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Informist, Tuesday, Nov. 19, 2024

By Apoorva Choubey 

MUMBAI – Traders continued to add bearish positions to the Nifty 50's monthly options, as the outlook for risky assets such as emerging market equities remains bleak in the near-term, given the backdrop of prevalent global issues and slowdown in corporate profit growth. Out-of-the-money call options of the benchmark were sold across strikes, with higher volumes than put options, suggesting that the Nifty 50 is not seen recovering during the November derivatives series. 

The headline index had managed to sustain gains of more than 1% through the day but came sharply off highs in the last hour of trade. Risk-aversion gripped global financial markets again, and safe haven assets rallied while equities fell across the world, after news emerged that President Vladimir Putin had updated Russia's nuclear doctrine, two days after US President Joe Biden granted Ukraine permission to strike targets deep inside Russia with US-made weapons. Earlier on Tuesday, reports had said Ukrainian armed forces carried out their first strike in a border region within Russian territory with an American missile.

Under the new doctrine, Putin approved expanded the use of nuclear weapons while stating that an attack on Russia by any nation supported by a nuclear power will be considered a joint attack on the country. "Markets were in a sweet spot in the first half due to the recent oversold position, but most of the gains eroded towards the closing stages as weak European market cues owing to widening of geopolitical tensions between Ukraine and Russia prompted investors to exercise caution," according to Prashanth Tapse, senior vice-president – research, Mehta Equities. "If the ongoing war sees further escalation, risk-off sentiment in equity markets may continue fuelling extended sell-offs," he said. 

The Nifty 50 closed 0.3%, or 64.70 points, higher at 23518.50 points, ending a seven-day decline, its worst streak in 20 months. "The Nifty's movement reflects that bears are firmly in control, using every rebound as an opportunity to short," Ajit Mishra, senior vice-president of research at Religare Broking, said in a note. 

Retail traders and foreign investors likely sold higher strike price call options of the Nifty 50, as the index is seen remaining weak for the rest of the November series, which expires on Nov. 28., said a trader at a city-based brokerage house. The 24000 and the 23800 strike price call options were the most actively sold, with high volumes. They also hold among the maximum open interest, and saw premiums decline. 

Put options of the Nifty 50 were bought across the chain, as participants believe the index may remain weak in the short-term, said the trader. The 23000 strike price put option has the highest number of open positions, and was actively bought today.  

In the futures market, traders unwound long positions in the November contract but added short bets in the December futures of the index. Open interest in the November futures fell 3.4% to 11.7 million. 

"We are of the view that the current market texture is volatile and short-term texture is indicating non-directional activity is likely to continue in the near future," said Shrikant Chouhan, head of equity research at Kotak Securities, in a note. On the higher side, 23700-23750 levels could act as crucial resistance areas for the index, while support is seen at 23350 points, he said. 

The Nifty 50 has lost well over 5% in the last one month, largely on account of a massive sell-off by foreign investors. Weak corporate earnings growth in India, rise in the dollar and US treasury yields, along with geopolitical and trade uncertainties are all weighing on the outlook for risky assets like emerging market equities, said experts. US President-elect Donald Trump's aggressive trade policies--while good for American corporations--could mean uncertainty for other countries and drive global inflation higher, investors fear, at a time when the US Federal Reserve has made it clear that it is in no hurry to cut interest rates. 

--Nifty 50 Nov closed at 23491.05, down 22.90 points; 27.45-point discount to spot index

--Nifty 50 Dec closed at 23647.95, down 13.55 points; 129.45-point premium to spot index

--Nifty 50 Jan closed at 23806.00, down 17.75 points; 287.50-point premium to spot index

HDFC Bank, Reliance Industries, ICICI Bank, State Bank of India, Mahindra & Mahindra, Tata Motors, Axis Bank, Adani Enterprises, Bajaj Finance, Dixon Technologies, REC, Power Finance Corp, Kotak Mahindra Bank, Federal Bank and Infosys were the most actively traded contracts.  End

Edited by Deepshikha Bhardwaj

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