The current price ratio (Nifty Bank/Nifty) has retraced and moved towards 2.48 from 2.50. We feel the outperformance in banking stocks will continue, which is again going to take the ratio higher towards 2.52 levels, says Amit Gupta of ICICIdirect.

The Nifty50 has been forming a base near 10300 for the November series. The up move can be extended till 10600. During the week, more than 20 lakh shares were added in 10300 Put strike, which kept downsides limited.

Call positions are getting added at the 10600 strike, which remains the target for the index. Closure was seen in the Nifty and Nifty Bank futures, which shows the short covering pattern seen in these indices

Volatility has seen a spike from 12.5 to 13.5 on account of closure of near the money Call strikes, which means downsides seem to be limited. This momentum should continue amid some range bound sessions.

Underperforming heavyweights from various sectors like banking, auto, IT and pharma have recently shown some resilience, which means, on any intermediate profit booking, the Nifty would be supported by these heavyweights.

In addition, increase in price ratio of (Nifty Bank/Nifty) to new highs means the performance in Nifty Bank would be supportive for the Nifty.

Being an expiry week, an opportunity can be seen in underperforming stocks where a short covering is expected.

The current price ratio (Nifty Bank/Nifty) has retraced and moved towards 2.48 from 2.50. We feel the outperformance in banking stocks will continue, which is again going to take the ratio higher towards 2.52 levels.

Rating upgrade did not generate incremental traction from FIIs in equities:

While T-5 data of foreign investors (FIIs) suggests a USD 90 million inflow, if one looks at FII data for the week, they have actually sold USD 150 million. As we approach the end of 2017, FII fresh allocation in EMs seems to be diminishing.

A look at FII EM inflow data suggests strong inflows only in South Korea with fund flows in other EMs remaining subdued.

A look at FII action in the F&O segment suggests Index consolidation bets placed by them. In the index future segment there was the long creation of USD 290 million but in the stock future segment, they covered short of over USD 458 million each.

At the same time, in the index options segment, there was selling of over USD 90 million (to capture higher Index VIX level).

Global risk sentiment seemed to be oscillating between risk-on and risk-off mode. In the recent spate of news flows, the Middle East turmoil, coupled with political instability and Zimbabwe & default by Venezuela kept the risk-off sentiment higher.

Positive developments like progress in the US on tax reform bill, strong economic data emanating from Europe and Japan kept the risk-on camp alive.

In the process, the equity market continued to move higher worldwide (with the exception of China & Hong Kong) and bond yields cooled off post-Fed minutes. This move in equity and debt market suggests the tilt is towards continuance of the risk-on mode is likely

Fresh FII inflows from here on could be more tactical in nature, as most global fund houses brainstorm on the allocation strategy for 2018. With the commodity recovery being coupled with a strong macro environment in EMs (higher forex reserves, lower current account deficit), fresh allocation in EMs by FIIs is likely to continue in 2018.

source: moneycontrol.com