We are into the 2nd half of the month, which promised a lot of volatility. To be honest, we did not see as much volatility as was expected but we need to see how the second half is in store for us. Are we going to break free of 11500-11550 zone and go higher towards 12000 as it was looking at the beginning of the month or are we going to go through another round of correction to 11200 mark after hitting the 11500 mark? This would be the theme for the rest of the series.

US Fed meet starts off today and so does the meeting of Bank of Japan and Bank of England. US which held to 100 plus point gain on Friday, might wait for Fed commentary before correcting. That might keep the first half of the week in the first half and Thursday and Friday might see uncertainty. For today Asia looks positive with Japan and Hong Kong up nearly 200 points each.

Domestic Cues

On the domestic front, the main news that will dominate today’s market space is the SEBI’s new rules on multi-cap funds where SEBI has mandated that 75% of a mutual funds money should be parked for large, mid and small caps at 25% each. Merging, conversion of one scheme to another is also possible along with the creation of Flexi cap funds. This means a lot of money flowing out from one cap to another, especially from large caps where a lot of funds would have been parked.

For example, Kotak multi-cap fund has AUM of 30,000 Cr and 75% of it is large-cap, 18% mid-cap and just 1% small-cap. This has to be rejigged, which means a lot of money will be moved from large-cap to mid and small caps. This will churn the markets going forward and you might not see its effect in just one day. Today it’s all going to be whether Nifty will cross the 11500-11550 mark or will stay in 11200-11550 range.

Derivatives Action

On the derivative front, Friday saw a bit of bearishness in the Futures market and a bit of bullishness in the options market. Long positions were closed and short positions were opened which took the Nifty overall long positions in Futures to 56% from 58% and in the options market, the Nifty put call ratio moved from 1.46 to 1.49. 11500 call added 8.5 lakh positions helping it to overtake 12000 call for the highest OI on the call side.

11600 and 11800 calls also added a lot of OI but 11500 and 12000 calls have the highest OI on the call side. On the put side, 11300 and 11400 put added 7.6 lakh positions each followed by 11000 put that added 6.7 lakh. 11300 and 11400 puts have the highest OI which means that on downside 11300 might provide a resistance, which makes 11300-11500 is still the range which can expand to 11000-11800 for this week’s expiry.

What is the Nifty call for the day?

A positive Asia would mean we will also open positive around the 11500 mark. The trade for the day should be positive so, after the initial cooling off period of 15 to 30 mins, you can think of taking a long position around 11480 mark with 11550 as the possible target. If there is a correction, it might find support at 11420-11450 mark and even it is the right position for entry.

SEBI rules might have some selling impact, but we need to see how much it will affect the market. So, unless there is a large amount of selling, which takes Nifty below 11400, there is no need to panic and today is going to be a long-only day. Keep a stop loss of 11400 and if that is broken, you can exit all your positions and stay out.