Indian equities have been under pressure, with the prolonged war, elevated crude prices, and foreign investor selling weighing on sentiment. But according to Feroze Azeez, Joint CEO of Anand Rathi Wealth, the market's derivatives setup suggests that a bounce could be more likely than another sharp fall from current levels.
Speaking to NDTV Profit, Azeez said the Nifty's Sept. synthetic futures were trading at a premium of around Rs 55, significantly higher than the theoretical premium of about Rs 15 based on the daily carry.
A synthetic future is created by buying a call and selling a put at the same strike price. According to Azeez, the higher-than-expected premium suggests that traders in the derivatives market may be less bearish than the cash market indicates.
“Bounce-backs are more probable than a further fall,” Azeez said, while acknowledging that technical indicators were pointing to a breakdown of lower levels.
FII Selling Vs Mutual Fund Flows
Foreign institutional investor selling has added to the pressure. Azeez pointed to around Rs 5,433 crore of FII outflows on Sept. 1 itself, following the MSCI rejig.
He noted that FIIs have historically tended to sell on the trading day following an MSCI rejig, with the pattern seen across most of the last eight quarters.
Domestic flows, however, continue to provide support. Azeez expects mutual fund net inflows for Aug. to be around Rs 27,000-28,000 crore, based on his algorithmic estimate. The official data is expected to be released by AMFI in Sept.
Another 2-3 Months Of Pain Possible
Despite the weak market trend, Azeez does not believe volatility has been particularly high in the traditional sense. He pointed out that realised volatility has remained low, with the Nifty ending five consecutive monthly expiries around the 24,000 level.
Implied volatility, meanwhile, is also relatively low at around 11.5%, compared with nearly 23% to 24% during the war-related market turmoil.
Azeez said another two to three months of pain could still be possible, but expects earnings to start reflecting in stock prices soon.
Looking ahead, he sees a 70% to 75% chance of the market moving higher through the festive season or the end of the calendar year, although he stressed that this is a probability and not a certainty.
For a six- to 12-month horizon, Azeez prefers the power infrastructure theme, particularly transmission, grid equipment, and power EPC companies. His preference is not to own electricity generation itself, but the “plumbing” through which electricity travels.
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