Expert take: Nifty may decline to 9,000, but dips to attract buyers
Mumbai: Even as put writers began covering their positions, fear gauge Vix fell by 0.43% on Thursday, indicating that panic had not yet gripped participants
Derivatives and technicals suggest Nifty could be headed for 9,000 in the current series mainly because of weak earnings. However, indicators, such as fear gauge Vix, show that any correction could be bought into, thanks to DIIs that are flush with funds, but have fewer avenues to invest in. Besides, banks, which have a 22.46% weightage in the Nifty , are expected to outperform the broader market.
On Thursday , after IT bellwether Infosys posted a below-par quarterly result, the Nifty shed 0.57% to close at 9,150.80 -below its quarterly trendline support of 9,165. The poor kick-off to quarterly results and a heightened tension in Syria caused sellers of Nifty put options across 8,800-9,300 to cover their short positions, contributing to the Nifty's fall.
Maximum short covering was witnessed in the 9,050 put option expiring on April 27. The contract saw open positions decline by 46%, causing its price to jump by over 10%. The sellers were actually confident that Nifty would not fall, which is why they sold the puts to counterparties. The buyers bet that the index could fall and they might benefit by rising option prices, which the seller would have to pay them.
“With sellers squaring off some of their positions, it's an indication that participants have begun to turn cautious at least in the near term,“ said Chandan Taparia, AVP , derivatives & technicals, Motilal Oswal Securities.“While it's possible Nifty could shed 100-150 points once this series, any correction would be used by retail and FIIs to buy . Both these constituents have largely missed the present market rally and will look for an opportunity to hop on.“
However, even as put writers began covering their positions, fear gauge Vix fell by 0.43% to 11.57 Thursday , an indication that panic had not yet gripped participants. Also, the premium of the Nifty futures to the spot Nifty rose to 31.45 points from 19.75 points a day ago, while that of the Bank Nifty rose to 46.40 from 43.4.
“The India Vix in the past 10 years has on average traded 275 basis points above the CBOE Vix.However, we now (on Thursday) trade 439 bps below the US fear gauge,“ said Hemant Nahata, head of derivatives research at IIFL. “That shows we aren't moving in tandem with global markets on the panic front.“
While analysts expect IT to drag down the fourth quarter earnings of Nifty constituents, they say banks will support the index, mainly because of having made bulk of the provisions towards bad loans in the previous quarter.
That's borne by the Bank Nifty to Nifty ratio quoting at 2.37, above the 2-year mean of 2.25.Banks and infrastructure, say analysts, will offset the drag by poor IT and pharma numbers. In fact, while Nifty has fallen from its record closing high on April 5, the Bank Nifty closed at a record high of 21,736 on April 11.
Derivatives and technicals suggest Nifty could be headed for 9,000 in the current series mainly because of weak earnings. However, indicators, such as fear gauge Vix, show that any correction could be bought into, thanks to DIIs that are flush with funds, but have fewer avenues to invest in. Besides, banks, which have a 22.46% weightage in the Nifty , are expected to outperform the broader market.
On Thursday , after IT bellwether Infosys posted a below-par quarterly result, the Nifty shed 0.57% to close at 9,150.80 -below its quarterly trendline support of 9,165. The poor kick-off to quarterly results and a heightened tension in Syria caused sellers of Nifty put options across 8,800-9,300 to cover their short positions, contributing to the Nifty's fall.
Maximum short covering was witnessed in the 9,050 put option expiring on April 27. The contract saw open positions decline by 46%, causing its price to jump by over 10%. The sellers were actually confident that Nifty would not fall, which is why they sold the puts to counterparties. The buyers bet that the index could fall and they might benefit by rising option prices, which the seller would have to pay them.
“With sellers squaring off some of their positions, it's an indication that participants have begun to turn cautious at least in the near term,“ said Chandan Taparia, AVP , derivatives & technicals, Motilal Oswal Securities.“While it's possible Nifty could shed 100-150 points once this series, any correction would be used by retail and FIIs to buy . Both these constituents have largely missed the present market rally and will look for an opportunity to hop on.“
However, even as put writers began covering their positions, fear gauge Vix fell by 0.43% to 11.57 Thursday , an indication that panic had not yet gripped participants. Also, the premium of the Nifty futures to the spot Nifty rose to 31.45 points from 19.75 points a day ago, while that of the Bank Nifty rose to 46.40 from 43.4.
“The India Vix in the past 10 years has on average traded 275 basis points above the CBOE Vix.However, we now (on Thursday) trade 439 bps below the US fear gauge,“ said Hemant Nahata, head of derivatives research at IIFL. “That shows we aren't moving in tandem with global markets on the panic front.“
While analysts expect IT to drag down the fourth quarter earnings of Nifty constituents, they say banks will support the index, mainly because of having made bulk of the provisions towards bad loans in the previous quarter.
That's borne by the Bank Nifty to Nifty ratio quoting at 2.37, above the 2-year mean of 2.25.Banks and infrastructure, say analysts, will offset the drag by poor IT and pharma numbers. In fact, while Nifty has fallen from its record closing high on April 5, the Bank Nifty closed at a record high of 21,736 on April 11.
