RBI MPC on Friday: What SGX Nifty, Options Data, Chart Indicating?

  • Stock Market Analysis

Friday is an important event day as the RBI would be concluding its 3-day monetary policy committee (MPC) and would finally reveal the magnitude of a rate hike. Inflation in India is coming under control with the June 2022 CPI rise of 7.01%, compared to 7.04% and 7.79% in May and April 2022, respectively. However, the Fed's aggressive rate hike of 75 basis points last month would put pressure on the RBI to continue the trend of increasing interest rates. A rate hike between 25 to 40 basis points is expected in tomorrow’s decision.

As there would be increased volatility in the broader markets tomorrow, especially in the early morning, let us have a look at what the data is predicting.

Starting right off the bat with the chart, the Nifty 50 is definitely in the overbought zone. The continuous rally from the last many sessions, especially after the US Fed’s move of 75 basis points rate hike has probably discounted a rate hike of a minimum of 25 basis points. Hence, a significant move (on either side) is not expected if the RBI goes for a 25 bp hike. However, a hike beyond 40 bp, especially when the Nifty 50 is overbought would highly likely disgruntle bulls which might lead to some selling. The current 17,400 - 17,500 is already a stiff resistance for the Nifty, and in this range, a shock to investors would probably even make it an intermediate top for the index.

As of the evening, the SGX Nifty is trading lower with a minor cut of 10 - 15 points to 17,390, hence no firecrackers are expected at the opening, just as what we have frequently been seeing with gap-up openings. The US market is also trading a bit lower with the Dow Jones falling 70 points to 32,757 and a 50-point cut in the S&P 500 . Surely, a green picture tomorrow, at the open is probably unlikely (although the US markets have just started their session and a lot can change by the end of their closing).

Options chain data shows that the highest open interest (OI) has been added at the 17,500 CE for the 11 August expiry, at around 40.2K contracts, as bears are confident that the market would probably not breach this level on the upside. Today, also the Nifty futures high was 17,504.95, from where a very sharp selling pressure was seen. Hence this level is getting confirmation from both the chart and the options data to be strong resistance.

Talking about the support, the highest OI has been added at the 17,000 PE for the current weekly expiry, at around 43.4K contracts (roughly the same OI at 17,500 CE). Hence, this level would act as strong support. Therefore, the range for tomorrow and the next week is 17,500 - 17,000. This suggests, that the Nifty has probably more downside potential than upside. However, the event day could be highly volatile, and therefore adhering to proper risk management is recommended. 

Disclaimer- I have Nifty options in my portfolio and the above article is not a recommendation to buy/sell/hold any security.

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