5 factors that will impact India's banking shares in August

The chances are, this will be a volatile month for the Bank Nifty. A strangle of long August 17,500p (125), long 19,000c (207) is worth considering.  

This settlement comes on the heels of the US Federal Open Market Committee (FOMC) meeting. Consensus is that the Fed will do nothing.

However, there could be hints on whether it would raise rates soon or wait.

The meeting will be followed next week by an RBI (Reserve Bank of India) policy meeting.

The Russian and Brazilian central banks have also scheduled policy reviews. So, global traders will be trying to draw meaning from multiple policy statements.

Whatever is said and done in these central bank meets, there might be some impact in terms of volatility.

The dollar has a tendency to harden after an FOMC meet.

This is very likely if Ms (Janet ) Yellen confirms the Fed is going for interest rate hikes.

Meantime, the Chinese stock market is under continuing pressure, despite all the measures that have been taken.

So, that is another potential source of volatility. RBI is not expected to touch the status quo next Wednesday. But there will be inevitable volatility in rate-sensitives and financials going into the review.

The Bank Nifty is high beta anyhow and it could move the broader market.

If RBI does cut policy rates, the market will bounce; if RBI does not cut, which is what consensus expects, there will be some fall.

It looks very low-probability but an RBI hike would trigger a big sell-off. Dr Rajan's speech will be analysed for "hawkish/dovish" notes, which may affect sentiment as well.

The chances are, this will be a volatile month for the Bank Nifty. 

A strangle of long August 17,500p (125), long 19,000c (207) is worth considering.

The financial index is hovering just below 18,300. It could strike either of those options - three trending sessions in either direction over August settlement would do the job.

The trader pays about 1.8 per cent of current index value in the hopes of picking up a big swing.

In India, there will also be focus on Parliament and on Q1 results as well as macro-fundamentals.

So far, the Monsoon session has been a washout, which cannot have pleased traders bullish on reform.

Midcaps and small caps are doing better than large caps and Q1 results are in line with low expectations.

July was net positive in terms of institutional investment with FIIs putting more money into equity than Domestic Investors took out.

However, the P-Note bogey has been raised again. That could affect FII interest adversely.

The Nifty is holding above support at 8,300 but is below its own simple 200-Day Moving Average (200-DMA).

Breadth was positive past week with advances outnumbering declines. Volumes are on the low side for settlement week.

It's hard to call the trend- the market could range trade until central bank stances are known.

The Nifty has registered and confirmed higher lows in the last 5-10 sessions. But it failed to break through resistance at 8,650 and the drop below the 200-DMA is bearish.

Nifty put-call ratios (PCRs) are not useful this close to settlement.

But for what it's worth, the PCRs are just above one for three-month data.

The Nifty call chain for August has big peaks at 8,500c, 8,800c and 9,000c.

The put chain for August has peak open interest (OI) at 8,200, with high OI at all strikes between 8,000p and 8,500p. Looking at August, a bullspread of long 8,500c (99), short 8,600c (62) costs 37 with a maximum payoff of 63. This strike is 125 points from spot.

The bearspread of long 8,200p (64), short 8,100p (44) costs 20 and pays a maximum 80, and it is 175 points from spot.