Derivatives expiry to drive volatility in Indian equities

Mumbai, Aug 23 (IANS) The upcoming expiry of derivatives, the movement of the rupee and polls in Greece – coupled with Chinese currency and stock positions – are expected to trigger volatility in the Indian equity markets in the coming week.

“In the near term, the expiry of derivatives’ contracts could set the pattern for volatility in the Indian markets,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

In addition, investors could be spooked by the uncertain results from the snap polls called in Greece, James added.

“With the Greek prime minister having resigned and called snap polls, the Eurozone may be the epicentre of volatility,” he said.

At the same time, the rupee’s movement can “make or break” fragile investor confidence, Devendra Nevgi, chief executive of ZyFin Advisors, said.

“Next week, the sentiment will be driven by the rupee and the dollar. The outflows from EM (emerging markets) have been on the rise as global investors are worried about China,” Nevgi elaborated to IANS.

“How will the US Fed react to China and global risks is also important. The risks of global central bank’s resorting to currency wars are also real,” Nevgi maintained.

Analysts cautioned that the slide in the rupee value, which saw it close Friday at Rs.65.83/$ – a two-year low and breaching of the Rs.66 mark in futures markets – has unnerved investors.

The major catalyst for the slide has been the devaluation of yuan, intended to boost Chinese exports.

China’s central bank had devalued the yuan by two percent on Aug 11. This was the biggest devaluation of the Chinese currency since 1994. It again fell by another two percent on Aug 12 panicking the world economy. The yuan has fallen by 4.6 percent till now since Aug 11.

This has strengthened the dollar, which has negatively impacted major world currencies, including the rupee.

The upcoming global macro data from the US, Germany and Britain, besides the already out Caixin (China manufacturing purchasing managers’ index) figures for August which showed a slowdown, will also have an imprint on Indian markets, Rahul Dholam, senior analyst with Angel Broking, told IANS.

“We expect volatility ahead led by the global macro data to be released next week. The US will announce its quarterly GDP, new home sales and consumer confidence data,” Dhomal added.

“Germany and Britain are also set to release their GDP figures next week.”

Trends in commodity prices globally will dictate the moves on the bourses in the coming week, Vineeta Mahnot, equity research analyst with Hem Securities, told IANS.

“Movement of commodity prices globally will dictate the trend on the bourses. However, buying at a lower level may trigger some gains for the indices,” Mahnot explained.

Commodity prices dictating the movement of equities are quite evident as gold prices rose steeply from sub-$1,080 an ounce levels to $1,165 in just a fortnight.

Simultaneously, the gradual fall of crude oil from $55 to a barrel to sub-$40 in West Texas Intermediate (WTI) and Brent indices underscored the trend.

On the bright side, announcements on interest rate cuts, given the further fall in prices, small finance banks and new norms for minimum alternate tax (MAT) are expected to buoy the markets.

“The extended slide in oil prices has cast doubts on the chances of a Fed rate hike. This gives the Reserve Bank of India (RBI) a rope for pushing rates lower,” James said.

According to James, apart from the announcements over the issue of small finance bank licences, the markets will also be geared up for the government’s position on the new MAT norms.

This is expected to impact the margins of foreign funds and might impact the inflows from the FPIs to the Indian stock markets.

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