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Bata India Limited (BATAINDIA)

WEEKLY VIEW OF THE MARKET

Nifty dragged down due to liquidation of long positions. Recent data has again turned cautious and is indicating probability of further profit booking. Call writing and put unwinding were seen in recent trading sessions. Call writes were active in 10800, 10900 strike calls indicating limited upside. This clearly indicates lack of buying interest and discomfort in the market. The levels of 10600 will remain crucial for this week as indicated by option open interest concentration. If Nifty falls below the 10600 mark, it could correct to 10500 levels on the back of further selling. On bounce, the index will face strong resistance at 10800-10850 levels. The options open interest concentration is at the 11000-strike calls with the highest open interest of above 40 lakh shares; among put options, the 10700 & 10400 -strike taking the total open interest to 30 lakh shares each, with the highest open interest among put options. Next support is placed around 10600-10550 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

The upside in turmeric futures (Apr) may remain restricted near 6450 levels. The new crop arriving in the key producing regions of Tamil Nadu and Telangana in addition with expectation of a higher crop may keep the upside capped. The deficiency of cultivation area in Telangana & Tamil Nadu has been covered up by Maharashtra, where the area under turmeric has increased substantially this year and hence they are expecting an increase of 15 per cent in turmeric production in 2018-19. Also, the demand is sluggish mainly due to the higher moisture content in the produce being brought by farmers to the markets. Jeera futures (Mar) is seen taking a U-turn upside towards 16100- 16150 levels, forming a base in the range of 15400-15600 levels. Taking advantage of lower level buying, the market participants have started taking long positions as this season India has become the sole supplier of jeera to the world. The competitive producers Syria & Turkey are getting washed out of trade & uncompetitive in the export market. The exporters are getting ready to begin their buying spree and the quality of this year crop is expected to be good. With arrivals of the new crop expected by mid-February and prices already moving higher, the sentiments are turning to be bullish. Coriander futures (Apr) will possibly trade range bound within 6200-6600 levels. The downside may remain capped as the spot markets in Rajasthan, Gujarat and Madhya Pradesh are sending positive signals since the farmers are not interested in bringing their produce in mandis at existing lower prices.

BULLIONS

Bullion counter may trade with sideways to upside bias. U.S. Federal Reserve’s “patient” monetary policy approach and less than expected US economic data is keeping the prices supported. But stronger greenback and possible resolution of US China trade war concerns is expected to keep upside capped. Gold can take support near 32650 levels while its upside will be capped near 33400 levels while silver can take key support near 39100 levels and can recover towards 39900 levels. Last week, US retail sales fell by 1.2% from prior month, worst drop in 9 years. A weaker economic momentum backed expectations that U.S. Federal Reserve would pause further interest rate hikes, which pressured dollar and supported gold. Meanwhile, the risk of a U.S. recession is not currently elevated, Federal Reserve Chairman Jerome Powell stated last week. Donald Trump stated that trade talks with China were “going along very well” as the world’s two largest economies try to resolve their seven-month tariff war ahead of a March 1 deadline for a deal. According to central bank data “China’s gold reserves were at 59.94 million fine troy ounce at end-January versus 59.56 million troy ounce at end-December” Meanwhile, British Prime Minister Theresa May suffered a defeat on her Brexit strategy that undermined her pledge to European Union leaders to get her divorce deal approved if they grant her concessions. Germany’s economy stalled in the final quarter of last year, just skirting recession as fallout from global trade disputes and Brexit put the brakes on a decade of expansion.

OIL AND OILSEEDS

Soybean futures (Mar) is likely to witness sell on rise from 3800 levels & is expected to test 3650 levels on the downside. The initial estimates coming from the Soybean Processors’ Association (SOPA) shows that in the upcoming Kharif season output is likely to rise by a staggering 38% on a sharp increase in average yield across the country. India’s soybean output at 11.48 million tonnes this year compared to 8.3 million tonnes in the previous year on favourable climatic condition. This increase in production is being attributed to the major producing state in Madhya Pradesh wherein the yield is estimated to rise by 30.5% to 1,094 kg per ha for the current season from 838 kg from the previous season. The survey also highlighted that in Maharashtra output is estimated to rise by 32% to 3.84 million tonnes for this year from 2.91 million ha last year. Soy oil futures (Mar) is expected to face resistance near 770 levels & trade with a downside bias. Demand in the physical market is subdued from millers and crushers with ongoing lean season for soybean and oil market. CPO futures (Mar) is expected to plunge further & test 655-650 levels on reports of higher imports. The latest statistics show that imports of palm oils including RBD Palmolein and CPO touched 23.18 lakh tonnes (lt), up from 22.74 lt reported in the same period last year. Mustard futures (Apr) will possibly remain stable in the range of 3900-3970 levels. The changing weather patterns causing rainfall over the major growing regions where the crops are in the fields are bringing concerns over the production scenario.

