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Informist, Thursday, Dec. 5, 2024

By Apoorva Choubey

MUMBAI – Foreign institutional investors have reduced their bearish positions in index futures, which indicates that the current uptrend in the equity market could continue, according to analysts. FIIs have also turned net buyers in the cash market in recent days, on expectations of the US Federal Reserve cutting interest rates at its upcoming policy review mid-December and hope of liquidity-boosting measures by the Reserve Bank of India this week, they said.

As of Wednesday, FIIs were net short on index futures to the tune of $638 million, compared with $1.2 billion at the start of the December series, Nuvama Institutional Equities said in a report. Foreign investors have reduced net shorts worth $545 million in the last five days, the brokerage said.

This short-covering and cash purchases by passive foreign funds has likely helped the Nifty 50 gain for the fifth consecutive session, rising 3.3% during this period. Domestic institutions have also reduced net shorts in index futures, while their purchases in the equity market remain strong. The benchmark Nifty 50 index Thursday closed at 24708.40, up 240.95 points or 1% from the previous close.

Several global share indices gained after US Federal Reserve Chair Jerome Powell Wednesday said the economy is in a "remarkably good shape", which fuelled the market's expectations of a 25-basis-point cut at the central bank's meeting later this month. The odds of a 25-bps cut were 74%, higher than 66.5% a week ago, according to the CME FedWatch Tool.

Adding to the upbeat sentiment this week has been the expectation that the RBI would cut cash reserve ratio for banks, which would free up capital for lending and in turn, stimulate the economy. The outcome of the RBI's monetary policy review will be detailed on Friday.

Bullish bias was seen in the futures and options of the Nifty 50. Open interest in the December futures of the Nifty 50 fell more than 1% to 11.4 million, indicating covering of short bets. 

Market participants also bought call options of the Nifty 50 and sold put options, reinforcing the view that Indian equities could inch higher in the near-term. The 24700, 24800, 24900, and 25000 strike price call options were the most actively bought, with a 56-108% jump in premiums.

On the put side, out-of-the-money strikes were sold with as much fervour as call options were bought. The 24500 and 24600 strike price put options were the most actively sold, and now hold among the highest open positions, indicating that the support for the Nifty 50 is moving higher.

"While markets could start on a volatile note on Friday morning, overall we expect the uptrend to continue," said Siddhartha Khemka, head of research, wealth management, Motilal Oswal Financial Services. A decisive breakthrough above 24550-24600 is seen providing the much-needed impetus to the Nifty 50 to move towards 24800 points, and then test the 25000-mark, said Sameet Chavan, head of technical and derivatives research at Angel One.

Further upsides are likely once the immediate resistance of 24858 is taken out, according to Subash Gangadharan, senior technical and derivative analyst at HDFC Securities. While the short-term trend remains up, there could be short corrections or consolidations as the Nifty 50 has run up quite sharply in the last one week, he warned. Short-term weakness could emerge if the immediate support levels of 24573 points and 24295 points are broken, he said.

Others also warned that the sustenance of this rally in the Nifty 50 will depend on more sectors participating in the uptrend, as the recent gains have been mainly led by banking and information technology stocks. "The recent market surge has already factored in potential support from the RBI, making the market's reaction to Friday's outcome crucial," said Ajit Mishra, senior vice president of research at Religare Broking.

--Nifty 50 Dec closed at 24775.35, up 213.65 points; 66.95-point premium to spot index

--Nifty 50 Jan closed at 24936.05, up 214.25 points; 227.65-point premium to spot index

--Nifty 50 Feb closed at 25070.00, up 207.25 points; 361.60-point premium to spot index

HDFC Bank, ICICI Bank, Reliance Industries, State Bank of India, Infosys, BSE, Indus Towers, Axis Bank, Tata Consultancy Services, Bharti Airtel, Bajaj Finance, Kotak Mahindra Bank, Bajaj Auto, and Larsen & Toubro were the most actively traded contracts.  End

Edited by Ashish Shirke

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