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Informist, Friday, Nov. 29, 2024

By Apoorva Choubey

MUMBAI – Traders sold call and put options of the Nifty Bank index across monthly expiries, suggesting caution ahead of key economic data releases and the upcoming monetary policy review of the Reserve Bank of India, scheduled for next week. While the reasonable valuations of banking stocks and their stable asset quality has prompted buying in some lenders' shares, gains are seen limited due to slowing loan growth, experts said. 

Out-of-the-money call options of the Nifty Bank were sold aggressively, with a drop in premiums, underscoring the cautious view, they said. Among call options, the 52500 and the 53000 strike price call options were the most active and hold among the maximum open interest, suggesting that they could act as key levels in the coming weeks. 

Put options of the banking index were also sold, with nearly as much fervour as call options, an indicator that traders could be exiting positions ahead of a key event, the head of derivatives at a local brokerage said. The noteworthy part is that similar unwinding has been seen in all expiries of the index, he added. 

On Friday, the Nifty Bank index closed 0.3% or 148.75 points higher at 52055.60 points. A breakout above 52600 could pave the way for a move towards 52800 points for the banking index, while a drop below the critical support level of 51750 points could signal a shift towards a minor bearish outlook, warranting caution in the near term, analysts at SAMCO Securities said in a note.

Open interest in the Nifty Bank's December futures rose 7% to 2.2 million. The futures contract closed at a premium of 289.4 points to the spot index. 

"For financials, after a period of margin expansion and lowering credit costs, growth has normalised," said Tata Mutual Fund in a recent report. Large private-sector banks could lead the next re-rating as the deposit pressure abates, rate-cut impact gets delayed, and asset quality impact from unsecured loans is relatively low, it said. However, valuations are undemanding, and thus show markets are not pricing in much improvement in fundamentals in the near term, the asset manager said.  

The banking sector could remain range-bound in the coming week ahead of the monetary policy review, the outcome of which will be released Friday. Analysts at Goldman Sachs expect the Monetary Policy Committee of the RBI to keep the policy repo rate unchanged at 6.50%, retain the 'neutral' policy stance, and reaffirm their commitment to the 4% headline inflation target.

However, eyes will remain on the RBI action on banking system liquidity, which has tightened in recent days, while the view on India's growth will be monitored, analysts said. India's GDP growth fell sharply to a seven-quarter low of 5.4% in the September quarter due to a slump in the growth of industrial activity, data released by the National Statistical Office Friday showed. The Indian economy had grown 8.1% a year ago and 6.7% a quarter ago.

The GDP print was sharply below expectations. According to an Informist poll, GDP growth was seen slowing to 6.5% in Jul-Sept. GDP growth in Jul-Sept was also much lower than the Reserve Bank of India's projection of 7.0%.

The Nifty Bank has outperformed the Nifty 50 this week with gains of 1.8% compared to a 1% rise for the benchmark, but underperformed on Friday. For the Nifty 50, too, the positioning signals a cautious bias, analysts said. Foreign investors remain net short on index futures while high networth and retail investors have cut long bets. Investors were also cautious ahead of key data releases on Friday, including India's GDP growth numbers, China's manufacturing data, and other global cues. 

"The Indian market is increasingly witnessing severe bouts of volatile trading, as the gyration from positive to negative zones has been very sharp owing to stretched valuation concerns and the lingering sell-offs from foreign investors," Prashanth Tapse, senior vice-president of research at Mehta Equities, said. Despite the recovery, there is no firm trend visible due to lack of fresh positive triggers, he said. For the upmove to be sustained, foreign institutional investor selling needs to cool down before any signs of an upward bias emerge, he added. 

While foreign investors bought shares in the cash market recently, possibly due to MSCI index-related passive inflows, they remain net sellers for the month. The outlook for emerging market equities remains uncertain due to prevalent geopolitical tensions, global macroeconomic issues, trade uncertainties, and slowdown in growth. The rise in the dollar and US Treasury yields have added to the pessimism for risky assets, fuelled by concern that US President-elect Donald Trump's trade tariffs could drive inflation higher. 

Open interest in the December futures of the Nifty 50 fell 2% to 11.6 million, suggesting that some short bets were squared off. The spot index closed at 24131.10 points, up 216.95 points or 0.9%.  

The Nifty 50 is facing resistance around the 24350 points level, which if not breached will mean consolidation in the range of 24000-24350 levels, derivatives analysts said. Support for the index is now seen at 24000 and 23750-23800 points, they said. Among Nifty 50's options, the 25000-strike price call option has garnered the highest open interest, while the 23000 strike put holds considerable open interest.  

--Nifty 50 Dec closed at 24318.25, up 203.00 points; 187.15-point premium to spot index

--Nifty 50 Jan closed at 24477.80, up 194.35 points; 346.70-point premium to spot index

--Nifty 50 Feb closed at 24610.00, up 256.60 points; 478.90-point premium to spot index 

Reliance Industries, HDFC Bank, Bharti Airtel, Adani Enterprises, ICICI Bank, State Bank of India, Adani Ports and Special Economic Zone, Mahindra & Mahindra, Adani Green Energy, Infosys, Dixon Technologies India, and Tata Motors were the most actively traded contracts.  End

Edited by Rajeev Pai

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