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Informist, Monday, Jan. 27, 2025

By Anjana Therese Antony

MUMBAI – Chinese artificial intelligence startup DeepSeek's new low-cost, low-power model led to bearish bets on Indian information technology companies, whose stocks plunged, mirroring the fall in their global peers. The new free assistant model, which uses lower-cost chips and less data, raised concerns about competition at the global front. Premiums on out-of-the-money call contracts of major IT companies, expiring this week as well as next month, declined, while those on put options rose, hinting at a short-term downside in their spot levels.

Reports said DeepSeek's new model demonstrates features that are comparable with models of global industry giants such as Nvidia, Google, and OpenAI. This came as a surprise in the AI race, led thus far by US companies, amid export restrictions imposed by the US on the sale of high-performance chips to China. It also had a ripple effect on Indian players, who have been increasingly shifting their focus to AI-related projects and looking to gain market share in the category. HCL Technologies, Tech Mahindra, and Wipro were the worst-hit constituents of the Nifty 50. All three stocks closed around 4% lower.

In the options chain of HCL Technologies, which closed 4.5% lower at INR 1,711.95 on the National Stock Exchange, premiums on INR 1,720-INR 1,800 call strikes declined 80-90% and those on INR 1,720-INR 1,620 put contracts rose a whopping 800-900%, hinting at a bearish mood. Traders also exited their long positions from the January futures series expiring Thursday, with open interest declining 1% to 15.31 million. A similar trend was seen in Wipro, too, where traders unwound long positions from the January series. Tech Mahindra saw an addition of short positions and open interest increased 1.6% to 13.20 million. Shares of Wipro ended 3.8% lower at INR 307.95 and Tech Mahindra closed 4% lower at INR 1,653.90 on the NSE.

The Nifty IT was the second-worst sectoral laggard Monday, closing 3.4% lower at 42060.70 points with all its 10 constituents in the red. Losses in blue-chip IT stocks, which collectively have the second-highest weightage of over 14% in the Nifty 50, led to a 0.4% decline in the 50-stock index which ended 1.1% lower at 22829.15 points. The index closed below the 23000 points level for the first time in more than seven months.

Near-term support for the index is now seen at 22800-22600 points and resistance at 23000-23200 points. "The market is falling in line with our expectations," said a senior research analyst at a domestic broking firm. "A recovery is not anticipated anytime soon as we (the Indian market) don't have enough reasons for bulls to make an entry. Earnings are disappointing again, and foreign investors keep selling... despite the correction, valuations remain expensive." 

Premiums on deep out-of-the-money call options tumbled and those on put contracts more than doubled. Traders exited some long positions from the January series of the index expiring Thursday, and added short bets in the February and March contracts. Some analysts see the 50-stock index falling below 22500 points before bouncing back to the psychologically important level of 23000 points.

The Indian equity market had underperformed many global peers such as the US and China in 2024 and continues to do so this year. The domestic benchmark indices have fallen over 3% so far in January, while the US market has grown at a similar pace. The European markets have grown at a faster pace during this period, with France's CAC 40 rising nearly 7% and Germany's DAX Performance Index rising more than 6%. Foreign investors continue to hold about 80% of the short positions in index futures, a level similar to that seen during the general election last year. The bearishness comes amid weak earnings growth by Indian companies, expensive valuations, and a likely boost in the US economy under President Donald Trump who took charge last week.

--Nifty 50 Jan closed at 22831.65, down 282.25 points; 2.50-point premium to spot index

--Nifty 50 Feb closed at 22959.10, down 287.55 points; 129.95-point premium to spot index

--Nifty 50 Mar closed at 23105.00, down 298.15 points; 275.85-point premium to spot index

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

Edited by Rajeev Pai

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