Worries mount, but Nifty unlikely to breach 10,600
, ET Bureau|
Jan 17, 2018, 08.41 AM IST
MUMBAI: The Nifty is unlikely to fall below the 10,600 level if traders' activity in the index options is anything to go by, even as worries about the domestic equity market being overheated remain.
Analysts said that the 10500, 10600 and 10700 put options have seen significant writing in the last few days. Selling of a put option means that one is bullish about the underlying security or index, with the belief that the underlying security or index will not fall much. While the fall in the market on Tuesday resulted in some of these positions getting cut, such bets remain elevated, said analysts.
"There was some closure in put options in Tuesday's session as the market fell but it was not significant. The highest put base remains at 10500. 10600 (put option) is also neck-and-neck with it," said Amit Gupta, head of derivatives at ICICIdirect.
"The 10700 strike, which added 40 lakh shares in the last two days, saw closure of only 2 lakh shares. 10,600 will remain a crucial support for this expiry," said Gupta.
The 10,500 strike holds the highest amount of open interest among put options at 75 lakh shares followed by the 10600 strike with 68 lakh shares.
Ashish Chaturmohta, head of derivatives and technical at Sanctum Wealth Management, said panic could set in only if the Nifty closes below 10,600 points.
Benchmark indices fell on Tuesday after rising for three consecutive sessions, with the Nifty ending 0.4 per cent lower at 10,700.45 points. While technical charts suggest 10,600 would not be breached, some market participants believe that this particular level, which is 0.9 per cent lower than the current index level, could very well be breached, particularly if oil prices remain elevated.
"Markets are likely to see time as well as price correction. I don't see much return in the first half of 2018," said Jyotivardhan Jaipuria, founder of Veda Investment Managers. He sees risks from increase in inflation and macro-economic situation in India turning worse.
Nifty Unlikely to Breach 10,600
"If inflation makes a comeback globally, interest rates would go up and bond prices would move down. Equity markets would also face pressure. India's macro is also turning adverse. With widening CAD, pressure on fiscal deficit, inflation would rise and so interest rates would probably go up," said Jaipuria.
In this scenario, the upcoming Union Budget will be keenly watched by the market to assess if the government stays on the fiscal consolidation path in the face of rising oil prices and lower GST collections.
What puts the market in a more vulnerable position is the near uninterrupted rally over the last one year.
The Nifty index has gained as much as 31per cent since the beginning of 2017, thanks to strong inflows from domestic institutional investors.
"Valuations are expensive and there is a lot of onus on earnings to deliver," said Jaipuria.
Analysts said that the 10500, 10600 and 10700 put options have seen significant writing in the last few days. Selling of a put option means that one is bullish about the underlying security or index, with the belief that the underlying security or index will not fall much. While the fall in the market on Tuesday resulted in some of these positions getting cut, such bets remain elevated, said analysts.
"There was some closure in put options in Tuesday's session as the market fell but it was not significant. The highest put base remains at 10500. 10600 (put option) is also neck-and-neck with it," said Amit Gupta, head of derivatives at ICICIdirect.
"The 10700 strike, which added 40 lakh shares in the last two days, saw closure of only 2 lakh shares. 10,600 will remain a crucial support for this expiry," said Gupta.
The 10,500 strike holds the highest amount of open interest among put options at 75 lakh shares followed by the 10600 strike with 68 lakh shares.
Ashish Chaturmohta, head of derivatives and technical at Sanctum Wealth Management, said panic could set in only if the Nifty closes below 10,600 points.
Benchmark indices fell on Tuesday after rising for three consecutive sessions, with the Nifty ending 0.4 per cent lower at 10,700.45 points. While technical charts suggest 10,600 would not be breached, some market participants believe that this particular level, which is 0.9 per cent lower than the current index level, could very well be breached, particularly if oil prices remain elevated.
"Markets are likely to see time as well as price correction. I don't see much return in the first half of 2018," said Jyotivardhan Jaipuria, founder of Veda Investment Managers. He sees risks from increase in inflation and macro-economic situation in India turning worse.
Nifty Unlikely to Breach 10,600
"If inflation makes a comeback globally, interest rates would go up and bond prices would move down. Equity markets would also face pressure. India's macro is also turning adverse. With widening CAD, pressure on fiscal deficit, inflation would rise and so interest rates would probably go up," said Jaipuria.
In this scenario, the upcoming Union Budget will be keenly watched by the market to assess if the government stays on the fiscal consolidation path in the face of rising oil prices and lower GST collections.
What puts the market in a more vulnerable position is the near uninterrupted rally over the last one year.
The Nifty index has gained as much as 31per cent since the beginning of 2017, thanks to strong inflows from domestic institutional investors.
"Valuations are expensive and there is a lot of onus on earnings to deliver," said Jaipuria.
