Thanks to extreme volatility in stockmarkets, investors have refrained from taking clear long or short positions in the market.
MUMBAI: The stockmarkets seem to have nonplussed both bull and bear. Thanks to the extreme volatility, investors have refrained from taking clear long or short positions in the market.
On Monday, the Sensex ended down 237.85 points, at 10,213.48 points, a partial reversal of Friday’s 380-point gain.
“People have been squaring up their positions, adding to the selling pressure,” says Sejal Doshi, chief executive officer of Finquest Securities. “We expect the Sensex to be rangebound between 10,000 and 11,000,” he adds. Even Friday’s 380-point gain after two days that shaved 715 points off the Sensex has been attributed to short-covering in an oversold market.
“The extent of bearishness prevalent in the market is measured by the discount to which Nifty futures trade to the cash segment. This has been going up, sometimes as high as 90 points. Of course, this does not mean that we have entered a bear phase,” says Siddharth Bhamre, derivatives analyst at Angel Broking.
Single stock futures have also been trading at discounts to the underlying cash share. In fact, among Nifty stock futures, while 31 were trading at a premium to the cash segment on May 10, 2006 (the day the Sensex closed at an all-time high of 12,612), now the number has come down to three.
Bhamre adds that the put-call ratio, which is 1.25 and upwards in a bull market, has also dipped below 1 now. “It is at 0.70 levels now, which means that people are more willing to sell calls than they were earlier,” says Bhamre. Selling a call option at a strike price of, say, 3,200 (at a time when the Nifty is trading lower), means that the trader does not expect the Nifty to go above 3,200.
Another reason for the put-call ratio to increase: “Bears who had shorted the markets by buying puts are now covering their shorts,” says Vijay Bhambwani, chief executive officer of BSPLindia.com.
On Monday, the Nifty futures discount to cash widened to 59.35 points as compared to 29.80 points on Friday. The Nifty closed at 3,016.65 points (down 74.70 points). Foreign institutional investors were net buyers in the cash market by Rs 526 crore, the second consecutive day they’ve been buyers after being net sellers to the tune of Rs 12,236 crore in the 16 trading sessions preceding Friday. Meanwhile, mutual funds, which had been net buyers by Rs 6,909 crore in the same 16 sessions, turned net sellers to the tune of Rs 109 crore on Friday.
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