Column

It’s merry time at the market.But most of the participants would beg to differ as the feeling of left out and its pain is getting deeper with each passing day as markets move higher.

Last Monday, we saw a significant correction in the market for the first time in this calendar year, but that correction was due to long unwinding and very less volume, considering the quantum of correction. Even foreign institutional investors (FIIs) were not in the mood to sell then when a meagre cash market sell figure was seen on that day and next day onwards, so buying continued.

Interestingly, it’s observed that cash market volumes have substantially increased. FIIs are buying and domestic institutional investors (DIIs) are selling, and the same can be said for weaker hands. Many participants who bought stocks between April and August 2011 are selling their holdings with some losses in anticipation that the market may correct and they may be able to buy same stocks at lower levels, which entails a change of ownership. The stake of weaker hands is decreasing and stronger participants are accumulating. Historically, it has been observed that such a phenomenon has led to good bull runs. That’s good to hear and it may be the case, but we are not jumping to that conclusion and would continue to ride on long positions with hedges in place.

From derivatives perspective, 5200, which was considered as strong resistance, seems to be now a good support for the market. This strike call, which had huge open interest, has now started unwinding and the same strike put has seen significant addition of open interest, as implied volatility has increased for puts to 25.55%. Call activity has increased in 5,400 and 5,500 strikes and when this was happening, FIIs bought substantial amount of index options. So, in this run, 5,500 looks achievable.

One more argument in favour of bulls is that this run is mainly due to cash base buying and we are not seeing huge formation of long positions in index futures, so correction due to massive long unwinding is kind of ruled out as of now. Certainly, we continue to suggest to hold on to long positions and not to pre-empt corrections. Also, participants who are still short and hell-bent on carrying it should understand that selling portfolio stocks to pay MTM losses is only going to increase the problem. Avoid it and cut down on short positions. Sooner the better.

The writer is head - equity
derivatives, Angel Broking