Volatility To Persist

It was expected to be a volatile session for Indian equities yesterday and it actually happened also. The benchmark indices opened yesterday on a weak note however ended the day on a positive note. While the Sensex closed at 27206 with gains of 116 points, Nifty closed at 8146 (up 25 points). A few counters like Tata Motors, ONGC and ITC were the major stocks that helped the index move in positive zone towards the close of trading sessions. Even Mid Cap and Small Cap indices ended the on a positive note. However outperformance of broader indices over the leading benchmark indices has declined.

As we had stated yesterday, this being F&O expiry week the volatility is here to persist. However there are few sectoral plays for the investors. First is the Gems and Jewelry segment which actually got some traction ahead of PM visit to US. It is been Anticipated that, the Gems and Jewelry exports are likely to get a much needed booster form the PM visit to US. No wonder the stocks from the sector were surging on the bourses.

Another play is likely to construction and contracting companies as the Government is likely to ease norms for foreign direct investment in construction sector. We are of the opinion that the easing of norms would be helpful for the cash trapped construction sector in a big way. After the announcement of smart cities, easing of norms for FDI is likely to be a booster for construction sector.

On the global canvas, the US stocks closed lower yesterday, with the S&P 500 suffering its biggest one-day decline since early August, as the latest housing data came in much weaker than expected, raising new concerns about the rate of growth in the economy. The Dow Jones industrial average fell 107.06 points, or 0.62 %, to 17172.68, the S&P 500 lost 16.11 points, or 0.8 %, to 1,994.29 and the Nasdaq Composite dropped 52.10 points, or 1.14 %, to 4,527.69. As for the US data, existing home sales fell 1.8 % in August, far from the growth of 1 % that had been expected. Global equities were also pressured after China's finance minister indicated the country would not increase stimulus measures in response to some weak data of its own.

As for the Asian markets, the indices were trading in a narrow zone ahead of announcement of China PMI data. The HSBC Manufacturing PMI for September arrived at 50.50 against the consensus of 50 and previous data of 50.20%. The HSBC Manufacturing Purchasing Managers Index (PMI) released by the Markit Economics is an early indicator of economic health in the× Chinese manufacturing sector. Any reading above 50 signals expansion, while a reading under 50 shows contraction. No wonder the Shanghai Composite is trading in green with gains of 0.38% while other leading indices are trading in red. Nikkei is down 0.71% and Hang Seng is down 0.06%. SGX Nifty is also trading in red with loss of 0.19%.

We expect the Indian equities to open in red today and then witness some amount of revival as the day progresses. Expiry ahead of announcement of data point like RBI policy meet would surely keep the markets volatile. Further after the announcement of RBI Policy there is a long weekend. This will surely make some impact on the F&O cycle. Today Mid Cap and Small Cap Indices are unlikely to outperform the benchmark indices.