Market may turn volatile ahead of derivatives expiry

WITH June futures and options contracts set to expire on Thursday, volatility may heighten this week, as traders square off existing positions and build fresh ones in the July series. Fresh positions will be initiated, keeping in mind the possible outcome of the upcoming Union Budget and the likelihood of another bout of correction.
    Equity benchmarks shed close to 5% last week, largely due to heavy selling by foreign institutional investors (FIIs), who feel that valuations have become expensive after the threemonth long rally.
    "The market was due for a correction, as it had become overbought and going into (F&O) settlement, we see high volatility in the market," said Amitabh Chakraborty, President-equities, Religare Securities.
    The delay in monsoon is worrying investors, given the importance of steady rainfall to India's dominant rural economy.
    "The delay in the onset of monsoon and rising El Nino (global weather turmoil such as droughts and floods on abnormal warming of the eastern Pacific Ocean) risks have revived memories of the market selloff during the drought of 2002," said CLSA Asia-Pacific's analysts led by Mahesh Nandurkar in a report. "The water reservoir levels are already low and a poor monsoon season could hurt farm incomes and impose additional fiscal burden," they said.
    Although the contribution of agriculture to the gross domestic product has dropped to roughly 20% from 30% in 1990s, market participants believe stability in this sector is key to the overall economic growth.
    "An analysis of weak monsoons over the past indicates that the earnings impact has been mixed due to various offsetting factors," said JP Morgan's analysts, led by Bharat Iyer, in a report. "Consumption-related sectors, i.e. staples, discretionary and telecom, typically underperform over the July-September quarter and the fiscal in which the monsoon has been weak," they said. Although the broad consensus favours a further correction before the Budget, some think otherwise.
"We see the Nifty at 4,700-4,800 levels before the Budget and investors should invest in high beta value stocks," said Religare's Chakraborty. The Nifty ended at 4,313.60 on Friday.
    The response to the initial public offer of Mahindra Holidays & Resorts, one of the largest since the market went into a downturn in January last year, will be closely watched. The 93-lakh issue, which will open on June 23 and close on June 26, is priced in the Rs 275-325 per share band.
    nishanth.vasudevan@timesgroup.com 

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