Bharat Electronics Limited (BEL)

The Federal Bank Limited (FEDERALBK)

WEEKLY VIEW OF THE MARKET

Nifty again closed near weekly highs, data reflects that at current levels there is lot of outstanding short position in Nifty and Index calls and we can expect another round of short covering. As per current derivative data, Nifty can move towards 11900-11950 mark this week as the market undertone remains bullish with support of consistent short covering. Derivative data indicates bullish scenario to continue with Nifty having multiple strong supports at lower levels around 11750 & 11800 spot. Currently Nifty is moving up, with decent addition in open interest and options put writing, which indicates strength in the current trend. Option writers were seen active in recent rally as we have seen put writing in 11700 & 11600 strikes along with the unwinding in calls. Among Nifty Call options, the 12000 strike call has the highest open interest of more than 40 lakh shares, while in put options 11700 strike hold the maximum open interest of more than 25 lakh shares. The Implied Volatility (IV) of calls closed at 21.73% while that for put options closed at 21.00%. The Nifty VIX for the week closed at 19.41% and is expected to remain volatile. The PCR OI for the week closed at 0.63 which indicates call writing. On the technical front, 11750-11800 spot levels is strong support zone and current trend is likely to continue towards 11900-11950 levels.

DERIVATIVE STRATEGIES

NIFTY OPTION OI CONCENTRATION (IN QTY) (MONTHLY)

CHANGE IN NIFTY OPTION OI (IN QTY) (MONTHLY)

BANKNIFTY OPTION OI CONCENTRATION (IN QTY) (MONTHLY)

CHANGE IN BANKNIFTY OPTION OI (IN QTY) (MONTHLY)

SENTIMENT INDICATOR (NIFTY)

SENTIMENT INDICATOR (BANKNIFTY)

FII’S ACTIVITY IN INDEX FUTURE

FII’s ACTIVITY IN DERIVATIVE SEGMENT

Top 10 Rollover

Bottom 10 Rollover

SPICES

Turmeric futures (June) is expected to trade with an upside bias in the range of 6950-7450 levels, taking positive cues from the spot markets. Spot turmeric arrivals registered a decline at the markets in Erode. The Erode turmeric market attracts farmers even from other districts and States because of the potential to get higher price. This year, Erode farmers prefer to stock their produce and sell it when price improves. Based on the rainfall forecast for June and July, the demand and price will be fixed in the coming weeks. Jeera futures (June) will probably maintain its positivity & trade in the range of 17350-18350 levels. The commodity is witnessing rise in demand due to likely lower output in Syria and Turkey, both major producers, so, there is a shift in demand to India. According to trade sources, jeera production in Syria is estimated lower this year as a major part of its crop was damaged by heavy rains. Jeera is witnessing a buying spree from exporters and bulk buyers as they are expecting demand in the overseas market to increase in coming months. The gains in cardamom futures (June) is seen to getting limited by facing resistance near 2360 levels. The arrivals of poor quality of small cardamom has led to weak demand and weighing on prices at the auction centre. The overall bias of dhaniya futures (June) is affirmative; hence it is expected to test 7800, as soon as it breaches the resistance near 7690 levels. The sentiments are firm on the spot markets because of lower than expected arrivals & anticipation of higher demand in coming days.

BULLIONS

Bullion counter can witness some short covering in near term as uncertainty regarding trade war between US and China along with Middle East tensions can lend support to the prices. The U.S. dollar retreated after hitting its highest level in two years as weaker US domestic data and the potential economic fallout from the trade war with China increased expectations for an interestrate cut this year. Sales of new U.S. single-family homes fell from near an 11- 1/2-year high in April as prices rebounded and manufacturing activity hit its lowest level in almost a decade in May, suggesting a sharp slowdown in economic growth was underway. Gold can take support near 31500 and recover towards 32300 while silver can take support near 38000 while taking support near 36000. Meanwhile in growing geopolitical tensions The U.S. military sent two Navy ships through the Taiwan Strait last week, its latest transit through the sensitive waterway, angering China at a time of tense relations between the world’s two biggest economies. Federal Reserve officials signaled that they were in no rush to change interest rates even if the economy continued to strengthen, according to minutes from their April 30 to May 1 policy meeting, and some were worried about persistently low inflation. Price increases eased to 1.6 percent annually in March, well below the Fed’s goal of 2 percent. Inflation has not sustainably reached the Fed’s target since the central bank formally adopted it in 2012, and has been languishing below the dividing line for much of the past quarter-century.

