Volatility ahead, fasten your seat belts

MUMBAI: Stock investors may continue to look at overseas markets for direction in the week ahead. Volatility is expected to heighten in the run up to the June series futures and options expiry on Thursday, as traders will shuffle their bets to suit their outlook for July. Market participants do not expect the Nifty to rise above 5300, as traders are likely to trim exposure to the market at this level. On Friday, the Nifty closed at 5262.6, clocking around 3% weekly gains.

“We are seeing a significant built-up in the 5300 calls which is a very strong resistance zone,” said Bhavin Desai, manager-derivatives, Motilal Oswal Financial Services. “The implied volatility of put options in the past few days has been higher than that of call options, indicating that some amount of correction is due next week,” A rise in implied volatility, which is key to pricing of options’ premium, in put contracts indicates investors and traders are ready to pay a higher price as insurance against a likely downfall.

The outcome of the US Federal Open Market Committee (FOMC) meeting, which sets interest rates there on Wednesday will be closely watched. Though market participants do not expect a hike in rates, investors worldwide will track the comments by the US Fed on the economic recovery in the world’s largest economy and employment.

Back home, the progress of monsoon across the country will be watched by investors, as good rainfall is key to government’s projections of 8-8.5% growth in the economy. Shares of Reliance Industries could turn choppy this week, as the lack of big-bang announcements in its annual general meeting on Friday could weigh down sentiment in the stock. On Friday, the stock closed at Rs 1055.25 down 1.5% or 16 points.

“There was unrealistic hype built around the AGM,” said Raamdeo Agrawal, co-founder & director, Motilal Oswal Financial Services. “RIL is expected to see further correction in the days to come. It is a good company in a great business, so from a medium- to- long-term perspective, investors can buy it at current levels,” he said.