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Volume IconWhy March F&O series may keep investors on edge?

The Russian invasion led to a bloodbath on Dalal Street. This and other headwinds have kept the markets choppy in the February F&O series. Will the March series be equally volatile? Let's find out

Markets, market fall

The February series was one of the most volatile series since April 2021 expiry, NSE data shows, with the average daily swing for the NSE Nifty 50 index as high as 1.45 per cent (average difference between the day’s high and low).
 
Such levels were seen back in April 2021 series, when the average daily swing rose to 1.55 per cent and earlier in the March 2021 F&O series when the swing was as high as 1.77 per cent.

The mean average for the last 12 months F&O expiry has been 1.19 per cent, with July 2021 series as the least volatile with a daily average swing of 0.77 per cent. The Nifty50 index has slipped over 4 per cent in February F&O series to 16,200 levels.
 
So what does this mean and how should you approach the March F&O series that begins today?
 
Analysts expect the March series to be choppy as well given the multiple headwinds that the markets face. At the fundamental level, foreign portfolio investors (FPIs) remain extremely uncomfortable with India’s valuation premium, analysts said, and have sold nearly $11 billion worth of stocks over the past six months.
 
The markets will keep a close tab on the ongoing tussle between Russia and Ukraine. Analysts point at keeping a close eye on the consequential sanctions impacting businesses with Russia, and any spill-over of the impact on the neighbouring European countries. On the positive side, a peace deal could send stocks soaring across the globe.
 
“Equity markets always react in a magnified manner to the initial events and finally adjust to the fundamental consequences of the events. Global equities – including the Indian markets – may fall another 2% to 3% from the current levels and would start adjusting for the perceived eventual consequences thereafter,” says G Chokkalingam.
 
After a few weeks, the war either would stop or continue as a proxy war for a longer duration. The global equities would adjust for this eventual consequences within two - three weeks”, Chokkalingam adds. 
 
As a fall out of the geopolitical situation, rising crude oil prices are proving to be another sore point for global equity markets, especially India that imports around 80 per cent of its crude oil requirement. Brent crude broke above the $100-mark in trade on Thursday, after Russia ordered troops to invade Eastern Ukraine. With global economies battling inflation, soaring oil prices can further fuel inflation and in turn disturb the fiscal math. If the prices remain elevated for long, it will have an impact on corporate earnings growth across some sectors as well over the next few quarters.
 
Another global development to keep an eye out for is US Federal Reserve meeting on March 15-16. According to experts, the markets so far seem to have factored in a 25 basis point (bp) rate hike by the US Fed, and any disparity in expectations could result in a knee jerk reaction for the markets.

At the domestic level, the outcome of the ongoing assembly polls across five states, including Uttar Pradesh, Punjab to be announced on March 10 will be keenly watched. Although there may not be a direct correlation between the elections and markets, any favourable verdict for BJP in non-ruling states such as Punjab and Manipur could boost the sentiment.
 
Lastly, financial year-end portfolio rebalancing by DIIs and retail investors who have mostly been net buyers across fiscal 2021-22 may want to book profit towards the financial year end.
 
On Friday, the markets will continue to keep a tab on the developing geopolitical situation and its impact across key asset classes. Stock-specific movement based on news flow is also likely.
 

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First Published: Feb 25 2022 | 8:00 AM IST

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