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Informist, Wednesday, Dec. 18, 2024

By Apoorva Choubey

MUMBAI – Market participants aggressively sold the futures of mining and steel companies after the Karnataka government reportedly tabled a bill in the state assembly to levy taxes on minerals and mining activities. Call writers were also active in the options of these stocks, suggesting that they could see more weakness in the near term, derivatives analysts said.

Open interest in the December futures of NMDC, Coal India, Hindalco Industries, JSW Steel, and Tata Steel jumped 2-20%. These stocks closed 1-6% lower in the cash market.

The Karnataka government estimates that it will be able to generate an additional revenue of over INR 47 billion from this tax, reports said. Around INR 42.08 billion of this will be generated through the mineral rights tax and around INR 5.06 billion by levying taxes on mineral-bearing land.

As per the bill, the state government can levy different rates of tax based on the category of mines "considering the present additional payment paid by the lessee", reports said. However, a uniform rate of tax is proposed for mining leases that fall in the same category. The bill allows the government to make rules regarding the rate of tax to be paid retrospectively from April 2005 for mineral-bearing land and from Jan. 12, 2015, for mineral rights.

Analysts fear that if the duty on iron ore and other minerals is increased, then mining companies will have to bear an extra cost that will weigh on their profits, while steel companies will also see higher raw material costs. Traders sold out-of-the-money call options of most of these mining and steel companies, but NMDC was the most aggressively sold, as more than 30% of the company's revenue comes from Karnataka, according to experts. 

Meanwhile, persistent foreign fund outflows and caution ahead of the US Federal Reserve's policy review, to be detailed shortly, continued to weigh on India's headline indices. 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.

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 to judge the likely trajectory of interest rates, in the backdrop of President-elect Donald Trump proposing trade tariffs and championing several other policy changes, analysts said. The setup for risky assets isn't great, as slowing world growth, persistent geopolitical tensions, global trade-related concerns, and strength in the dollar are keeping investors across the globe cautious.

Foreign institutional investors were net short on index futures to the tune of $698 million, as of Tuesday, compared to $598 million on Monday, brokerage Nuvama Institutional Equities said in its daily report. FIIs have added net short bets worth $327 million in the past five days, according to the report.

On Wednesday, the Nifty 50 closed at 24198.85, down 137.15 points or 0.6%. Open interest in the December futures of the Nifty 50 provisionally rose 0.4% to 11.1 million.

Call writers remained active in the Nifty 50's monthly and weekly options, indicating that domestic shares may remain lacklustre in the coming sessions. "Derivatives market reflects a bearish undertone, with aggressive call writing leading the session," said Dhupesh Dhameja, a derivatives analyst at SAMCO Securities, in a note.

The 24500-strike-price call option accumulated the highest open interest, underscoring the level as a formidable resistance for the Nifty 50, he said. Conversely, the 24000-strike price put option holds sizeable open positions, signifying robust support at the zone, he said.

Heavy call writing in the 24200–24500 range reinforces strong resistance, while diminishing put positions at lower levels indicate waning bullish sentiment, he added. The put-call ratio declined sharply to 0.37 from 0.48, highlighting a bearish tilt, he said. However, the put-call ratio suggests the market is oversold and a temporary rebound cannot be ruled out, Dhameja warned.

--Nifty 50 Dec closed at 24268.00, down 149.65 points; 69.15-point premium to spot index

--Nifty 50 Jan closed at 24449.80, down 158.40 points; 250.95-point premium to spot index

--Nifty 50 Feb closed at 24606.65, down 152.45 points; 407.80-point premium to spot index

HDFC Bank, Reliance Industries, ICICI Bank, NMDC, Tata Motors, ITC, Axis Bank, Dixon Technologies (India), State Bank of India, Trent, Bajaj Finance, Larsen & Toubro, Federal Bank, Bharti Airtel, Infosys, and Kotak Mahindra Bank were the most actively traded contracts.  End

Edited by Rajeev Pai

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