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Informist, Friday, Dec. 20, 2024

By Anjana Therese Antony

MUMBAI – Friday marked another day of aggressive short bets in the derivatives chain of the Nifty 50 as the US Federal Reserve's hawkish outlook on interest rate cuts dragged the market further into losses. Immediately after the US central bank's announcement that the rate cuts in 2025 would be slower than anticipated, traders rushed to place bearish bets in a market that was crawling on expensive valuations, recurring foreign investor outflows, domestic currency depreciation, and lower returns, among others.

The US Fed, which had earlier hinted at 100 bps of rate cuts next year, hinted that the quantum may decline to 50 bps for the full year. This came as a jolt to equity investors, who were in fact anticipating aggressive reductions. The central bank's guidance comes amid anticipation that inflation in the US will rise under president-elect Donald Trump's regime from January. "Trump's policies are largely focused on deregulation and propping up US jobs and growth. Stable-to-higher US growth, along with the lagged impact of rate cuts should bode well for India's services sector, particularly IT services, immigration challenges notwithstanding," Nirmal Bang Institutional Equities said. 

The market took a breather from a four-week winning streak and closed sharply lower, erasing most of the gains made during that period. The Nifty 50 and the BSE Sensex each ended 1.5% lower on Friday at 23587.50 points and 78041.59 points, respectively. Immediate support of the Nifty 50 is seen at 23500-23450 points and resistance at 23680-23730 points, a derivatives analyst at a domestic broking firm said. 

In the options chain of the Nifty 50, premiums on 23600-24000 call strikes expiring Thursday declined 58-72% and open interest for these contracts increased, hinting at the addition of short positions. Premiums on 23300-22000 put options increased a whopping 71-159%. The maximum open interest addition was at the 24000-point call and 21000-point put options. The December and January futures series also saw traders adding short positions. These contracts closed at a premium to the spot index, but mirrored the weakness in the cash market and closed sharply lower. FIIs have been adding short bets in index futures in the last few months, raising their bearish positions to 67% as of Thursday from 19% at the end of September. In the cash market, they net sold shares worth INR 35.98 billion and offloaded INR 158.29-billion worth of equities this week. 

When asked about the likely movement in the market in the near term, derivatives analysts said the market may see further correction in the coming sessions and then turn muted in the absence of major triggers. Expensive valuations have been keeping FIIs from making fresh buys, as have the low returns. Fund managers said returns are lower than the 10-year average. However, the medium-to-long term outlook is bullish as a pickup in the government's capital expenditure cycle and likely reduction in interest rates in the country may make things better for various sectors.

--Nifty 50 Dec closed at 23641.70, down 377.10 points; 54.20-point premium to spot index

--Nifty 50 Jan closed at 23806.40, down 398.05 points; 218.90-point premium to spot index

--Nifty 50 Feb closed at 23960.00, down 396.00 points; 372.50-point premium to spot index

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

Edited by Avishek Dutta

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