Volatility seen ahead of derivative expiry

Short-covering and the propping up of net asset values have potential to boost frontline as well as second-rung names next week

Markets are likely to remain volatile in the next week ahead of the expiry of March derivative contracts as traders roll-over positions to the April 2016 series.

In the week to March 23, benchmark share indices gained for the fourth straight week to end 1.5 per cent higher with rate-sensitive shares leading the gains on hopes of a greater-than-expected rate cut by the Reserve Bank of India, supported by robust foreign inflows during the holiday-truncated week.

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The S&P BSE Sensex ended up 1.5 per cent, or 385 points, at 25,338 and the Nifty50 gained 1.5 per cent, or 112 points, to close at 7,717.

The broader markets outperformed the benchmark indices with the BSE Midcap index rising 2.2 per cent and Smallcap index ending 1.9 per cent higher.

“We will get into the derivative expiry week as well as the financial year-end. Short-covering and NAV (net asset values) propping up has the potential to boost frontline as well as second-rung names next week. We hope to come back refreshed from a long-weekend to take up fresh positions to gain from further upsides.

Nifty could face headwinds at 7,800 and the 200-dma (day moving average) at 7,900. Even these levels present a 1-2.5 per cent gain from the current level for the next week,” said Ravi Shenoy, assistant vice-president (midcaps research) at Motilal Oswal Securities.

Foreign institutional investors were net buyers in equities to the tune of Rs 3,468 crore during the truncated week, according to provisional stock exchange data.

Markets will remain closed on Thursday on account of Holi and on Friday on account of Good Friday.

Economy

The country’s current account deficit (CAD) narrowed to $7.1 billion (1.3 per cent of gross domestic product) in the quarter ended December 2015, from $7.7 billion (1.5 per cent of GDP) in the year-ago period.

The CAD was also lower than $8.7 billion (1.7 per cent of GDP) recorded in the second quarter ended September 2015.

Stocks

Shares from rate-sensitive sectors such as banks, realty and auto were among the top gainers during the week under review.

State-owned banking major State Bank of India ended up three per cent after the bank raised Rs 500 crore through issue of bonds on a private placement basis. Private banking majors ICICI Bank and HDFC Bank ended nearly two per cent higher. Auto shares were also in top gear with Tata Motors, Maruti Suzuki, Bajaj Auto and Hero MotoCorp rising two to three per cent each.

Mahindra & Mahindra gained two per cent after the group announced its entry into the branded dairy products business on Tuesday.

Capital goods shares also witnessed renewed buying interest on the back of order inflows.

Larsen & Toubro ended up 3.5 per cent after its construction division won orders worth Rs 3,205 crore, while state-owned engineering major BHEL ended up 2.8 per cent after it commissioned another 270-Mw unit at Goindwal Sahib coal-fired power project in Punjab.

Further, the company has recorded order wins of 7,661 Mw, mainly from power-deficient states such as Tamil Nadu and Karnataka.

Bharti Airtel ended up four per cent after the firm entered into an agreement with American Tower Corporation through its subsidiary Airtel Tanzania to sell 1,350 towers in the African country. Analysts estimate the deal size to be in the region of $180 million.

Sun Pharma surged nearly four per cent after the company said it had entered into a partnership with AstraZeneca India in Type 2 diabetes.

Week ahead

Markets are likely to remain volatile ahead of the expiry of March derivative contracts on Thursday, March 31.

Index heavyweights and fundamentally sound midcap and smallcap shares will be in focus as fund managers try to boost the NAVs to their respective schemes with the next week being the last for 2015-16.

Aurobindo Pharma, Bharti Infratel, Eicher Motors and Tata Motors (DVR) will be in focus as they will be included in the Nifty50 from April 1, while Cairn India, Vedanta and Punjab National Bank will be excluded.

Auto shares will be in focus as they will start releasing their sales numbers for March from Friday onwards.