Mumbai: The recent rebound in the stock market is encouraging traders to revive bullish bets. With the spectre of the global trade war receding for the moment and the falling domestic inflation raising hopes of delay in rate increases by RBI, traders are betting that the ongoing upward momentum will carry the Sensex and the Nifty higher by around 1.6 per cent. But, analysts expect the gains to be capped at those levels.
Derivative analysts said the market range for the ongoing April derivatives series is shifting higher and the Nifty could t ouch 10,700 in the near term.
The maximum concentration among Nifty put options has shifted higher to 10,300 from 10,000 on Monday, while among call options, 10,700 strike from 10,500. This broadly suggests they expect the Nifty to rise to 10,700 and do not expect the index to fall below 10,300.
Indices rose for the eighth consecutive session on Monday, with the Nifty rising 47.75 points, or 0.5 per cent, to close above the 10,500 mark at 10,528.35. The Sensex closed 112.78 points or 0.3 per cent higher at 34,305.43. The Nifty index has risen 5.8 per cent from the low of 9,951.9 hit on March 26. The Sensex has risen 5.6 per cent from the low of 32,483.84 hit on March 23.
“The Nifty has crossed 10,500 and is also holding above the 50-day exponential moving average, which is also giving confidence to the market,” said Chandan Taparia, derivative analyst at brokerage firm Motilal Oswal.
Both indices had corrected 8 per cent between February and March, which took the Nifty to sub-10,000 levels. The stock market has shown signs of optimism in April as fears of a rate hike by the Reserve Bank of India have ebbed and global markets have also recovered. Recent data show retail inflation eased to a fivemonth low in March and industrial output grew at 7.1 per cent in February, lending confidence to the market. The Street is also betting the tariff and trade rhetoric between the US and China will not escalate into a full-blown trade war.
Traders have been writing the 10,300, 10,400 and 10,500 put options in the last few days. Writing or selling a put option implies that the index is not expected to fall below that particular level.
“The market is expected to move in the range of 10,400 and 10,700 in the rest of the series,” said Jay Purohit, technical & derivative analyst at Centrum Broking.
Purohit said the upside, for now, will be capped at 10,700 as traders are shorting the 10,700 call option.
Hemant Nahata, derivative analyst at IIFL Wealth, said selling pressure may come again in the market as indices go higher.
“We are not expecting the market to rise significantly after eight continuous days of rise. 10,650-10,700 is on the horizon and as these levels approach, we may see selling pressure come again. Moreover, bulk of the positions held by foreign investors (in index futures) are on the short side, and the quantum of shorts held by them in index futures is the highest in the last 6-8 years,” said Nahata.
FIIs are net short in index futures to the tune of 5 lakh contracts, NSE data showed.
Source: Economic Times