Dalal Street Week Ahead | Stocks and Commodities

September 27, 2015
Time: 10.45 am

Dalal Street Week Ahead:

1. Last week, markets were highly volatile.
2. On Tuesday, Nifty traded above 8000 in the morning, but closed below 7800 in the evening.
3. On Wednesday it opened around 7700 but closed well above 7800.
4. But expiry day trade was not that bad.
5. Anyway Nifty was expected to expire between 7800 and 8000 as these two open interests were highest.
6. October is a 5 week month as well as corporate results month, so markets will be going all over the places.
7. Next week is a truncated week as Friday is a holiday.
8. On Monday Pending Home Sales data from US is due.
9. On Tuesday, RBI policy is a key event.
10. On Wednesday, PMI data from China is a key event.
11. On Thursday, Manufacturing PMI data is due from India. Auto sales figures will influence the Auto stocks.
12. Out of all these events, RBI policy is the most important.
13. There are three pssible outcomes.
14. One RBI cuts interest rate by 25 basis point. This is the expectation of most people in market.
15. In this case, it will be neutral to the markets as this has already been priced in. That is why Bank Nifty has recovered more than Nifty from their respective lows.
16. Second, RBI does not cut interest rate. Though this possibility is very low, we can not say anything about Rahguram Rajan who has the habit of surprising every time. 
17. In this case, Banking stocks will come under pressure and that will drag the whole market.
18. Third, RBI may surprise the markets by cutting interest rate by 50 basis points. Once again, this possibility is very low and once again we can not say anything about Raghuram Rajan.
19. In this case markets will rise towards 8100 by the end of next week. And in this case, we can reasonably assume that 7700 will be the floor for Nifty.
20. In the first two cases, that can not be assured. In the first two cases, Nifty might drift lower to test the low once again in the next 8 to 12 weeks.
21. Next week range for Nifty is 7700 to 8100.
22. The range for Nifty for the October series is 7500 to 8300.
23. So if the RBI policy is positive and if Nifty crosses 8000, then one may consider selling 7500 or 7400 Put option.
24. If RBI policy is negative and if Nifty breaches 7700, then one may consider selling 8300 or 8400 Call option.
25. In case if RBI policy is neutral, then sell both 7500 Put and 8300 Call or 7400 Put and 8400 Call.
26. Keep appropriate stop losses as markets are expected to be highly volatile. 
27. One may conside selling 15500 Put option and 19000 Call option in Bank Nifty on Monday and the premiums are likely to fall after the RBI event as VIX will fall. One can expect at least Rs 10 pr share profit in just one trading day. This is for just one day trade. Create the position on Monday evening and close the position on Tuesday evening.