By Anand James
Let’s start with what the FIIs have been upto…
The record-high shorts that FIIs have been holding in the index futures, shows no sign of unwinding. At least not yet. Neither the benign volatility nor the age of the shorts has been enough to force a change in the FII’s stance. Last week there was a mild off-loading of shorts, but at 84%, it is still a mighty figure. Clearly, RBI’s rate cut has had no impact on their stance and is suggestive that this is a stubborn position that will either need a full-blown downside, or a very surprising positive event in order for short covering.
February is usually a weak month
If one were to look for signs, February does not offer much hope. But given the fact that October-November-December had seen significant selling, February month’s historical trends need to be seen in a different light. Perhaps lending hope that revival prospects can still be held, despite the swing higher from January lows, so far. The potential for a broad-based recovery move is also supported by the fact that about 60% of the NSE 500 constituents closed at least 1% above their respective lows on Friday. Moreover, even as most indices closed in the red on Friday VIX, an indicator towards volatility fell 3.4% to well under 14, suggesting traders are less fearful now.
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While markets have had the opportunity to react to the RBI rate decision, largely positively, it is yet to react to the Delhi verdict. While it may be an inconsequential political mandate, but it would be instructive to see how sentiments can influence market behaviour, given the fact that indices have been looking for cues to further the recovery rally that has been on since late January.
Though Friday ended with Nifty in red completing three consecutive days of descent, favoured view sees it as an acknowledgement of the importance of the 50 SMA from which the turn lower started.
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