ANALYSIS
Though foreign institutional investors (FIIs) continue to buy in the cash segment in a big way, their activity in the derivatives segment has been slightly bothering for us to be able to maintain a super bullish view for the remaining days of September series.
We indicated last week that this market may not see any meaningful dip and may rally towards 5750-5800 levels in the September series. We felt that a dip was unlikely since most of the participants were bullish and waiting for a dip to enter the market.
But a dip of 50-60 points did come about and the participants didn’t exactly go shopping.
Still, we remain convinced that this market is only headed higher.
What gives?
Well, the dip was mainly because of TMC withdrawing support to the government, leading to expectations of early elections. But look at the fall in the market that day — less than 1%!
We have four days left to this expiry and our view is that the upside will continue.
However, we do not expect the markets to go above 5800.
Though foreign institutional investors (FIIs) continue to buy in the cash segment in a big way, their activity in the derivatives segment has been slightly bothering for us to be able to maintain a super bullish view for the remaining days of September series.
Specifically, FIIs have shorted index futures, sold index options and even shorted stock futures. Though the quantum of shorts is not astronomical, it certainly is worth paying attention. Options data show that strong hands are selling 5700 put and 5800 and 5900 calls for a combined premium of 75-80 points.
Though there is still a feeling of being left out in this market, weaker hands and side-liners so far are running towards non-movers, laggards and defensives, which have corrected during this upside move.
Also, we won’t be surprised if midcaps start outperforming in the remaining part of the series as indices may not see the huge upside moves witnessed in the last fortnight or so.
One argument against such a run is that despite the rise in the market, implied volatility (IV) has increased. The combined IV has increased to 19.85%, while that for puts is up at 21.10%.
But the suge in IVs isn’t surprising, given that most participants did not participate in this run. Besides, the bullish guys are buying calls instead of futures and those who don’t have the courage to short futures are buying puts. Don’t expect a correction just because IV has increased.
Stay long in this market, though a repeat of last week’s performance may be too much to expect. While we do not feel that the upside is over or suggest that one should short at higher levels, we do not see the Street above 5800 in this series.
The writer is head - equity derivatives, Angel Broking
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