Let us analyse BankNifty on 2nd Dec 2016. The previous session was not very enthusiastic for the bulls. All throughout the day, selling pressure was felt. This pressure continued when Bank Nifty opened with a gap down. The crucial level of 18400 was breached and hence the selling continued.
However, sometime in the afternoon there was an announcement by the RBI. It announced that the MSS limit would be enhanced 30,000 crores INR to 6 lakh crore INR. This was done to take away the excess liquidity available with the bank as a result of demonetization. Hence there was a very sharp recovery from 18165 to 18485. However, this facility was available only for 28 days, hence there was a sudden fall within few minutes and the Bank Nifty continued its downward trend. RBI announced the auction of 28 days Government of India Cash Management Bills to mop up 20,000 crore INR.
For those who are not aware, what MSS is, it stands for Market Stabilization Scheme. It is a tool which helps RBI to manage the liquidity within the system. Treasuries bills and dated securities are issued by the RBI on behalf of government through auctions for a definite time and amount. RBI(rather Govt.) pays interest to the banks on these securities/bonds. However it is a temporary adjustment facility. Also, these securities/treasuries cannot be used by the government for fiscal spending purpose.
Traders should be very cautious while trading during such volatile movement. Overall, this was clearly a day for the shorters since the start of the day except for the volatile movement in the afternoon which did not last long.
What caused the market down?
- Tepid or negative global cues due to Italian referendum and Austria Presidential election to be held on 4th Dec, 2016 – political risk for EU.
- Demonetization led business.
- Political disruption which could make passage of GST difficult.
- Weak domestic PMI
- Mixed auto sales data
- Weak INR which may cause FPI (Foreign Portfolio Investors) outflow
- Statement by the Finance Minister that the printing of currency make take additional 1-2 quarters.
- No windfall gain for government as the bank deposits also nears 80% of the currency in circulation.
For the day, Bank Nifty formed a bearish candle.
Bank Nifty Opening:18676.75
Bank Nifty Closing: 18428.45
High of the Day: 18713.10
Low of the Day:18389.65
Percent Change: -1.07 % (- 199.35)
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