Nifty drifts lower on RBI’s latest move to tighten rupee liquidity

Nifty closed below the psychological 6000 mark following a sell-off in banks after the Reserve Bank of India's latest move to tighten liquidity in order to contain excessive speculation and volatility in the foreign exchange market. RBI reduced the liquidity adjustment facility (LAF) for each bank from 1 per cent of the total deposits to 0.5 per cent, thus limiting the access to borrow funds from the central bank. The limit will come into force with immediate effect and continue till further notice, the RBI in another measure to suck out liquidity from the system, has asked banks to maintain higher average CRR (cash reserve ratio) of 99 per cent of the requirement on daily basis as against earlier 70 per cent. CRR is portion of deposits that banks are required to keep with RBI.

Following the RBI's measures, the rupee today gained 65 paise to 59.11 in late trade at the Interbank Foreign Exchange market on fresh dollar selling by exporters. Meanwhile, bond yields surged on concerns that the RBI might intensify defence of the beleaguered rupee if the attempted rescue failed. The benchmark 10-year bond yield hit a 14-month high of 8.50%, up 33 basis points on the day and 95 basis points since the RBI's first round of measures on July 15. The one-year overnight swap rate jumped to 9.30%, its highest since September 2008 when the collapse of Lehman Brothers was roiling global markets.

On global front, the US markets closed mostly lower overnight after a decline in a regional manufacturing gauge prompted concern, but the Dow industrial climbed to a record close. Asian markets ended mixed after a choppy trade with Chinese benchmark ending with a cut of over half a percent after China’s vast manufacturing sector slowed to an 11-month low in July as new orders faltered and the job market darkened, suggesting the world’s second-largest economy is still losing momentum. However, European markets opened in the green ahead of manufacturing activity data from the euro-zone.

Pressurized by global weakness and RBI measures, index has made a negative start with banking stocks bearing most of the brunt. Index continued to drift lower and hit one-week low below the psychological 6,000 mark in late morning session. Indices cut intraday losses in afternoon trade as European markets edged higher in early trade.  In Last leg marginal recovery was seen on rupee strength, but it was not enough to pull back markets into the green terrain.

Meanwhile, sectoral indices on the NSE made a negative closing. CNX IT up by 0.86% and CNX Pharma up by 0.23% remained the top gainers in the trade. While, CNX Bank down by 4.62%, CNX PSU Bank down by 4.28%, CNX Finance down 3.95%, CNX Service down by 2.12% and CNX Metal by 1.87% were the loser in the trade.The India VIX witnessed an addition 1.14 % at 16.91 as compared to its previous close of 16.72 on Tuesday. The 50-share CNX Nifty lost 87.30 points or 1.44% to settle at 5,990.50.

Nifty July 2013 futures closed at 6002.70 on Wednesday at a premium of 12.20 points over spot closing of 5,990.50, while Nifty August 2013 futures ended at 6036.75 at a premium of 46.25 points over spot closing. Nifty July futures saw contraction of 2.48 million (mn) units taking the total outstanding open interest (OI) to 9.37 mn units. The near month July 2013 derivatives contract will expire on July 25, 2013.

From the most active contracts, DLF August 2013 futures last traded at a discount of 1.00 points at 173.95 compared with spot closing of 174.95. The number of contracts traded was 17,765.

Yes Bank August 2013 futures last traded at a premium of 6.10 points at 387.80 compared with spot closing of 381.70. The number of contracts traded was 22,649.

Yes Bank July 2013 futures were at a premium of 3.00 points at 384.70 compared with spot closing of 381.70. The number of contracts traded was 48,877. 

ICICI Bank July 2013 futures last traded at a premium of 1.45 points at 953.45 compared with spot closing of 952.00. The number of contracts traded was 21,255.

DLF July 2013 futures last traded at a premium of 0.20 points at 175.15 compared with spot closing of 174.95. The number of contracts traded was 25,314.Among Nifty calls, 6,000 SP from the July month expiry was the most active call with an addition of 1.99 million open interest.

Among Nifty puts, 5,900 SP from the July month expiry was the most active put with an addition of 0.45 million open interest.

The maximum OI outstanding for Calls was at 6,200 SP (6.22 mn) and that for Puts was at 5,900 SP (9.29 mn).

The respective Support and Resistance levels of Nifty are: Resistance6037.63 -- Pivot Point 6000.12 -- Support-- 5952.98.

The Nifty Put Call Ratio (PCR) OI wise stood at 1.63 for July-month contract. The top five scrips with highest PCR on OI were MRF 5.00,   Sesa Goa 2.22, Ambuja Cement 1.96, Sun Pharma 1.75 and HUL 1.67.

Among most active underlying, Jaiprakash Associates witnessed contraction of 12.01 million of Open Interest in the July month futures contract followed by Unitech which witnessed contraction of 9.97 million of Open Interest in the near month contract; IFCI witnessed contraction of 18.12 million in the July month futures. Also, R Com witnessed contraction of 13.62 million in Open Interest in the July month contract and Reliance Power witnessed contraction of 6.86 million of Open Interest in the near month futures contract.