Benchmark stock indices Sensex and Nifty kicked off March futures and options (F&O) series on a weak note, as the US President Donald Trump announced beginning of Mexico and Canada tariffs from March 4. This is in addition to doubling of 10 per cent universal tariff charged on imports from China. An overnight 8.5 per cent drop in the US market darling Nvidia sent Nasdaq tumbling, hurting investor sentiment further. Markets across Hong Kong, mainland China, Korea and Japan crashed up to 3 per cent. India was no exception.
"Avoid aggressive positioning in markets as of now till macro data bottoms out. Timewise correction till November or December possible. If data-set is bad, a leg of further pricewise correction is likely," said Manish Jain- Chief Strategy Officer, Institution Business, Mirae Asset Capital Markets.
Stock markets dislike uncertainty and uncertainty has been on the rise ever since Trump was elected the US President. The BSE Sensex stood at 73,917.17, down 695.26 points or 0.93 per cent. The NSE Nifty fell 227.50 points, or 1.01 per cent, to 22,317.55.
Trump tariffs & MAGA
"The spate of tariff announcements by Trump has been impacting markets and the latest announcement of additional 10 per cent tariff on China is a confirmation of the market view that Trump will use the initial months of his presidency to threaten countries with tariffs and then negotiate for a settlement favourable to the US," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. How China responds to the latest round of tariffs remains to be seen. Even now the markets have not discounted a full blown trade war between the US and China, Vijayakumar.
"It is likely to be avoided. However, the uncertainty element has increased as reflected in the sharp spike in CBOE volatility index to 21.13," he said.
Nuvama warned if the Trump administration pursues higher tariffs, it will risk retaliation and a potential global trade war. This could strengthen the dollar and push US yields higher, which would not only be a double squeeze on the already weak global economy but also dampen US consumer sentiment.
F&O rollovers & March series
As far as rollovers are concerned, Nifty futures rollovers stood at 84 per cent against 79 per cent in the last three series. Nifty futures will start the March series at lower open interest base of Rs 39,800 crore against OI of Rs 42,100 crore seen at the start of February series. The market-wide futures open interest at the start of March series stood at Rs 4.365 lakh crore as compared with Rs 4.64 lakh crore at the start of February series. Market-wide rollovers came in at 90 per cent, higher than the three-month average of 89 per cent.
"We do not expect a sharp recovery in March, as cash volumes show no signs of picking up, indicating weak buying interest. Persistent FII selling is unlikely to ease soon. The Nifty Index may stay volatile and can see some bounce till 22,900 mark. Meanwhile, SMIDs may face continued sectoral rotation and overall derating, especially where negative news emerges and valuations remain stretched," Nuvama said.
The brokerage said Nifty could immediately see some bounce till 22,900. However, in this series the brokerage said it won’t be surprised if the index drifted till 22,000, pressured by IT and select private banks.
"In terms of levels, the support level at 22,500-22,400 is critical for the Nifty index in the near future and requires close monitoring. Its ability to hold may determine whether a rebound is possible or if further declines are likely. On the flip side, the bearish gap of 22670-22720 remains a daunting task for the bulls, and a decisive breakthrough could only provide a short-term breather in the market sentiments," said Sameet Chavan of Angel One.
Market oversold but valuations...
Nomura India said broader markets appear technically oversold, with the percentage of stocks above 200-DMA in NSE500 and the Nifty index close to record lows. Historically, that implies positive performance over the next three, six and 12 months with high hit-rates, the brokerage said.
"A key caveat is that valuations today are much higher than during previous bottoms. Another silver lining is that EM equity investors are already underweight India, with a larger underweight on India equities compared to HK/China equities, based on our survey of large EM funds," it said.