ENERGY COMPLEX

Crude oil prices may continue to remain on upbeat note as U.S. sanctions against Venezuela and Iran and supply cuts led by the Organization of the Petroleum Exporting Countries to boost the sentiments higher. OPEC and some non-affiliated suppliers including Russia are withholding supply in order to tighten the market and prop up prices. Crude oil can test 4150 levels while taking support near 3700 levels. Supply issues in Venezuela are also bolstering oil markets as the country suffers a political and economic crisis, with Washington introducing petroleum export sanctions against state-owned energy firm PDVSA. The producer group known as OPEC+ has agreed to cut crude output by a joint 1.2 million barrels per day (bpd). Top exporter Saudi Arabia stated that it would cut even more in March than the deal called for. Refining profits for gasoline have plunged since mid-2018, going negative in Asia and Europe, amid tepid demand growth and a surge in supply. The surge in U.S. crude oil production, which tends to be light in quality and which has risen by more than 2 million barrels per day (bpd) last year to a record 11.9 million bpd EIA, had resulted in overproduction of gasoline. OPEC, in its monthly forecasts, lowered forecast of OPEC demand by 0.2 mn bpd to 30.6 million bpd. Natural gas counter may try to find some support near 175-185 range and can recover towards 200 levels. Meanwhile weather is expected to be colder than normal for most of west coast and Midwest for both the 6-10 and 8-14 day forecast in US.

OTHER COMMODITIES

Cotton futures (Feb) is expected to bounce back amid short covering and lower level buying taking support near 19990. On the spot markets, cotton prices are expected to remain firm this year due to lower production in the country, apart from rising consumption. In the international markets, the traders are keeping an eye on what's going on over in Beijing for some positive news. High-level officials from the US and China are in talks as a critical trade war deadline is getting closer since March 1 marks the deadline for the current 90-day pause in the trade war. Chana futures (Mar) is expected to intensify its rally & test 4400 as soon as it crosses the resistance near 4335 levels. Dal mills have kicked off stocking to build inventory after a jump in arrival of pulses from fresh harvest that is likely to double up in coming weeks. Dal mills purchase raw pulses from market and then process it into dal of various grades. On processing 60% comes out as dal, while 25% goes as cattle feed. The rest is wasted. Another reason for the upside momentum is being attributed to the market talks that Nafed will not sell chana in open markets and will go to build buffer stock around 10 lakh tonnes. The trend of mentha oil (Feb) is bullish & the upside may continue till 1680-1720 levels. Weather disturbances in the major growing areas are giving signals of delayed sowing in the key growing areas of Uttar Pradesh. Moreover, demand from both domestic and export fronts are emerging at existing price levels. Export demand has started to pick up from China.

BASE METALS

In base metal counter, prices can trade with sideways bias with lower level buying can be seen in near term. Declining stockpiles and increase in China exports data supported the prices but China's factory-gate price growth missed expectations and investors awaited their cue from the outcome of Sino-U.S. trade talks in Beijing. According to Chinese customs data, “January dollar denominated exports meanwhile rose 9.1 percent from a year ago”. Copper may find some support near 425 and can recover towards 448. China’s unwrought copper imports came in at 479,000 tonnes up 14% MoM and up 8.9% YoY from 440,000. The discount for the cash against the three-month copper contract has narrowed to zero from $8 a tonne. Meanwhile, Lead may take support near 141 levels and can recover towards 150. Aluminium can trade with mixed bias in range of 128 -136 levels. Zinc may try to hold the 180-185 range and can recover towards 195. Zinc prices took a breather after the recent fall as Floods in Queensland are set to disrupt the rail delivery of zinc exports to the northern port of Townsville, with the line likely to be out of action for at least a month. LME zinc stocks are at their lowest since January 2008, but cash zinc was trading at a discount of $US6.25 a tonne to the threemonth price , down from a premium of $US125 in early December, in a sign of weaker immediate demand. Nickel can also find some support near 850-840 range and can recover towards 900 levels.

