stability. He mentions that the Reserve Bank of India (RBI) likely intervened by selling dollars to stabilize the Rupee after the initial morning panic.

US and Asian Markets

The US markets are performing well, with the S&P 500 consolidating between 5,800 and 6,150, near the upper end of its trading range. In contrast, Indian markets are trading in a range of 23,000 to 24,000 but are closer to the lower end. Asian markets are mostly higher, with the GIF Nifty indicating a slightly higher opening for the Indian market, although Sundar cautions that the GIF Nifty is not always a reliable indicator.

Call Writing and Market Triggers

Sundar observes aggressive call writing, suggesting that a market rally could trigger short covering and a significant upward move. However, he points out the lack of clear triggers for such a rally.

RBI's OMO Increase

The RBI has doubled its open market operation (OMO) purchase from 20,000 CR to 40,000 CR, following previous measures like the OMO operation, the budget, and the RBI rate cut. Sundar views this as the fourth installment of government efforts to stabilize the market. He expresses doubt about the effectiveness of these measures, as FIAs may continue to book profits during market recoveries.

Government Intervention and FIA Behavior

Sundar suggests that the government should consider a "big bang announcement," such as eliminating long-term capital gains tax, to deter FIAs from offloading shares during market recoveries. He believes that small, incremental measures may only provide opportunities for FIAs to sell. He also raises the possibility of FIAs exiting the market entirely, leading to a potential market correction and economic impact.

Trading Range and Support Levels

Sundar maintains his outlook for a trading range of 23,000 to 24,000 for the month. For the week, he identifies 23,200 to 23,800 as the likely range, with 23,300 as a potential support level based on Fibonacci retracement. He advises caution and suggests using 23,200 as a safer support level.

Upcoming Events and Sinex Expiry

Sundar notes that there are no significant events scheduled for the day in either India or the US. However, US inflation data is due tomorrow, which could increase volatility. He also mentions the Sinex expiry and recalls the extreme volatility experienced during the previous expiry, hoping for a calmer outcome this time.

Conclusion

PR Sundar's premarket report highlights the importance of Rupee stability, the potential impact of FIA selling, and the government's efforts to support the market through OMOs. He suggests a trading range for the week and emphasizes the need for a significant policy announcement to deter FIA outflows. He also cautions about potential volatility due to upcoming US inflation data and the Sinex expiry.