OIL AND OILSEEDS

Soybean futures (June) is expected to test 3760-3790 on the higher side, taking support near 3680 levels. The demand is catching pace on the spot markets supported by lower level buying & expectation of higher buying from millers owing to positive gross crush margin of Rs.586 per ton. The upswing momentum in domestic soybean prices & a weaker rupee against dollar may act as a catalyst to drive up the soy oil futures (June) towards 748-752 levels. Despite the bearishness prevailing over the soy oil price on CBOT, due to prolonged trade war & crashing oil prices, the domestic market wouldn’t be impacted due to surging demand. On the contrary, CPO futures (June) is expected to descend further towards 500 levels. In the international market, the fundamentals are showing a projection of decline in demand of palm oil as the European Union’s publication of limits on the use of the tropical oil in biofuels that will restrict the types of biofuels from palm oil that may be counted toward the EU renewable-energy goals, will come into force on June 10. Moreover, the US-China trade war is adding to the headaches to the palm oil industry & the stand-off is weighing on prices. The analysis highlights that Malaysian Palm oil prices have fallen nearly 36% since U.S. President Donald Trump took office in early 2017. The outlook of mustard futures (June) is bullish as it has the potential to test 3990-4020, hence lower level buying is recommended in this oilseed. On the spot, at present the demand is firm from crushing plants as the arrivals are shrinking because the peak supply season is coming to an end.

ENERGY COMPLEX

Crude oil prices may continue to remain on weaker path as global economic slowdown and swelling fuel inventories kept the prices downbeat. But multiple supply risks remain, as tension continues between Iran and the U.S., which can cap the downside. Crude oil can slip further lower toward 3800 while facing resistance near 4200. U.S. sanctions on Iran’s and Venezuela’s oil industries would likely further reduce crude exports from OPEC, of which both countries are members. The key OPEC meeting, which was scheduled to be held in Vienna on 25 June, followed by the OPEC+ meeting on 26 June, has been delayed until the first week of July. Meanwhile increasing crude oil inventories and slumping U.S. manufacturing activity exacerbated trade related concerns about global demand thereby keeping the prices under pressure. After weeks of fruitless negotiations and more tariffs and retaliatory tariffs that the world’s two biggest economies slapped on each other, China said last week that the talks about resolving the trade dispute can’t resume until the U.S. addresses its ‘wrong actions. Natural gas may remain on sideways bias as it can move in range of 170-190. The weather forecast for the next 8-14 days is expected to be milder than normal on both the west and east coast which would reduce total natural gas demand. Over the next 6-10 days, the weather is expected to be colder than normal on the west coast and warmer than normal on the east

OTHER COMMODITIES

Cotton futures (June) is likely to remain trapped in the range of 21200-21600 levels. The domestic cotton prices are taking negative cues from the international market, where the sentiments are getting hammered by the ongoing trade war. Going ahead, the market participants would definitely judge the planting numbers as the West Texas is sowing cotton in the ground and it may be the best crop they've had in the last 10 years as far as the moisture profile looks good. Moreover, if the trade war doesn’t settle down in weeks to come, then it would hamper the U.S cotton exports & overall these factors could limit price in the near term. Back at home, although cotton prices have softened, there is no buying interest in the domestic market. Guar seed futures (June) might see a recovery towards 4470-4500 levels. The market participants are estimating that in the upcoming season acreage of guar may drop by 15-20% as farmers may shift to cotton and pulses as they are getting much better prices for these two crops. On the contrary, guar gum futures (June) may consolidate in the range of 8810-8970 levels with upside getting capped. Falling crude oil prices in the international market due to surge in inventories & North America’s oil rig companies using cheaper fracturing material such as slick water instead of guar gum may dent its export demand from India. Mentha oil futures (June) is expected to trade higher & test 1330, taking support near 1270 levels. This commodity may witness fresh demand from stockists against the arrivals that are likely to gather pace later this month.

