CITI Institution trading view in a note circulated to all client today afternoon... the Nifty has corrected close to 9% taking the top to bottom correction to 12% in INR terms and 14% in USD terms. Most of th ose indicators are
starting to show reversals and positioning is much bearish now, compared to few weeks ago. We think this is a good time to start buying nifty again. We’re still structurally very bullish on the long term prospects of this market and after this recent correction, it presents an excellent opportunity to own this market both with a short term and a longer term view. While the risks of a global risk off cannot be ruled out, we think Nifty will be a massive outperformer if it happens. Few indicators which provide a strong bullish case are explained below:
1. FII positioning in Index derivatives has hit the lowest since the beginning of this rally. Any dip in this in the past has been associated with a sharp bounce back on Nifty as evident in the chart below. For considering net FII positioning, we assign an average delta of 25% to options positions.
2. Futures Basis has moved sharply over the last few days (Nifty premium moved from 60 to 20 points over 1 week),and for the first time in several months they Nifty and most stock futures are trading at a discount to their fair value. This is usually a sign of a speculative selling in the market without any genuine cash selling. In the past this trend has also been associated with markets bottoming out.
3. Yesterday’s Panic Selling: The sharp selloff in market yday was led by futures selling, probably a series of SL orders being triggered. There was massive volume traded in Nifty futures on that dip, with futures going into a massive discount momentarily. This kind of panic selling with volume hasn’t been seen in this correction so far and can very likely mark the bottom.
4. Technical Level: Nifty in USD is at a key technical trendline support. While it has broken the 200 DMA convincingly, a bounce back from this level to test the 200DMA again can be expected. The 200 DMA is 5.5% higher from here and that calls for a quick upside trade. Whether or not it is able to break through the 200DMA again will depend on the manner in which it gets there.
The market is also approaching the key level of 8000 which a lot of people have been waiting for to buy again. This should act as a good support.
5. Domestic Institutions Buying: The domestic institutions in India led by insurance companies and mutual funds has always provided support to the market on previous dips, and their aggressive buying is mostly associated with bottom formation, as has been the case several times before. The accompanying chart shows the running 10D average buying by domestics in the market which is at a recent high now.
starting to show reversals and positioning is much bearish now, compared to few weeks ago. We think this is a good time to start buying nifty again. We’re still structurally very bullish on the long term prospects of this market and after this recent correction, it presents an excellent opportunity to own this market both with a short term and a longer term view. While the risks of a global risk off cannot be ruled out, we think Nifty will be a massive outperformer if it happens. Few indicators which provide a strong bullish case are explained below:
1. FII positioning in Index derivatives has hit the lowest since the beginning of this rally. Any dip in this in the past has been associated with a sharp bounce back on Nifty as evident in the chart below. For considering net FII positioning, we assign an average delta of 25% to options positions.
2. Futures Basis has moved sharply over the last few days (Nifty premium moved from 60 to 20 points over 1 week),and for the first time in several months they Nifty and most stock futures are trading at a discount to their fair value. This is usually a sign of a speculative selling in the market without any genuine cash selling. In the past this trend has also been associated with markets bottoming out.
3. Yesterday’s Panic Selling: The sharp selloff in market yday was led by futures selling, probably a series of SL orders being triggered. There was massive volume traded in Nifty futures on that dip, with futures going into a massive discount momentarily. This kind of panic selling with volume hasn’t been seen in this correction so far and can very likely mark the bottom.
4. Technical Level: Nifty in USD is at a key technical trendline support. While it has broken the 200 DMA convincingly, a bounce back from this level to test the 200DMA again can be expected. The 200 DMA is 5.5% higher from here and that calls for a quick upside trade. Whether or not it is able to break through the 200DMA again will depend on the manner in which it gets there.
The market is also approaching the key level of 8000 which a lot of people have been waiting for to buy again. This should act as a good support.
5. Domestic Institutions Buying: The domestic institutions in India led by insurance companies and mutual funds has always provided support to the market on previous dips, and their aggressive buying is mostly associated with bottom formation, as has been the case several times before. The accompanying chart shows the running 10D average buying by domestics in the market which is at a recent high now.
