Prasad Sees 500-600 Point Nifty Rally on Kerala Election Results
kerala election results were not the driver of the market move, but Sanjeev Prasad said bulls were positioning for a 500-600 point rally in the Nifty50 early this week on peace-deal hopes in West Asia and a possible Bharatiya Janata Party win in West Bengal. Kotak Institutional Equities was pencilling in Brent at $85 a barrel this fiscal year, he said.
Prasad said the base case depended on a peace deal in West Asia by mid-May. He added that if oil averaged $100 or more on a prolonged impasse or escalation, the current account deficit would reach 2.6% of GDP, with a more adverse hit on macros.
Sanjeev Prasad on Brent
"We are pencilling in an average $85/bbl for Brent this fiscal year on hopes of a peace deal in West Asia by mid-May" — Sanjeev Prasad said. He also said, "That will contain the CAD at 2% (of GDP), which is the base or bad case. But, if oil averages $100 or more on a prolonged impasse or escalation, then we get an ugly scene with CAD at 2.6%, and a more adverse hit on macros."
The trade setup moved with oil. The India Vix jumped by less than 6% to 18.46 on Thursday when oil briefly hit $126 a barrel, then crude closed 3.4% lower at $114.01 on hopes of a deal.
Axis Securities on Vix
Rajesh Palviya of Axis Securities said, "The moderate rise in Vix on Thursday reflects the optimism of the market despite the oil spike". He added, "This is very unlike what happened when oil hit $120 in March, when panic was palpable, and discounts an immediate rally toward 24500-24600 levels, subject to no negative surprises."
That same caution showed up in derivatives trading. Nifty weekly options expiring on 5 May saw heavy buying in the 24000 call, where open interest jumped 142% to 79,314 contracts; the contract ended down 0.74% at 23,997.55 on Thursday after the index recovered 0.8% from the day's low and closed 8% above its 2 April low.
Sudhir Joshi's View
Sudhir Joshi said, "The market will try to rally to 24500-24600, which was its high last month, early next week, if there are no negative surprises". The Nifty had fallen 12% from 25,178.65 on 27 February to a 52-week low of 22,182.55 on 2 April, then recovered to 23,997.55 on Thursday.
Friday brought another tailwind for risk assets: Indian markets were closed for Maharashtra Day, crude oil fell 5% to $108.17 after Iran proposed a further round of peace talks, and the S&P 500 reached a record 7272.52. Traders who wanted exposure were already leaning on the 24000 call, and the market was still looking at the same near-term target when the week ended.
