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Informist, Tuesday, Dec. 17, 2024

By Apoorva Choubey

MUMBAI – Foreign institutional investors continued to add short bets in index futures while call writers remained active in the Nifty 50's options, as market participants stayed risk-averse ahead of the outcome of the US Federal Reserve's policy review, analysts said. The commentary by the US central bank and likely trajectory of interest rates in the world's largest economy assume significance in the backdrop of President-elect Donald Trump proposing trade tariffs and championing several other policy changes, they said.

The appetite for risky assets has remained muted over the last few months due to slowing world growth, persisting geopolitical tensions, global trade-related concern and strength in the dollar. Foreign institutional investors were net short on index futures to the tune of $598 million, as of Monday, brokerage Nuvama Institutional Equities said in its daily report. 

FIIs have added net short bets worth $299 million in the last five days, according to the report. On Tuesday too, FIIs are likely to have added net bearish positions in index futures, with the rupee falling to lifetime lows versus the dollar as India's trade deficit in November hit an all-time high, derivatives analysts said. 

While markets have priced in a 25-basis-point rate cut, much of the focus will be on the dot plot and Fed Chair Jerome Powell's commentary regarding future rate moves, they said. The Nifty 50 closed at 24336 points, down 332.25 points or 1.4%.

Open interest in the December futures of the Nifty 50 provisionally jumped 5% to 11.4 million. This suggests that short bets were added in the current month contract of the benchmark. 

Call writers remained active in the Nifty 50's monthly and weekly options, indicating that Indian equities are not expected to gain much in the next couple of sessions. Traders wrote call options of the Nifty 50 across strikes but out-of-the-money strike prices were sold even more aggressively, in line with the bearish view.

The 24500, 24700, and 25000 strike price call options were the most actively written among call options, and held sizeable open interest. Thus, these levels could act as key levels for the index. Among put options, out-of-the-money strikes were bought actively. The 24000 strike price saw the maximum volumes, followed by 23500 and 24300. 

Heavy call writing between 24500 and 25000 demonstrates intensifying bearish pressure at higher levels, while unwinding in put options at lower strikes indicates diminishing bullish confidence, said Dhupesh Dhameja, a derivatives analyst at SAMCO Securities, in a note. The put-call ratio, or PCR, dipped to 0.48 from 0.76, reflecting an increasingly bearish tilt, he said, but noted that a brief rebound cannot be ruled out as the PCR ratio nears oversold territory.

"Considering the momentum and selling pressure in heavyweight stocks, further weakness towards 24200–24150, the low from Friday, appears likely (for Nifty 50)," said Rajesh Bhosale, a technical analyst at Angel One. A sustained move below this pivotal point could open the door for a deeper correction, potentially towards 23900 points, he added. On the upside, the 24500–24600 zone, which previously served as support, will now act as resistance, he said. 

Some banking stocks' futures were sold, as were other index heavyweights, such as Reliance Industries. The weakness in the banking sector is expected to continue, according to analysts. 

--Nifty 50 Dec closed at 24401.00, down 337.50 points; 65-point premium to spot index

--Nifty 50 Jan closed at 24585.90, down 335.65 points; 249.90-point premium to spot index

--Nifty 50 Feb closed at 24739.25, down 329.20 points; 403.25-point premium to spot index

HDFC Bank, Reliance Industries, ICICI Bank, ITC, Dixon Technologies India, Bajaj Finance, Infosys, Bharti Airtel, Zomato, State Bank of India, Tata Consultancy Services, Tata Motors, One 97 Communications, Axis Bank and Kotak Mahindra Bank were the most actively traded contracts.  End

Edited by Akul Nishant Akhoury

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