'Nervousness from FIIs suggests weak structure prevails in market'

Chandan Taparia

India VIX is near its 10-month high levels and recently it moved up sharply by more than 100 percent from 12-13 to 27.55 zone in the last three weeks.

Volatility and Nifty have negative correlation and higher VIX which is also known as Greed and Fear indicator, suggests a bear grip in the Indian market. CBOE (Chicago Board of Exchange) VIX also had a wider swing in the last few sessions and made an attempted to hit 50 mark. Higher volatility across the globe indicates more uncertainty and weakness, thus volatile swings cannot be ruled out. So volatility has to cool down across the global market then only sentiment could get some stability to equity market.

FIIs are selling from last 10 consecutive sessions

Chandan Taparia

Vice President and Analyst-Derivatives|Motilal Oswal Financial Services

• 'Traders should avoid bottom fishing as it is harmful to catch a falling knife'

• Option traders can initiate Bull Call Ladder Spread in Nifty to gain benefit in expiry week

• Option data suggest Nifty to trade in 12,000-12,300 range: Chandan Taparia

FIIs Index long short ratio is near its multi-month low of 14.6 percent which has also fallen from 21 percent in this week indicating a bearish stance. In the cash market, FIIs were net sellers to the tune of Rs 22,089 crore for the past 10 consecutive sessions due to coronavirus. However, DIIs were net buyers to the tune of Rs 26,078 crore. Nervousness from FIIs in cash as well as Index future suggests weak structure prevails in the market.

Gold glitters, money moves from equity to safety

Gold eyed its biggest weekly gains of around 5 percent as safe-haven appeal during the turmoil in the market scenario with the coronavirus pandemic showing no signs of slowdown.

Option Data scattered at the beginning of new series amid sharp volatility suggests limited upside while opens the downside

On the Nifty options front, maximum Call open interest is at 12,000 then 11,500 strike while maximum Put open interest is at 11,000 then 10,500 strike. Unwinding in 11,000 Put could drift the index to lower levels to revisit its 8-month low of 10,650 levels.

India Rupee depreciate

The rupee weakened by 160 paise to 73.78 a dollar during the week ended March 6 and remained under pressure to move near to its lifetime low. The currency breached 74/dollar intraday last Friday. Depreciating rupee causes concern for the Indian market.

Crude Oil

A silver lining in the dark cloud is the decline in crude price. International benchmark Brent crude futures dropped to $45.27 a barrel, down sharply from $50.52 a barrel on February 28 after OPEC and its allies failed to agree on a massive production cut amid rising coronavirus concerns.

Weakness in global indices

Dow Jones Industrial Average has been turning highly volatile and correcting from its recent peak, gives concern and hitting short term trend.

Inter market, volatility, fund flows and Option Data gives a sense of negative market structure and till these are not changing their stance, it would be tough to catch the falling knife in the Indian market. However, one can look at this scenario as an opportunity if someone is looking to build long term portfolio as it is said that down is temporary while ups are permanent.

But one has to be very specific to select the stock which are more stable including couple of FMCG, Pharma and Financials while avoid the stocks which are in news and falling like anything. Traders are advised to trade the market accordingly as the risk of trades are increasing amid high volatility but Hedging and Bearish strategy can be applied to deal with the current scenario.

The author is Derivatives & Technical Analyst at Motilal Oswal