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Informist, Thursday, Dec. 19, 2024

 

By Apoorva Choubey

 

MUMBAI – The US Federal Reserve's projection of just two interest rate cuts in 2025 roiled equity markets across the globe today, prompting foreign institutional investors to aggressively short index futures--a trend witnessed this entire week. Market participants were also happy to continue writing call options of the Nifty 50, indicating that the index is not seen recovering anytime soon, according to derivatives analysts. 

 

Foreign investors remained net short on index futures to the tune of over $800 million, compared with $300 million around 10 days ago, said the head of derivatives at a city-based wealth management firm. FIIs also sold equities in cash, as they are pulling money out of risky assets such as emerging markets, he added. Foreign fund managers have sold domestic shares worth over INR 120 billion in the cash market this week, triggering a 3.3?ll in the Nifty 50.

 

As on Wednesday, FIIs were net short on index futures by around $779 million, brokerage Nuvama Institutional Equities said in its daily report. FIIs have added net short bets worth nearly $400 million in the past five days, according to the report.

 

On Thursday too, they are likely to have added more bearish bets on index futures and closed long ones, particularly in the Nifty 50, experts said. "The Federal Reserve cut interest rates by 25 basis points but projected only two rate reductions in 2025, disappointing expectations of three or four," said Vikram Kasat, head of advisory at PL Capital.

 

This pushed the US 10-year bond yield to a seven-month high of 4.524%, strengthening the dollar, he said. The rupee hit a record low of 85.08 against the dollar, raising concern over inflation, trade deficits, and foreign investor outflows, Kasat said.

 

The outlook for emerging market equities like India has worsened in the last few weeks in the backdrop of US President-elect Donald Trump proposing trade tariffs and championing several other policy changes, at a time when slowing world growth, persistent geopolitical tensions, and high inflation are weighing on risk-appetite. 

 

The Nifty 50 ended at 23951.70, down 247.15 points or 1%. Open interest in the December futures of the Nifty 50 provisionally fell nearly 2% to 10.7 million. This indicates unwinding of long positions. 

 

Call writers remained active in the Nifty 50's monthly options, indicating that domestic equities may remain lacklustre in the coming sessions. The 24000 and 24500 strike price call options were the most actively traded today, and now hold the highest open interest. Put options of the index were bought but not with as much fervour as call options were sold. The 23000 and 23500 strike price put options saw the maximum volumes.  

 

Traders can adopt a "put spread" strategy, by buying one lot of the 24250 strike price put option of the index and simultaneously selling one lot of the 24000 strike put option, advised Axis Securities. This is a modest return strategy, and is apt for traders who have a moderately bearish view, the brokerage said. 

 

Among stock futures, pharmaceutical companies saw buying as risk-averse investors rushed to defensive bets. Banks, which are typically sensitive to global macroeconomic worries, were sold across the board, as were information technology counters as the sector is hugely reliant on clients in the US.    

--Nifty 50 Dec closed at 24021.50, down 235.85 points; 69.80-point premium to spot index

--Nifty 50 Jan closed at 24205.00, down 236.20 points; 253.30-point premium to spot index

--Nifty 50 Feb closed at 24350.35, down 241.90 points; 398.65-point premium to spot index

 

HDFC Bank, Reliance Industries, ICICI Bank, Infosys, Punjab National Bank, State Bank of India, Axis Bank, Tata Motors, Tata Consultancy Services, Bajaj Finance, Dixon Technologies (India), Kotak Mahindra Bank, LTIMindtree and Wipro were the most actively traded contracts.  End

 

Edited by Akul Nishant Akhoury 

 

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