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We expect a knee-jerk reaction early on in today’s trading session. However, this reaction on the back of the RBI’s increasing the repo and reverse repo rates by 25 basis points, in all likelihood would be taken in its stride by the market. Coupled with this is the somewhat wobbly kind of a market in Asia barring Japan. Thus, we can expect a subdued start for the day. Watch the movement of Reliance during the day; if any real reaction were to come in it would show up in this market heavyweight.

The market might have anticipated the RBI action since towards the end there had been quite a bit of selling in Friday’s session after holding fort for so long, only in the last twenty minutes the sell off from higher levels happened. In any case, the Nifty PCR inched up to 1.68 from 1.67 and the Futures premium for the front month series of March went up from eight points to 12 points and the near month series of April saw the same going up from 10 points to 15 points vis-ŕ-vis the spot Nifty.

The addition of 800,000 plus open interest in Nifty 5300 Put options showed considerable confidence in the bulls; however, the fact that Nifty 5400 call options adding 540,000 plus in OI suggests that the band for this clearing for the Nifty would be between 5200 and 5400. As it is, both the 5-day moving averages—exponential and simple—are at 5219 and 5213 respectively. It is quite unlikely that the Nifty would fall below 5210 on a closing basis.

One important point needs to be mentioned here: this RBI-hike is not entirely unexpected by the financial markets. The 10-year bond-yield recently touched 8% and then dropped to 7.83%. Thus, the bond market was clearly anticipating a rate hike. In any case, it is a baby-step of another 25 basis points when market watchers have been expecting a rate rise of more than one full percentage points over a period of one year from now. Thus, in two tranches (late January and this one), the RBI has raised it by 50 basis points it is rather too early to see a sustained negative reaction in response to this.

While the received wisdom is surely that interest rates rising is a negative phenomenon and it is true also viewed from a long-term perspective, it would not be right to take an immediate negative stance on the market following this: what we should do is to observe market’s reaction to this. If it does not fall or falls only marginally to say 5220 and buying resumes then we should understand that the bullish momentum currently is all too powerful and could take the market higher.

Watch the movement of the market during the day. If you do not see a fall below 5210 at the close then most probably we are heading for higher levels going forward and the April series could be quite exciting for the bulls for they may take the Nifty to beyond 5500-level.

Rajat K. Bose