Nifty ends below crucial 8,650 level as inflation rise hits rate cut hopes

Bears hammered bulls throughout the session giving bulls no chance to pounce back, taking full control over the market, bears dragged Nifty below its crucial 8,650 mark. Even after getting a gap up start, 50-share barometer index, Nifty, ended the session with a loss of massive 128 points. Profit taking was seen across the board with banks leading the decline as rising bond yields would erode the value of their bond portfolio's while the weakening rupee also weighed on market sentiment. On the global front, Asian markets ended in the green after weak U.S. retail sales alleviated jitters about the Federal Reserve's timetable for raising interest rates. Meanwhile, most of the European markets made a positive opening in the early deals on Friday as traders added to their bets on an economic recovery in Europe.

Back home, Indian equity indices made a positive start due to optimism about the government’s reform agenda after Parliament had on Thursday passed a bill raising foreign investment limits in the insurance sector. Thereafter in late morning trade, market turned into red on sustained profit-booking activities by both funds and retail investors on fears that rate cut cycle may get stopped due to rise in CPI inflation. On the macro-economic front, retail inflation rose to 5.37 percent in February, the third consecutive month of uptick, while the industrial output grew by modest 2.6 percent in January, diminishing hopes of another rate cut by the Reserve Bank. Sentiments remained cautious ahead of data on inflation based on the wholesale price index for February 2015 and Corporate advance tax payment for the fourth and final installment which is due by Sunday, 15 March 2015, could provide clues on Q4 March 2015 corporate earnings. In the late afternoon session, market extended its losses on account of selling in all major indices. Banking, Capital Goods and FMCG were among the big losers. Finally, Nifty ended the session near its intra-day low level with a loss of massive 128 points.

The top gainers from the F&O segment were DLF, JSW Energy and Idea Cellular. On the other hand, the top losers were Jaiprakash Associates, Indian Overseas Bank and Unitech. In the index options segment for March series, maximum OI continues to be seen in the 9000-9200 calls and 8500-8400 puts indicating the expected trading range.

Meanwhile, India VIX - the gauge of underlying volatility in the market - has risen in today's session as traders turned cautious after the benchmark breached psychological level of 8700. Furthermore, all of the sectoral indices on the NSE made a negative closing. CNX FMCG down 2.04%, CNX Media down 1.94%, Bank Nifty down 1.89%, CNX PSU Bank down 1.79% and CNX Finance down 1.62% remained the top losers in the trade.

The India Volatility Index (VIX), a gauge for market's short term expectation of volatility increased by 1.45% and reached 14.96. The 50-share CNX Nifty was down by 128.25 points or 1.46 % to settle at 8,647.75. Nifty March 2015 futures closed at 8674.40 on Friday at a premium of 26.65 points over spot closing of 8,647.75, while Nifty April 2015 futures ended at 8748.30 at a premium of 100.55 points over spot closing. Nifty March futures saw contraction of 0.31 million (mn) units, taking the total outstanding open interest (OI) to 24.67 million (mn) units. The near month derivatives contract will expire on March 26, 2015.

From the most active contracts, SBI March 2015 futures traded at a premium of 0.80 points at 281.80 compared with spot closing of 281.00. The number of contracts traded were 29,376.

ICICI Bank March 2015 futures traded at a premium of 0.70 points at 331.70 compared with spot closing of 331.00. The number of contracts traded were 29,797.

HDFC Bank March 2015 futures traded at a premium of 3.85 points at 1049.40 compared with spot closing of 1045.55. The number of contracts traded were 19,543.

Reliance Industries March 2015 futures traded at a premium of 2.00 points at 854.40 compared with spot closing of 852.40. The number of contracts traded were 19,545.

Axis Bank March 2015 futures traded at a premium of 1.50 points at 573.00 compared with spot closing of 571.50. The number of contracts traded were 31,831.

Among Nifty calls, 8900 SP from the March month expiry was the most active call with an addition of 0.65 million open interests. Among Nifty puts, 8700 SP from the March month expiry was the most active put with a contraction of 0.70 million open interests. The maximum OI outstanding for Calls was at 9000 SP (5.45 mn) and that for Puts was at 8,500 SP (4.74 mn).  The respective Support and Resistance levels of Nifty are: Resistance 8787.75 --- Pivot Point 8709.75 --- Support --- 8569.75.

The Nifty Put Call Ratio (PCR) finally stood at 0.96 for March month contract. The top five scrips with highest PCR on OI were Bharti Airtel (1.28), Ranbaxy (1.03), Sun TV (0.98), IDEA (0.94) and Maruti Suzuki (0.86). 

Among most active underlying, DLF witnessed an addition of 1.40 million of Open Interest in the March month futures contract, followed by State Bank of India witnessing a contraction of 1 million of Open Interest in the March month contract; ICICI Bank witnessed a contraction of 1.58 million of Open Interest in the March month contract, Reliance Capital witnessed a contraction of 0.67 million of Open Interest in the March month contract and Larsen & Toubro witnessed an addition of 0.15 million of Open Interest in the March month's future contract.