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Informist, Tuesday, Dec. 3, 2024

By Apoorva Choubey

MUMBAI – Market participants aggressively sold the December futures and call options of Granules India, indicating that the stock is seen extending the weak trend in the near term. The bearishness came to the fore after the company said the US Food and Drug Administration had issued an "official action indicated" tag to the company's facility at Gagillapur, Hyderabad.

Open interest in the current month contract jumped a massive 34% to 23.3 million. In the cash market, shares of the company closed 10% lower at INR 534.15, making it the worst performer on the Nifty 500 index.

Traders sold call options across strikes, with the INR 530-680 strike prices being actively sold. These strikes saw premiums crash 56-97%. Put options of the stock were bought across most strikes, suggesting that the stock is seen falling more.

The 500-rupee strike price put option was the most actively bought, and holds the highest number of open positions. The positioning shows the stock could extend losses to the INR 500 level, which would imply a fall of 7% from the current level.

In September, the US FDA had completed inspection of the company's Gagillapur facility with six observations. The inspection covered both current good manufacturing practice processes and a pre-approval inspection, and was conducted from Aug. 26 to Sept. 6. 

An "official action indicated" status means a facility has objectionable conditions or practices that require regulatory or administrative action. During the September quarter post-earnings call with analysts and investors, the management had indicated a resolution of the facility by December, reports said. Granules India reported a consolidated net profit of INR 972.34 million for the September quarter on a revenue of INR 9.67 billion.

Among other counters, some financial and automobile companies saw bullish positions being added in futures and options. Dixon Technologies (India) was also favoured by call buyers and bulls for the second day, after its wholly-owned subsidiary Padget Electronics said Friday it plans to begin production of Google Pixel smartphones.

Traders seem to have added long bets in the December futures of the Nifty 50, as domestic demand for specific stocks and sectors is seen providing support to the benchmark this week. Sentiment for banking stocks and the overall market improved on hopes of liquidity-boosting measures by India's central bank at its monetary policy review this week, according to analysts. Call options of the Nifty 50 index were bought across strikes, while puts were sold, indicating a bullish bias for the day.

Open interest in the December futures of the Nifty 50 rose 1.4% to 11.95 million. The Nifty 50 closed at 24457.15, up 181.10 points or 0.8% from the previous close. 

While concerns over slowing economic growth, global trade uncertainties, and rise in the dollar remain, some Indian shares are attracting patchy buying by domestic institutions and retail investors, as valuations of several stocks have become reasonable after the recent correction and the country's robust growth prospects for the long-term provide confidence, said a wealth adviser at a local portfolio management firm. "You might see more portfolio churn this month, which will keep the index higher," he said. Stock futures have attracted massive buying by foreign investors, high networth individuals, and retail investors alike, he added. 

Axis Securities believes the much-awaited market correction has already happened and most of the stocks are available at reasonable valuations compared to three months ago. However, the near-term direction of the market will be more macro-driven and the market could react in either direction based on developments, it added.

"With the Nifty (50) surpassing the 24350 resistance, sustained momentum could drive the index towards the 24700 mark," said Ajit Mishra, senior vice-president of research at Religare Broking. "We recommend adopting a 'buy on dips' strategy for the index," he said.

For traders, 24350 and 24250 points would be key support zones, said Shrikant Chouhan, head of equity research at Kotak Securities. "As long as the indices are trading above these levels, the bullish sentiment is likely to continue," he added. However, if it falls below 24350, traders may prefer to exit their long positions, he added. 

--Nifty 50 Dec closed at 24534.00, up 105.50 points; 76.85-point premium to spot index

--Nifty 50 Jan closed at 24695.00, up 109.90 points; 237.85-point premium to spot index

--Nifty 50 Feb closed at 24833.00, up 114.30 points; 375.85-point premium to spot index

HDFC Bank, Reliance Industries, Granules India, Adani Ports and Special Economic Zone, ICICI Bank, State Bank of India, ITC, Dixon Technologies (India), Adani Enterprises, Axis Bank, Kotak Mahindra Bank, Tata Motors, and Larsen & Toubro were the most actively traded contracts.  End

Edited by Rajeev Pai 

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