D-Street rides on hopes of Fed turning less hawkish; some prefer caution

Mumbai: A strong outing for the Indian markets in October is fuelling bullish bets at the fastest rate in seven months as traders remain unfazed ahead of key events – an unscheduled meeting of Reserve Bank of India‘s monetary policy panel and the US Federal Reserve‘s rate-setting meeting.

Analysts said the optimistic wagers are on hopes that the American central bank could tone down its aggressively hawkish stance on interest rates on November 2, even as the Fed has repeatedly quashed market expectations in every policy meeting in the past year, forcing traders to reassess their bullish breakout models.

This time, confidence among market participants that the Fed will go soft on interest rates appears to be even higher. The Volatility Index or VIX – a measure of traders’ perception of near-term risks to the market – closed at 15.92 on Friday, the lowest since December 2021, although some analysts believe the optimism might be bordering on complacency.

“The VIX sinking below 16 and sustaining there actually indicates a tone of complacency which could actually lead to a correction,” said Viraj Vyas, derivatives and technical analyst-institutional equities, Ashika Group.

The Sensex and Nifty advanced 5.3% in October amid a rollercoaster ride that saw the foreign institutions trim bearish derivatives wagers. Money managers do not rule out an upside of as much as 3% in the near term though 18,000 remains a barrier for the Nifty. The index closed at 17,786.80 on Friday.

“Indian markets are showing an uptrend in the near term due to seasonality effects but haven’t given clear strong breakouts yet,” said Rishi Kohli, managing partner and CIO-hedge fund strategies at InCred Alternative Investments. “One may avoid taking aggressive long bets immediately.”

Analysts said traders have already factored in a 75-basis point hike by the US Federal Reserve, and do not expect the RBI to unsettle the market. The crucial part for the market will be the signals on policy outlook by Fed chair Jerome Powell, whose remarks have been a big driver of asset prices worldwide.

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