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Informist, Monday, Jul 22, 2024

By Apoorva Choubey 

MUMBAI – Indian equities could see profit booking after the Budget announcement on Tuesday, going by the selling seen in out-of-the-money call options of the Nifty 50 and simultaneous buying in put options of the index. Much of the optimism that the government would keep its focus on capital expenditure in the economy while stoking consumption, has already been factored in equity valuations, which are now being deemed exorbitant in several Budget-related stocks. 

Traders sold call options of the Nifty 50 today across the board while buying puts, suggesting that they expect the index to fall. "Recent activity in the options market reveals a bearish sentiment, with investors focusing more on writing call options than put options," analysts at SAMCO Securities said in a note. This shift breaks a one-week streak of bullish sentiment, they said. 

The optimism over the Budget has pushed the Nifty 50 4% higher in the last one month to fresh lifetime highs of 24854.80 points, hit Friday. After swinging between losses and gains the entire day, the Nifty 50 closed at 24509.25, down 21.65 points or 0.1% from the previous close. India VIX, also known as fear index, jumped 4% to end at 15.4375, reflecting increasing nervousness among investors ahead of the Budget. 

There is a high likelihood that long positions in index futures may be unwound after the Budget, said ICICI Securities in a note. The momentum in index futures has slowed down recently, but foreign institutional investors are still holding nearly 350,000 long positions on a net basis, which is a record, the brokerage said. 

Thus, traders should opt for a limited risk options strategy ahead of the Budget, the brokerage said. It has recommended buying two lots of the 24500 put option of the Nifty 50 and one lot of 24000 put option, and limiting the risk by selling three lots of 24200 put option. ICICI Securities believes the index will test the volume-weighted average price level of 24350 points, which could trigger a deeper sell-off to levels of 24000 and 23800. 

Currently, the maximum open interest among the Nifty 50's call options is at the 25000 strike. On the put side, the 24000 strike holds the highest number of open positions. 
 

The July futures of the Nifty 50 saw some unwinding of long positions, with open interest falling close to 1% to 14.03 mln. The contract closed at a premium of 7.75 points to the spot index.  

Among stock futures, Wipro, Kotak Mahindra Bank and Reliance Industries were sold, while energy companies and HDFC Bank were bought. 

--Nifty 50 Jul closed at 24517.00, down 12.10 points; 

--Nifty 50 Aug closed at 24639.70, down 17.50 points; 130.45-point premium to spot index

--Nifty 50 Sep closed at 24769.05, down 25.70 points; 259.80-point premium to spot index

HDFC Bank, Reliance Industries, Kotak Mahindra Bank, State Bank of India, ICICI Bank, Infosys, Wipro, Axis Bank, Larsen & Toubro, Tata Motors, Bharat Electronics, Tata Consultancy Services and Bajaj Finance were among the most actively traded underlying contracts.  End

Edited by Aditya Sakorkar

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