More downside ahead

F&O OUTLOOK

Bears initiated fresh shorts in the Nifty futures resulting in an increase in the open interest by 12 per cent despite only four days remaining for the expiry of the Nifty June futures. The July futures contracts witnessed a modest 19 per cent rollover.

According to an analyst with HDFC Securities, markets went into a sell mode on expectations of more action from the Reserve Bank of India (RBI). It is now feared that RBI may increase interest rates further to bring down inflation.

The Wholesale Price Index, India's most widely watched inflation measure, rose 11.05 per cent in 12 months to June 7, its highest since May 1995. The fact that this was much higher the expected 9.82 per cent shocked the street.

India is not alone in witnessing inflation hitting the roof. Among other countries, the Euro Zone inflation is at a 16-year high, Australia's at 17-year and Pakistan's at 30-year high.

The technical set-up at the current levels for the Nifty and the Sensex is a bit conflicting and taking a direction call is rather difficult. Technically, the 14,600 level was a crucial level for the Sensex for a further downturn.

The Sensex on Friday closed at 14,571, which means further downside going forward.