RBI MPC in Focus: The Nifty 50 continued its downward trend for the sixth consecutive session, falling nearly 1% on October 7. This decline is largely attributed to substantial foreign capital outflows, escalating geopolitical tensions, and cautious sentiment among investors as they prepare for the upcoming Q2 earnings reports and the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting.
As market sentiments remain bleak, the RBI’s MPC gathering is central to determining its policy rates and overall stance on monetary policy.
Market analysts anticipate that the RBI will maintain the benchmark repo rate at 6.5% for the tenth consecutive meeting.
Mandar Pitale, head of treasury at SBM Bank India, noted that during the previous MPC meeting in August, RBI members showed a preference for sustaining the policy rate rather than making immediate changes.
Pitale mentioned, “Considering the current domestic growth and inflation dynamics, with strong GDP growth and an elevated near-term inflation projection, these internal members are not expected to exhibit any urgency towards easing rates immediately to stimulate growth.”
“The MPC has consistently maintained a restrictive policy approach until inflation steadily aligns with the target of 4%. Given the unfavorable base effects, achieving a Consumer Price Index (CPI) near 5%, either above or below, will be pivotal for the MPC’s decision to ease rates in the upcoming October meeting. The current easy financial conditions provide a conducive environment for a gradual policy stance change in the future, alleviating pressure on the MPC from announcing any immediate shifts in the existing stance,” Pitale added.
Vaibhav Porwal, co-founder of Dezerv, expressed skepticism about the likelihood of a rate cut during this MPC meeting. He outlined that three crucial outcomes will be inflation projection, growth assessment, and banking liquidity considerations.
Porwal stated, “Although rising crude oil prices could temporarily impact inflation figures, the RBI is likely to remain cautious before altering its inflation projections. It is plausible that the RBI may adjust its growth forecasts downward, accounting for ongoing global uncertainties and domestic challenges. Given the adequate liquidity present in the banking system, the RBI may not perceive an immediate necessity to change interest rates.” He concluded that the market is not expecting any substantial impact from the MPC meeting, but it will closely follow RBI’s cues on inflation and growth outlooks.
How to Trade Nifty 50 Ahead of MPC Outcome?
In light of the RBI MPC outcome approaches, several experts have shared trading strategies for Nifty 50 within the currently weakened market conditions:
Shilpa Rout, AVP – Derivatives Research, PL Capital – Prabhudas Lilladher
The Nifty index has notably dropped from 26,200 to 24,800 levels, experiencing a significant fall of 1,400 points within a short time frame, indicating the necessity for ongoing caution among traders. The options chain shows a slip in the 25,000 strike Put Call Ratio (PCR) hovering around 1. Should it dive to 0.6, a further decline could reach 24,400 levels. To navigate this caution, a bear put strategy for the weekly expiry is advisable:
Investors can consider buying the Nifty 24,900 Put Option at a premium of 170 and selling the Nifty 24,500 Put Option at 70, which results in a net investment of ₹100 with a maximum potential gain of ₹300, thus achieving a favorable risk-reward scenario.
Mehul Kothari, DVP – Technical Research, Anand Rathi Shares and Stock Brokers
The broader market, alongside the benchmark indices, has witnessed significant corrections recently. With the forthcoming RBI policy announcement, Nifty appears to be oversold on short-term charts. Therefore, a potential rebound may be anticipated in the upcoming sessions.
To capitalize on this expected bounce, a conservative trading strategy like the Bull Call Spread can be deployed, involving the purchase of 1 lot of the 25,000 Call Option at approximately ₹175 while simultaneously selling 1 lot of the 25,400 Call Option at around ₹41.
Here’s a breakdown of the trade:
Max Potential Gain: ₹6,600
This strategy is favorable for traders looking to take a directional long position on the index while managing to limit the associated risks, which is ideal for those who prefer a controlled approach during volatile market conditions.
Shrey Jain, Founder & CEO, SAS Online
Should the Nifty 50 index decline further and reach the oversold territory, a notable reversal is likely. Current near-term support levels are identified at 24,540 and subsequently at 24,375. Although Nifty is currently rising, traders should avoid aggressively shorting the Nifty 50. Positional traders may consider buying Nifty around support levels targeting 24,800-25,000 while expecting Nifty to remain within a narrow range leading up to the weekly expiry.
Traders may also explore an iron condor strategy as follows:
Sell Nifty 25,400 Call Option for October 10, 2024 at ₹25
Buy Nifty 25,600 Call Option for October 10, 2024 at ₹12.5
Sell Nifty 24,450 Put Option for October 10, 2024 at ₹81.6
Buy Nifty 24,250 Put Option for October 10, 2024 at ₹48
Vishnu Kant Upadhyay, AVP, Research & Advisory at Master Capital Services
While many analysts speculate that the RBI is poised to cut rates following the footsteps of the Fed, such actions may trigger increased market volatility. It is recommended that investors diversify their portfolios, emphasizing large-cap stocks to shield against heightened volatility.
Additionally, it may be prudent to reduce exposure to mid- and small-cap stocks and implement profit booking strategies within those segments.
Despite Nifty prices dipping below its 55-day Exponential Moving Average (EMA), key support remains at 24,400, and the 78.6% Fibonacci retracement from the previous upward trend persists. Thus, buying Nifty around 24,750-24,800, with a stop loss positioned below 24,400, targeting 25,200-25,300, is recommended.
Stay updated with all market trends and performances for a clearer understanding of upcoming movements and strategies.
Disclaimer: The opinions and recommendations provided herein are solely those of the analysts and brokerage firms cited and do not reflect Mint’s views. Investors are encouraged to seek advice from certified professionals prior to making investment decisions.