BASE METALS

In base metal counter, prices may remain on weaker side as trade tensions stoked by US President Donald Trump are clouding the economic outlook in Europe coupled with the fact that fears that a trade war with China will hurt the U.S. economy more than expected. Copper may dip further lower towards 405 while its upside is capped near 430. The global world refined copper market showed a 74,000 tonnes surplus in February, compared with a 33,000 tonnes deficit in January, the International Copper Study Group (ICSG) stated in its latest monthly bulletin. Chinese miner MMG Ltd's operations at its Las Bambas mine, one of Peru's largest copper producers, have not been disrupted and talks with an indigenous Peruvian community may further continue. Meanwhile Lead may dip lower towards 122 levels while taking resistance near 130 levels. According to ILZSG “Global lead demand declined 0.2% in 2018, but is forecast to jump 1.2% this year to reach 11.87 million tonnes”. Nickel can take support near 810 while resistance near 855. Aluminium may test 141 levels while taking resistance near 152. Zinc may remain sideways to weak bias as it can test 205 levels while facing resistance near 218 levels. The global nickel market deficit widened to 12,500 tonnes in March from a revised shortfall of 1,000 tonnes the previous month, the International Nickel Study Group stated recently. The United States struck deals to lift tariffs on aluminum imports from Canada and Mexico, removing a major obstacle to legislative approval of a new North American trade pact.

TREND SHEET

TECHNICAL RECOMMENDATIONS

ZINC MCX (MAY) contract closed at Rs. 210.75 on 23rd May’19. The contract made its high of Rs. 232.40 on 11th Apr’19 and a low of Rs. 208.80 on 23rd May’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 215.79.On the daily chart, the commodity has Relative Strength Index (14-day) value of 44.22.

One can buy at Rs. 211 for a target of Rs. 218 with the stop loss of Rs. 207.

COPPER MCX (JUN) contract closed at Rs. 415.45 on 23rd May’19. The contract made its high of Rs. 473.95 on 27th Feb’19 and a low of Rs. 410.60 on 23rd May’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 428.17.On the daily chart, the commodity has Relative Strength Index (14-day) value of 31.25.

One can buy at Rs. 414 for a target of Rs. 425 with the stop loss of Rs. 410.

CASTORSEED NCDEX (JUN) contract was closed at Rs. 5812 on 23rd May’19. The contract made its high of Rs. 6318 on 12th Apr’19 and a low of Rs. 5342 on 6th Mar’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 5769 on the daily chart, the commodity has Relative Strength Index (14-day) value of 56.56.

One can buy at Rs. 5700 for a target of Rs. 6100 with the stop loss of Rs 5500.

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NEWS DIGEST

• The Sebi allowed mutual funds to participate in exchange-traded commodity derivatives (ETCD).

• The Sebi allowed portfolio management schemes to invest in Commodity Derivatives Market in India on behalf of their clients. They will have to enter into agreements with clients for this, and managers in charge of PMS have to appoint a custodian for this activity as well.

• The India Meteorological Department has set June 6 as the day of the onset over Kerala.

• Iran's oil storage on land and at sea is on the rise as U.S. sanctions on exports bite and Tehran battles to keep its ageing fields operational and crude flowing.

• Codelco's giant Chuquicamata Copper mine is set for a 40% drop in production over the next two years.

• Saudi Arabia is in no rush to increase oil production and exports, fearing that additional supply would risk a renewed build up of stockpiles and push prices lower

• Asia's oil refiners are considering reducing output after margins slumped to their lowest for the season since 2003.

• After linking 585 markets in 2018-19 (Apr-Mar), the farm ministry is set to integrate 220 more mandis under the electronic-National Agricultural Market portal this financial year

• The government is expected to scale up its estimate for wheat production in 2018-19 (Jul-Jun) to a record of over 100 mln tn from 99.12 mln tn earlier, as late rains in February and March have boosted yield.

• ICEX Steel Long contracts witness highest ever open interest of 7,790 MT on May 21, 2019, since its launch on Aug 28, 2018.

WEEKLY COMMENTARY

It was a historic week for India as well as the Indian economy in which financial market saw new highs as confidence returned after full majority for NDA-2. Commodities saw some volatile trade; high fluctuations in currency also added wild swing in the prices. Crude attracted the most attention with its massive fall. Oil prices plunged nearly 6% Thursday in this year's worst drop and the worst fall since the start of OPEC production cuts in December. The escalating U.S.- China trade war and huge crude pileups from weak refiner demand combined to roil the market. Since the beginning of the week it was on bearish path. Saudi Arabia reiterated it would aim to keep the market balanced and try to reduce tensions in the Middle East, while industry data showed a surprise increase in U.S. crude inventories. In the international market, WTI breached the level of $60 whereas on MCX, it made a low of 4008. Natural gas prices also dipped last week after a marginal gain in previous two week; however, the downside was capped on a smallerthan-expected storage build and forecasts for warmer weather and higher cooling demand. Copper prices headed for their sixth straight week of losses on a prolonged U.S.-China trade war. Rests of the metals were also down on the trade war issue. Bullion counter saw marginal rebound owing to fresh buying from lower levels. Upside was more on Thursday as risk-averse investors fleeing everything from equities to oil embraced the safe-haven sanctuary of the yellow metal. It was the largest percentage gain in a day for gold since May 15 and came despite a near-1% gain in the rival U.S. dollar earlier in the day. Silver saw some buying as it tracked the trend of gold and downside in dollar index.

