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Informist, Wednesday, Sep 18, 2024

By Anjana Therese Antony

MUMBAI – Traders bought put options of Indian information technology companies on caution ahead of the US Federal Reserve's monetary policy announcement later today. While the Indian equity market has factored in a 25-basis-point rate cut in the US, there are also views that the Fed may go for a 50-bps cut or no rate cut at all. Analysts said the case of no rate cut would lead to a major correction in the overall equity market, as well as IT stocks, though they may recover in the short term on the back of strong corporate earnings in the quarters to come. 

IT stocks had recently risen on increasing hope of rate cuts in the US. IT companies have major exposure to the US, constituting about 60% of their total revenue, analysts said. High interest rates in the world's largest economy had hit discretionary spending by the clients of IT companies for about two years. However, analysts echoed that they see greenshoots of recovery in the demand environment and expect the technology players to report better financials from 2025-26 (Apr-Mar). 

Today, the Nifty IT closed over 3% lower. Tata Consultancy Services, HCL Technologies, and Infosys being the top three laggards, also ended 3% lower each. Premiums on out-of-the-money put contracts of these stocks surged, while those on calls tumbled.

Shares of TCS closed at 4,346.15 rupees on the National Stock Exchange today. Premiums on TCS' call options of 4,300-4,700 strikes more than halved, while those on 4,300-3,800 strikes of put options increased a whopping 87-615%. The maximum open interest addition was at 4,500-rupee call and 4,100-rupee put options. Similar was the case with HCL Technologies and Infosys, shares of which closed at 1,756.50 rupees and 1,892.15 rupees, respectively. The September futures contracts of these companies also mirrored the caution and closed lower.  

The US Fed's decision will determine the Indian equity market's direction on Thursday. In case of a positive surprise, the market is expected to rise at a faster pace than it did in the last two sessions when it hardly made 0.1-0.2% gains.

Today, after hitting fresh record highs, Nifty 50 and Sensex ended 0.2% lower each at 25377.55 points and 82948.23 points, respectively. The Nifty 50 hit a new record high of 25482.20 points and the Sensex reached a lifetime high of 83326.38 points. The near-term support for the Nifty 50 is seen at 25200-25000 points and resistance at 25500 points.

In the options chain of the 50-stock index, premiums on out-of-the-money put options close to the spot level rose and those on call contracts declined. However, premiums on deep out-of-the-money call contracts rose slightly and those on puts fell, hinting that a major correction may not happen. The highest open interest addition was 25500-point call and 24500-point put options. 

The September futures contract of the Nifty 50 closed 0.3% lower and traders closed some of their long positions, with open interest declining 3.4% to 13.24 mln. 

--Nifty 50 Sep closed at 25369.20, down 80.60 points; 8.35-point discount to spot index

--Nifty 50 Oct closed at 25501.00, down 70.65 points; 123.45-point premium to spot index

--Nifty 50 Nov closed at 25610.00; down 75.55 points; 232.45-point premium to spot index

HDFC Bank, ICICI Bank, Bajaj Finance, State Bank of India, Tata Consultancy Services, Samvardhana Motherson International, Reliance Industries, Infosys, Axis Bank, Hero MotoCorp, Kotak Mahindra Bank, Multi Commodity Exchange, REC, Tata Motors, and Power Finance Corp were the most-actively traded contracts.  End

Edited by Akul Nishant Akhoury

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