RBI MPC in focus: How to trade Nifty 50 as market mood turns gloomy? Experts weigh in

RBI MPC in focus: Falling for the sixth straight session, the Nifty 50 dropped nearly 1 per cent on Monday, October 7, weighed down by heavy foreign capital outflows, geopolitical tensions, and investor caution ahead of Q2 earnings and the RBI MPC outcome.

Amid gloomy market sentiment, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting is underway to determine policy rates and the bank's stance.

Experts believe the RBI will likely to keep the benchmark repo rate unchanged at 6.5 per cent for the tenth consecutive time.

Mandar Pitale, the head of treasury at SBM Bank India, underscored that during the last meeting of MPC held in August, internal RBI members were biased towards extended policy rate hold.

"Considering the current domestic growth inflation dynamics, with strong GDP growth and higher near-term inflation projection, these internal members are expected to stay tuned on extended policy rate hold with no urgency of immediate easing to support growth," said Pitale.

"MPC has persistently advocated a restrictive policy until inflation aligns durably towards the 4 per cent target. With the unfavourable base effect, taking the next couple of CPI prints near 5 per cent plus or minus will pose a major challenge for MPC to start easing from the October meeting. The present easy financial condition is well aligned with a gradual progression of a 'change of stance' in the future. It may not need MPC to announce the change in the present stance of 'withdrawal of accommodation' during the October meeting," Pitale said.

According to Vaibhav Porwal, the co-founder of Dezerv, a rate cut at the MPC meeting seems unlikely. The meeting has three major outcomes: inflation projection, growth projection, and banking liquidity.

"While rising crude prices may temporarily impact inflation, the RBI is likely to wait before making any changes to its inflation projection. There's a possibility the RBI may revise its growth forecast downwards due to ongoing global uncertainties and domestic factors. With adequate liquidity in the banking system, RBI might not see an urgent need to adjust interest rates. The current liquidity scenario gives RBI enough room to maintain the status quo on rates. The market is not expecting any significant impact from the MPC meeting, but it will take cues from RBI on inflation and growth projections," said Porwal.

How to trade Nifty 50 ahead of MPC outcome?

Mint consulted several experts for insights on trading strategies for the Nifty 50 ahead of the RBI MPC outcome in the current weak market. Here's what they said:

Shilpa Rout, AVP - Derivatives Research, PL Capital - Prabhudas Lilladher

Nifty has experienced a major breakdown from 26,200 to 24,800 levels. A drop of 1,400 points in such a short period signals the need for continued caution. The option chain reflects the 25,000 strike PCR slipping and hovering around 1. If it falls to 0.6, the decline could extend to 24,400 levels. A bear put strategy for the weekly expiry could be considered:

Buy Nifty 24,900 PE at 170 and sell Nifty 24,500 PE at 70, resulting in a net outflow of ₹100 and a maximum potential gain of ₹300, offering a favourable risk-reward setup.

Mehul Kothari, DVP - Technical Research, Anand Rathi Shares and Stock Brokers

The broader markets, including benchmark indices, have recently seen significant corrections. With the RBI policy announcement on the horizon, we believe Nifty appears oversold on the short-term charts. Consequently, we anticipate a potential bounce in the upcoming sessions.

To capitalize on this expected bounce, traders can consider a conservative strategy such as the Bull Call Spread. This strategy involves buying 1 lot of the 25,000 CE option at approximately ₹175 and simultaneously selling 1 lot of the 25,400 CE option at around ₹41.

Here’s a breakdown of the trade:

Max Risk: ₹3,300

Max Potential Gain: ₹6,600

This strategy is ideal for traders looking to take a directional long position on the index while limiting risk. It offers a favourable risk-reward profile and is suitable for those who prefer a more controlled approach during volatile market conditions.

Shrey Jain, Founder & CEO, SAS Online

If the Nifty 50 index falls further and enters the oversold zone, then there is a strong case for reversal. Near-term support exists at 24,540 and then at 24,375. Though Nifty is on the rise, traders should not aggressively short Nifty50. Positional traders can buy Nifty around support levels for a target of 24,800-25,000. Expect Nifty to remain in a narrow range till weekly expiry.

An iron condor strategy can be considered as below:

Sell Nifty 25,400 CE 10 October 2024 = 25

Buy Nifty 25,600 CE 10 October 2024 = 12.5

Sell Nifty 24,450 PE 10 October 2024 = 81.6

Buy Nifty 24,250 PE 10 October 2024 = 48

Vishnu Kant Upadhyay, AVP, Research & Advisory at Master Capital Services

RBI is expected to cut rates as it had earlier stated that it will be making rate cuts after the Fed. The rate cut is expected to increase the market's volatility further; therefore, it is suggested that a person’s portfolio should be properly diversified, with a major portion being in the large cap to defend their portfolio against the high volatility.

Mid- and small-cap positions should be reduced, and profit booking should be implemented for those segments.

Nifty prices declined below its 55-day EMA, although the major support was 24,400, and the vicinity of 78.6 per cent of Fibonacci's retracement level of the previous up-leg is still intact. So, we believe Nifty could be bought around 24,750-24,800 with a stop loss below 24,400 for the targets of 25,200-25,300.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.