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Markets wary ahead of RBI policy

Throughout September, US indices like S&P 500 and Nasdaq composite largely trended lower and currently hovering near their June month’s low. Brent crude oil continued its multi?month downtrend, while Dollar index rallied toward its 20 years high. With stability amiss in Gold and Silver, they largely consolidated at the lower band.

September series Highlights a) Snapping two series’ winning streak, Nifty drop below the 17000 mark, having failed to sustain above 18000 b) BankNifty was the out? performer at the start of the month; however, after scaling record high, it suffered a sharp correction, thereby losing as many as ~4k points (~9.5%) in past seven sessions. C) All sectoral indices ended in red, except FMCG index which continued to trend north; and Pharma index which settled on a positive note d) Despite losing 6% eoe, IT index managed to settle above its July low.

Rollovers for Nifty/Bank?Nifty stood at 78% (~1.2cr shrs)/82% (~24lakh shrs) vs 75% (~1.1cr shrs)/80% (~22lakh shrs) of the prior month. Market wide rolls were 89% vs 92% for the prior month

Short strangle strategy on Nifty (Expiry: 6th October)  

Sell 17200 strike call and 16500 strike put with combined premium near 120  

Stop loss is 17760

Target is 1

Rationale:  

* After recent sell?off, Nifty is likely to remain choppy.  

* Due to truncated next week, selling reasonably OTM options seems prudent strategy to follow. 

Sector wise positioning:  

* Recent swift sell?off in Nifty has broken various support levels and filled upward gaps formed during late July and August. Due to oversold condition, minor recovery is possible, however, 17300 levels could pose a hurdle zone. Moreover, given higher India vix levels, markets will continue to be volatile.

* Select Pharma stocks saw positive traction. Dr. Reddy rebounded off the support zone with rollover 87%; stability to unlock further upside potential. Cipla's on?going upward trajectory at uncharted zone is likely to continue.

* Mixed action is possible in broader indices.  

* As per monthly seasonality of last ten years , Nifty and BankNifty largely remained positive in the October month; however to continue similar trend in the coming month, sustenance above 16800/37500 for Nifty and BankNifty respectively is necessary.  

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