FPI shorts may be hit by dovish MPC
Mumbai: The bears will scurry for cover if the Reserve Bank of India’s Monetary Policy Committee (MPC) spells out clearly that it would pause key rate hikes after one more round on 6 April, but will stay put if the rate setting committee’s language on its future actions is tentative, said market experts.
Markets have priced in a 25 basis point rate hike, but will closely track the commentary on MPC’s outlook. “The market has discounted a 25 bps hike, but will take cues from MPC’s language,” Nilesh Shah group president and managing director at Kotak AMC, said. “If the language is indicative of firm pause after a hike, shorts will scurry for cover, but if it is tentative then the shorts will persist.”
Since the Indian markets are not driven by rates alone, factors such as crude oil price and earnings performance will set the course, if the market feels that the MPC’s commentary leaves room for doubt on a rate pause, Shah said.
FPIs have covered some of their cumulative bearish positions on the Nifty as well as the Bank Nifty future contracts to 140,645 on 3 April from record highs of 196,378 on 22 March. Over the period, the Nifty has risen 1.4% to 17,398.05 and the Bank Nifty rallied by 2% to 40,813.05.
Along with the outstanding shorts, they’ve also sold shares worth $2.9 billion so far in this calendar year. To be sure, they have turned net buyers of 0.97 billion in March, and 0.28 billion so far in April. “Market has priced in a 25-bps hike so the commentary will assume significance,” said Nirmal Jain, chairman and founder, IIFL Group.
Avendus chief executive officer Andrew Holland expects a “short covering-induced” rally from the current levels if the MPC delivers a dovish commentary, anticipating a moderating inflation. The Australia central bank’s pause after 10 consecutive rate hikes is a sign that rate cycles globally might be nearing a peak, he said.
RBI’s worry is core inflation, apart from the volatile energy and food price, which stands at 6.1%. Crisil chief economist DK Joshi said the impact of rate hikes since May last year will show with a lag and core inflation could moderate to 5.5%.
Rohit Srivastava, founder, IndiaCharts, expects the Nifty to trend upwards in a 17200-17750 range while the Bank Nifty would also be biased to the upside of a 40060-41660 range post the MPC meeting.
Rajesh Palviya, VP (technical & derivatives research) Axis Securities is confident of a sustained short covering rally with HNIs and corporate investors squeezing the short FPIs.
His range for the Bank Nifty amid the imminent MPC outcome post April 6 is 40300-41500 with an “upside” bias.
Crude oil price rallied 6% on Monday after the Opec+ announced a surprise 1.16 mn barrel per day output cut effective May to support prices over the weekend.
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