Futures trends hint at correction in Nifty 50
NSE index may come down to 9,000-level in the near term
The partying on bourses may take a break for now. If equity derivative trading in futures and options is an indication, a correction of around 200 points on Nifty 50 in the near term is on the cards. There is, however, an indication of an uptrend in the next 4-5 months as well, analysts said. While the market may correct to 9,000-level on Nifty 50 on lower side, the next level that can be seen on upward move is 9,400-9,450, they added.
India Vix, an indicator of market volatility which has moved down sharply after a spike in November 2016 to 11.52 as on Wednesday, is also pointing to lower volatility in the market in the near term.
The BSE Sensex has been hovering around 30,000-level and NSE Nifty 50 at 9,300-level in the last few sessions after hitting their all-time highs towards the close of April.
“We are seeing a small correction of 200 points in Nifty 50 but for the next 4-5 months we are seeing upward movement in the market. Some corrections are going to come taking Nifty to 9,000-level because of winding up of the long positions. The rollover of futures and options positions from April to May series has been 50-60 per cent, pointing to a little bit of correction.” Ajay Kejriwal, president, Choice Broking, said. “Pharma and IT sectors are also proving to be drag on the benchmark indices upward movement so far and much would depend on the currency movement,” Kejriwal said.
The new series of futures and options contracts for May have seen foreign portfolio investors take active put options positions in the index options. This points more to hedging their long positions in the index futures than indication of a bearish trend in the market, an analyst said.
On Wednesday foreign portfolio investors (FPIs) were net sellers in the cash market at Rs 517.74 crore, their fifth consecutive session of net selling. FPIs have sold stocks worth Rs 2,000 crore in May so far. FPIs continue curbing liquidity in cash market segment; while in index futures they unwound their existing longs formed in the latter half of April series, analysts said.
Sneha Seth, equity derivative analyst, Angel Broking, said, “Unless we see a major sorting by the foreign portfolio investors, we won’t go bearish. By buying put option positions they are hedging their long positions in index futures (same thing had happened at the beginning of April series). Since November series, FPIs have been buying index futures.”
“Some unwinding/profit-booking in index futures by FPIs is actually due to a little bit of consolidation as market has moved up sharply; 9,200 and 9,300 put option buying by market participants has seen higher interest recently while there is higher interest in buying 9,500 call option,” Seth said.
Any meaning full correction in Nifty would only come if there is selling pressure in banking stocks and also in the stock of RIL, another analyst said. “In the last two months of upward movement, index heavy weights like RIL have made decent contributions to the rally, both in terms of pushing it up and also hand-holding when pressure emerged due to selling in IT stocks. Till the time both elements of Nifty stay in bullish to neutral mode, no major dent is likely. If there is an abnormal increase in put option in open interest position in RIL and large cap PSU banking stocks, then could be a a rush to cover put options in Nifty, he added.
“If we look at the options activity in Nifty, some build-up in 9,400 and 9,500 call options was clearly visible. On the flip side, 9,300 and 9,200 continued adding good amount of fresh long positions. Currently, 9,500 has highest concentration in call options, while, in put option it is scattered between 9,200-9,300,” Seth said.
An indication that a breakdown is in the offing would come from market breadth in mid-cap segment. If market breadth in mid-cap segment continues to be strong and correction both in mid-cap index and its breadth are short lived, then it is very likely to a correction.
Ravi Ranjan Prasad
Rajiv Nagpal