Nifty at 16800 looks encouraging in near-term, India VIX unlikely to rise; all eyes on FOMC rate decision By Anand James Persistent decline through the week followed by Friday’s positive close indicating a recovery phase this week speaks nothing about the ordeal that Nifty traders had to endure through this period. Prime reason has been how VIX has been behaving. Infact the decoupling of VIX has been a key discussion point last month too, with VIX failing to rise above March peaks despite Nifty going through sharp falls. This would mean that the systematic decline in VIX since March, has only found more momentum in July, registering a fall of 21.5% since the start of this month. But curiously, while VIX had large ebbs and flows through the last week, on all days except for Friday VIX ended on a flat note. This hurt all directional traders, who held positions overnight, as most intraday gains in premia were shaved off towards close, irrespective of the direction. Data thin week ahead With Indian CPI numbers already out, earnings numbers could dominate the proceedings until FOMC’s rate decision on the 27th. UK inflation data and ECB rate decision are scheduled for the 20th and 21st respectively. UK’s June inflation readings are likely to beat the May CPI numbers of 9.1%, upping the chance of an August rate hike by 50bps, but this will not surprise markets, given how the reaction to last week’s surprise US CPI numbers have panned out. Prospects for rise in volatility There is a low chance of a dramatic rise in VIX, at least in the early part of the week, with few triggers to influence next Wednesday’s rate decision expectations. Carry forward decision on Friday, would rely on expectations on US PMI readings, which is not expected to be a major driver, unless a sharp fall below 50 is seen. The odds of a 100 bps hike had risen sharply to 80% at one point last week, but it has thereafter fallen to less than 30%, with a 75bps hike almost a given, when FOMC meets on the 27th. Since we do not have anything with the magnitude of US CPI numbers to force a rethink on Fed hike, volatility expectations are benign, unless China’s covid scare escalates. Technical construct Failure to close below 15900 last week, despite a few intraday scares, helped fit the ongoing pattern as a broadening wedge, encouraging us to look for 16800 as the near term objective in an optimistic scenario. This is consistent with our view of the last two weeks. We will begin by eying 16370 for the week, with a modest 16150 as the first objective, but with an inclination of doubling up on longs should Nifty clear the wall of worry at 16200. Downside marker for this view may be placed at 15970 (Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)
If the current trend continues for a longer period of time, not only oil mills but oilseeds growers will also not be able to get good rates of their produce, says Samir Shah, president of Gujarat State Edible Oils and Oil Seeds Association (GEOA). Shah who is also past president of SOMA says that due to various international factors rates of edible oils had gone up considerably, especially imported oils earlier this year.
“With a view to curb rising prices of edible oil, the Government of India reduced import duty on edible oils. Considering the fact that India is producing hardly 30 percent of its edible oil requirement, the decision was right at that point of time. Now when international prices of edible oils have gone down by 15 percent to 25 percent and high production period has started in edible oil exporting countries, the government should gradually increase import duty to protect local oil mills and oilseeds growers,” said Shah. GEOA has also made representation before Union Minister for Commerce & Consumer Affairs, Piyush Goyal to increase import duty.
In June import duty on edible oils was ranging from 35 to 55 percent, since then the government gradually reduced import duty and at present it is ranging from zero percent to 15 percent on different edible oils, he said.
Just a month back prices of edible oils were through the roof and the government took appropriate measures by reducing import duty in order to protect consumers, says Atul Chaturvedi, president of Solvent Extractors Association of India (SEA). “Prices of edible oils are coming down globally. Kharif sowing has already started across the country. In the interest of local farmers, it is high time to enhance import duty in a phased manner to encourage local edible oil value chain,” opined Chaturvedi.
On Thursday imported Palm oil prices were at around Rs 2100 per 15 kg as against local Rs 2700 and Rs 2550 of groundnut and cottonseed oils. Prices of other local oils including ricebran, coconut, soyabean and mustard remained as high as Rs 2350, Rs 2520, Rs 2500 and Rs 2580 respectively.
India imports around 13-13.5 million tonnes of edible oils, of which around 8-8.5 million tonnes (around 63 per cent) are palm oil. Though the price of other imported Sunflower oil remained at around Rs 2700 per 15 kg, but import quantity of the oil is much lower than that of palm oil.