Nifty collapsed on Thursday but managed to defend 15,800. This morning, there is a big risk-on rally in Asia due to the dollar’s decline. How should one approach the day?

With the dollar index retreating and China cutting the prime lending rate, China plus the dollar is a potent combination for risk-on because this market is about risk-off and risk-on.

On the Nifty, 15,700 to 15,800 is now line in the sand on a closing basis. The Bulls once again yesterday defended 15,800, so a fresh decline now happens only below 15,700.

The big question is should one cheer at the 200-point gap up?

This market is very interestingly poised, with 15,800 on the way down and 16,400 on the way up. Winner takes all, you close below 15,800, there is a 1,000 point decline, you close above 16,400, and there's the 800-1,000 point rally possible on the Nifty.

If it doesn't work out, the market will give a signal. If from the high point of the day, the Nifty starts to slip 70-80 points, maybe that will indicate that trade is not working and one should take that out, but today could be a risk-on day.

During periods when risk is perceived as low, the risk-on risk-off theory states that investors tend to engage in higher-risk investments. When risk is perceived to be high, investors have the tendency to gravitate toward lower-risk investments.

Watch the accompanying video of CNBC-TV18’s Anuj Singhal for more details

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First Published:May 20, 2022 9:10 AM IST