Fear of contagion: Dow plunges under 11k, following Europe, Asia
FIIs buying Nifty 4800 puts; heavy shorting seen in major large caps
Things fall apart;The centre cannot hold…
—WB Yeats
Fears that Europe’s sovereign debt problems are spiralling despite the massive $140 billion aid package announced for Greece weighed heavy on markets the world over on Tuesday.
The Dow Jones fell below 11,000 and was down 255 points, or 2.3%, at 10 pm India time; European stocks erased their 2010 gains and Asia, including India wilted in the heat.
The Vix, as the Chicago Board Options Exchange Volatility Index is known, rose 26% to 25.47.
Major commodities too took a bashing, with copper falling to the lowest since February and oil sinking 3.9% as the dollar rose against 14 of 16 major counterparts.
The local markets reflected the overhang of concerns as the floor gave away in late trade.
The Sensex lost 248.94 points to close at 17137.14, while Nifty breached its technical support level of 5160-5180 to close at 5148.50, down 74.25 points.
The weak global cues clearly have the street worried, particularly the positions of foreign institutional investors (FIIs), which is seen as increasingly bearish.
“The FII position in derivatives looks a bit scary though they have not been selling much in cash. They have started buying inexpensive puts at 4700-4800 levels. Simultaneously, they are shorting index futures and buying at-the-money calls (mostly at Nifty 5200) as a protection. A lot of shorting is seen in large caps. Rising implied volatility also indicates negative sentiment,” said Sidddarth Bhamre, fund manager, derivatives at Angel Broking.
Over the last two days, FIIs have been heavy buyers in index options —- they bought Rs 1,707 crore of index options on May 3 after having bought Rs 1,403 crore the previous session.
Also, they have started selling a bit in the cash market. The provisional exchange data suggests selling of Rs 29.68 crore in cash segment by FIIs after they sold shares worth Rs 236.10 crore on Monday.
Domestic institutions appear to have turned chary, too, having sold shares worth Rs 545.09 crore in the past two days.
“A correction in the range of 10% is possible,” said Anand Tandon, director - equities at Brics Securities.
Angel’s Bhamre sees the markets in a 5000-5200 range for sometime now. “The fact that FIIs have not been selling much in the cash market but resorting to trading techniques in the F&O segment suggests the correction may not be a long-lasting one,” said Bhamre.
“The Nifty has broken a support of 5182 and the outlook in the short term is negative. We may see a move to 4900, suggesting short-term weakness. This could translate into medium-term worries only if the index trades below the level, in which case we could see 4650 emerging as the next key level,” said M K Srivatsan, vice-president (technical research) at Darashaw Broking.
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