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Informist, Monday, Apr. 7, 2025

By Anjana Therese Antony

MUMBAI – As the benchmark indices fell to their lowest levels in 10 months Monday, premiums on deep out-of-the-money put options of the Nifty 50 increased manifold, which analysts said is 'extremely overpriced'. With the near-term caution increasing day by day due to US tariffs, retaliatory measures by its trade partners, and consequent fears of likely slowdown in the US and world economic growth, derivatives analysts are not ruling out a further correction. This, coupled with a likely muted corporate earnings growth for the March quarter, would add to the short-term worries, they said.

"Volatility is unusually high at this juncture and options are overpriced," said Vipin Kumar, assistant vice president of technical and derivatives research at Globe Capital Market. Two other derivatives analysts, who do not wish to be quoted, also said that trading in options is highly risky now due to the high premiums on these contracts.

Premiums on Nifty 50's put options in the range of 22000-21000 points expiring Wednesday increased over 1,000-5,000% to near INR 100-INR 320, indicating the possibility of a further fall in the index. On the other hand, premiums on 22100-22700 call options fell 50-70% to INR 70-INR 390. The Nifty 50 options contracts will expire Wednesday as Indian financial markets are shut on Thursday for Mahavir Jayanti. The weekly expiry of index options contracts currently takes place on Thursday.

On Monday, the benchmark indices fell around 5% intra-day to their lowest level in 10 months and closed lower for the third consecutive session. The Nifty 50 ended 3.2% lower at 22161.60 points and the BSE Sensex closed around 3% lower at 73137.90 points. All other key indices and sectors also were in the red. The near-term nervousness in the market due to fears of recession was also evident from the volatility index, India VIX, which saw its highest ever single-day rise Monday and closed a whopping 66% higher at 22.7925.

Derivatives analysts said the market's sharp fall was not expected and called it a 'Black Monday', though the fall was much lower than its peers in Asia and the Europe. The fall comes amid rising worries about the possibility of a recession in the US. Foreign investment bank Goldman Sachs sees a 45% chance of a US recession. JP Morgan had earlier raised its odds for a recession to 60%.

Foreign investors are again increasing their bearish positions in index futures. On Friday, their short positions were 71% from around 65% at the end of March. Though they continue to be net sellers in the domestic market, analysts are hopeful that FIIs will turn aggressive buyers in the second half of the current financial year, driven by reasonable valuations, better corporate earnings growth, and liquidity boost from the Reserve Bank of India. 

--Nifty 50 Apr closed at 22320.00, down 638.15 points; 158.40-point premium to spot index

--Nifty 50 May closed at 22432.45, down 647.35 points; 270.85-point premium to spot index

--Nifty 50 Jun closed at 22525.05, down 655.90 points; 363.45-point premium to spot index

HDFC Bank, ICICI Bank, Reliance Industries, Infosys, Trent, Bharti Airtel, Tata Motors, State Bank of India, Tata Consultancy Services, Bajaj Finance, Kotak Mahindra Bank, Tata Steel, BSE, Axis Bank, Larsen & Toubro, Persistent Systems, and Hindustan Aeronautics were the most active underlying stocks Monday.  End

Edited by Ashish Shirke

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