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Informist, Friday, Nov. 22, 2024

 

By Apoorva Choubey 

 

MUMBAI – Positioning in the monthly futures and options of the Nifty 50 suggests that market participants are expecting the benchmark index's movement to be volatile next week. Rollover of positions to the December series will add to the volatility in the market, in the backdrop of persisting global macroeconomic and geopolitical issues, a massive sell-off by foreign investors, and worries over a rising dollar and slowing economic growth. The November series will expire Thursday.  

 

Volatility gauge, India VIX, remains above 15, and has gained 9% this week, signalling anxiety among investors. The gauge closed nearly 1% higher at 16.0975. 

 

Rising call-writing activity in higher strikes, underscores selling pressure, while subdued put writing signals cautious sentiment, said the head of derivatives at a city-based brokerage house. The put-call ratio had inched up to 0.86 from 0.65, reflecting a neutral-to-bearish sentiment as sellers maintained the upper hand till Thursday, he said. 

 

Traders bought call options of the Nifty 50 across most strikes, barring deep-out-of-the-money options, which signals that gains in the index are seen capped, even in case of Friday's rebound extending to next week, according to analysts. Apart from all in-the-money and at-the-money call options, traders bought out-of-the-money call options till 25050. Call options starting from 25100 were aggressively sold. 

 

Put options of the Nifty 50 were sold but volumes were far lower than those seen in call options. While some bullishness was seen in options positioning, a big indicator of overall bearishness is the existing short positions of foreign institutional investors in the index futures market, said analysts. The long-short ratio is hovering around 25% level for foreign investors, according to Chandan Taparia, head of derivatives at Motilal Oswal Financial Services. 

 

The outlook for risky assets such as emerging market equities remains bleak in the near term, given the backdrop of prevalent geopolitical tensions, global macroeconomic issues and slowdown in corporate profit growth. The rise in the dollar and US treasury yields, along with trade uncertainties, are adding to the pessimism, said analysts. Moreover, 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.  

 

While benchmark indices surged on the last day of the week, on account of short covering, it remains to be seen to what extent the current momentum is going to be sustained next week, said Joseph Thomas, head of research, Emkay Wealth Management. The Russia-Ukraine conflict, the West Asia situation which is still awaiting resolution, local election results in crucial states are all factors that may have some impact on the markets in the coming week, he said. 

 

Friday, the Nifty 50 closed at 23907.25 points, up 2.4% or 557.35 points. In the futures market, traders covered short positions in the November contract of the index. Open interest in the November futures fell 6% to 10.5 million. 

 

The index is still below its 21-day exponential moving average, which is near 24040 points, said analysts. Thus, 24040-24050 will act as immediate resistance for the index, while 23800 will act as an immediate support, they said.

 

Among stock futures, retail and high networth individual investors likely added long positions in some banking and information technology stocks. The Nifty Bank index also saw some bullish positioning. 

 

--Nifty 50 Nov closed at 23900.20, up 551.50 points; 7.05-point discount to spot index

--Nifty 50 Dec closed at 24050.00, up 548.05 points; 142.75-point premium to spot index

--Nifty 50 Jan closed at 24207.95, up 545.90 points; 300.70-point premium to spot index

 

HDFC Bank, Reliance Industries, State Bank of India, Adani Ports and Special Economic Zone, ICICI Bank, Infosys, Axis Bank, Mahindra & Mahindra, Tata Consultancy Services, Bharti Airtel, Larsen & Toubro and Bajaj Finance were the most actively traded contracts.  End

 

Edited by Akul Nishant Akhoury

 

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