The December derivative series which began on November 25, kicked off on a bullish note as benchmark indices hit fresh lifetime highs in every single day of the series, barring Friday.
The aggressive long positions taken by foreign institutional investors (FIIs) has kept the premium of the Nifty 50 December futures contract to the spot index level higher at more than 100 points since the start of the series. It has sustained despite the closure of some long positions on Friday.
On Friday, Nifty 50 index ended 0.6% down at 18696.10 points. The Nifty 50 December contract settled at 18812.55 points, down about 136 points from the previous close.
At the start of the series, Nifty 50 December contract traded at a premium of about 142 points to the spot index, which narrowed to 116 points as of Friday, but it still remains on the higher side.
Such high premiums usually indicate that the market is overstretched and that one needs to tread cautiously.
This time, however, the trade set-up isn’t giving any signals of fatigue among the bulls, according to analysts.
“…When markets move in a linear fashion (upmove), intermittent bouts of profit taking make market texture healthy. However, market breadth indicators suggest that we haven’t really ventured into a territory where you have to be cautious,” Sriram Velayudhan, vice
president – alternative research at
told ETMarkets.
At the start of the December series, FIIs were net long of 8,79,500 contracts in index futures, compared with 2,32,800 contracts at the start of the November series.
“FIIs’ net longs in index futures are one of the highest seen in the last 3 years, and till we don’t see any major long liquidation, decline (in the index) should be restricted,” said Raj Deepak Singh, head – derivative research at
.
Even if the upcoming events like RBI’s monetary policy, macroeconomic data points, and global markets bring about some intermittent selling, analysts are confident of the Nifty 50 continuing its northward journey.
“We stick to our target of Nifty testing 18,800-19,000 levels in the December series. We would be buyers of dips,” Velayudhan said.
With the overall bias remaining positive, Singh of ICICI Securities does not expect the Nifty 50 to breach 17,800-18,000 levels on the lower side in the coming weeks.
The other parameter which suggests that there is no sign of panic in the market is volatility. India VIX, also known as the ‘fear gauge’ is trading below 14 points, which is the lowest level in 2022.
What do options say?
Bullish bets have been quite aggressive in the options segment too, as the open interest has almost doubled in absolute terms in the December series. This is causing some worry to a few analysts.
“From about 4 crore, OI (open interest) has doubled to 8 crore in index options. If this number moves further up to say 12-15 crore, then that could draw some panic in the market,” a derivative research analyst at a domestic brokerage firm said.
The 19,000 strike price call option of the Nifty 50 holds the highest open interest, and the contract saw strong addition in open interest even on Friday.
This suggests that the bulls are all set to make Nifty 50 achieve the “19000-level” milestone in this series.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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