TREND SHEET

TECHNICAL RECOMMENDATIONS

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NEWS DIGEST

• U.S. retail sales recorded their biggest drop in more than nine years in December.

• South Korea resumed imports of Iranian oil in January after a four-month hiatus.

• China exports of unwrought aluminium and aluminium products from China rose to 552,000 tonnes last month.

• China's iron ore imports climbed 5.3 percent in January from December supported by strong restocking demand at steel mills.

• The government hiked the minimum selling price of sugar by Rs 2 per kg to Rs 31 to help millers clear farmers' dues.

• The BSE is going to launch cotton futures on 18th February.

• MCX revised trading timings, on account of change in US daylight saving timings:Non-agri commodities (09.00 am-11.30 pm), cotton, CPO&RBD palmolein (09.00 am09.00 pm), all other agri commodities (09.00 am-05.00pm).

• Import of vegetable oils during January 2019 is reported at 1,275,259 tons compared to 1,291,141 tons in January 2018.

• India’s total soybean output standing at 11.48 million tonnes during the ongoing harvesting season as compared to 8.36 million tonnes in the previous season. - Solvent Extractors’ Association of India (SEA).

WEEKLY COMMENTARY

Commodities traded in ambiguity as investors were awaiting further developments from ongoing U.S.-China trade talks before making any big moves. Gold recovered its weekly lose as concerns over an economic slowdown supported prices for the safe-haven metal and a firm dollar kept a lid on gains. Gold prices have risen more than 12% since touching more than 1-1/2- year lows in mid-August, mostly on expectations of a pause in Fed rate hikes. Fresh buying witnessed in crude oil across the board. Brent crude oil prices hit 2019 highs above $65 per barrel on Friday, spurred by U.S. sanctions against Venezuela and Iran as well as OPEC-led supply cuts. The Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated suppliers including Russia are withholding supply in order to tighten the market and prop up prices. The United States expects domestic oil production to reach new heights this year and next, and that prices — for both crude and gasoline — will be lower than they were in 2018. Base metal prices retreated from higher side on slowdown issues in China. Copper prices declined for a fifth day in a row on Thursday despite trade data showing Chinese imports of the orange metal growing at a record-setting pace. Copper has declined by 17% from its June 2018 high over worries of a slowdown in China and the impact of a trade war with the US, but the longer term prospects for the metal remain rosy. Zinc fell, hitting its lowest in more than two weeks as the dollar held at a two-month high. Some agri commodities saw good move in the week gone by. Soyabean traded down both in domestic and US market. US soybean futures slumped to a threeweek low as fears of a delayed resolution in US-China trade talks. China, January import data showed a sharp fall (13%) in soybean imports compared to the same period last year from US. Cotton counter traded mix. The market is now awaiting the outcome of US-China trade talk. Expiry is in progress and rollover is taking place from March to May, contract price may remain volatile. Mentha traded up, farmers are now worried as untimely rains and inclement weather conditions have delayed the sowing in key producing belts. The production is likely to be badly affected if weather conditions don't improve in the next few days. Guar counter saw good recovery. It was a good week for spices, where we witnessed buying everywhere.

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 $)

Aluminium & Zinc......Smooth convergence of physical & futures by compulsory delivery

After getting permission from market regulator Sebi, MCX has taken step to modify the optional delivery of zinc and aluminium to compulsory delivery mechanism. Now aluminium and zinc contracts both have become ‘compulsory deliverable instead of ‘both options’ (cash and delivery).

As of now, all metals contracts (except gold and silver) and all energy contracts are settled in cash, which means at the end, the difference between contract purchase and settlement price is settled in cash but without delivery. Now Sebi has been emphasizing on physical delivery settlement because as Sebi wants to reduce the distinction between cash market and derivative market to control speculation & volatility in the market. India has been producing these commodities. So, physical settlement can be done in India. If contracts have to be settled by delivery, domestic prices will be needed. Till now, the settlement price for most metals contracts is derived from the London Metal Exchange, the benchmark of these commodities.

Benefit of compulsory delivery

• The main benefit of having compulsory delivery is that it will curb excessive speculation.

• Another benefit of having compulsory delivery will be that as of now the cash settlement of commodity contracts is based on LME prices. But now in Zinc and Aluminium they will be based on local prices and also factor in taxes, freight and warehousing costs.

• Commodity derivatives are also hedging tool for those holding actual commodity, while speculators who traded without holding the underlying commodity impart liquidity to the counter by taking on the risk of the hedger.

Currency Table

News Flows of last week