In agri commodities, soyabean saw gradual recovery with limited upside as it is being estimated that India is set to grow soybeans on more land in the 2019 crop year. Mustard prices augmented as well as the sentiments are upbeat due to buying by oil millers and on hope of a pick-up in procurement at minimum support price. Sluggish business activities are being observed in the spot markets of cotton as both buyers and sellers are cautious trading; which kept cotton counter in range with little upside. Turmeric was in high demand on improved export demand. Jeera saw some healthy profitbooking though overall trend is still bullish. The lower output in Syria and Turkey has led to a shift in demand to India & hence jeera is witnessing a buying spree from exporters as well as bulk buyers.

NCDEX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (NCDEX)

MCX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (MCX)

SPOT PRICES (% change)

WEEKLY STOCK POSITIONS IN LME (IN TONNES)

PRICES OF COMMODITIES IN LME/ COMEX/ NYMEX (in US $)

Green signal to MFs & PMS in the commodities market

In order to promote institutional participation in the commodities market, the Securities and Exchange Board of India (Sebi) has permitted Category III Alternative Investment Funds to participate in Exchange Traded Commodity Derivatives. Sebi has allowed portfolio managers & mutual funds to participate in commodities derivatives on behalf of their clients. The participation of both is subject to certain conditions. Funds that make short-term investments and then sell, like hedge funds, come under Category III Alternative Investment Funds.

Regulation for mutual funds

• In a circular, the regulator said that no mutual fund schemes can invest in physical goods except in 'gold' through Gold Exchange Traded Funds (ETFs).

• Exchange traded commodity derivatives (ETCDs) having gold as the underlying, shall also be considered as 'gold related instrument' for Gold ETFs.

• Mutual funds can make the investments in ETCDs through hybrid schemes and Gold ETFs.

• According to Sebi the investment limit will not exceeding 10 per cent of NAV of the scheme. However, the limit of 10 per cent is not applicable for investments through Gold ETFs in ETCDs having gold as underlying asset.

• In case of multi-assets allocation schemes, the exposure to ETCDs should not be more than 30 per cent of the NAV of the scheme.

• The cumulative gross exposure through equity, debt and derivative positions, including commodity derivatives, should not exceed 100 per cent NAV of the scheme.

• According to Sebi, prior to participation in ETCDs, asset management companies should a dedicated fund manager with requisite skill and experience in commodities market, including commodity derivatives market.

• Sebi said NAV value of the scheme has to be updated on a daily basis on the websites of the asset management company concerned and the Association of Mutual Fund of India (AMFI).

• Further, total exposure to ETCDs is required to be disclosed in the monthly cumulative report submitted by mutual funds.

Regulation for Portfolio managers

• Portfolio managers will have to mandatorily appoint a Sebi-registered custodian before dealing in exchange traded commodity derivatives (ETCDs).

• For existing clients, portfolio managers may execute addendums to the agreement, permitting them to participate in ETCDs on their behalf.

• In case dealing in commodity derivatives leads to delivery of physical goods and if the portfolio manager remains in possession of the physical commodity, the goods need to be disposed of within the timelines as agreed upon between the client and the portfolio manager.

• The regulator further added that the responsibility of liquidating the physical goods shall be with the portfolio manager.

• Regarding disclosures, the portfolio managers shall provide periodic reports to the clients regarding their exposure in ETCDs.

• Moreover, they are required to provide adequate information about risk factors, margin requirements, position limit, among others to the client while participating in ETCDs besides furnishing an exposure report to Sebi on monthly basis.

• Since Foreign Portfolio Investors are not allowed to participate in the Exchange Traded Commodity Derivatives market, Portfolio Managers shall not onboard Foreign Portfolio Investors until such time as they are permitted to participate in Exchange Traded Commodity Derivatives market.

According to circular, the Exchanges are advised to

I. make necessary amendments to the relevant bye-laws, rules and regulations.

ii. bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website.

INTERNATIONAL COMMODITY PRICES

Currency Table

News Flows of last week