Informist, Monday, Apr 1, 2024
By Apoorva Choubey
MUMBAI – Indian equities look poised to climb higher this month as positioning in the April derivatives series not only shows that the bias of foreign institutional investors is turning positive but also indicates that the banking sector is likely to perform well, several derivatives analysts said. This momentum in the market could also be underpinned by the widespread view that the National Democratic Alliance might return to power after the Lok Sabha election, according to some experts.
Foreign investors have pared short bets on index futures and stacked up long positions in stock futures, suggesting that Indian equities could extend an uptrend that has propelled the Nifty 50 to lifetime highs. As the first phase of voting draws nearer, analysts expect the addition of some long bets in the overall market, both by foreign and domestic investors.
Currently, foreign investors' conviction in stock futures is quite bullish, as they have added long positions to the tune of 370,000 contracts in March, on a net basis. In index futures, foreign investors' net short bets have come down to 24,000 contracts, compared with 59,000 contracts at the end of February, Abhilash Pagaria, head of alternative and quantitative research at Nuvama Wealth Management said in a report.
Foreign institutional investors had turned bearish on index futures during the January series, racking up net short bets of 109,000 contracts by the month's end, compared with net long bets of 82,000 contracts at the end of December. The reduction in bearish bets by FIIs came after recent commentary from the US Federal Reserve and favourable data have alleviated some concerns that interest rate cuts in the world's largest economy may be delayed.
It was this concern, that the possibility of interest rate cuts happening in June is reducing, which had led to a rout in Indian equities in March. The Nifty 50 had slipped sharply from its lifetime highs hit in the first fortnight, then recovered towards the end of the month and finally closed the March series with 1.6% gain. Foreign investors net bought Indian shares worth $3.7 bln in March.
As the overall outlook for the domestic economy remains resilient and a continuity in the Central administration is deemed to be beneficial for the country's growth, the Nifty 50 could inch higher to 22700 levels in April, believe market experts. Today, the 50-stock index closed at 22462 points, ending with gains of 135 points or 0.6%.
In each of the seven years over the past three decades, when General Election has been held, the Nifty 50 has bottomed out in Jan-Mar and then given returns of at least 14% towards the poll outcome, noted brokerage ICICIdirect in a report today. "We expect the index to maintain the same rhythm as it has already undergone a corrective phase in the first quarter and formed a higher base," the brokerage said, adding that it expects the index to move up towards 23400 by the time the election outcome is detailed. The General Election will be held between Apr 19 and Jun 1.
With the Nifty 50 starting April with a low open interest in its futures, analysts believe there is room for addition of bullish positions as the month progresses. However, any negative surprises in the upcoming corporate earnings season or fresh worries over interest rate cuts being delayed might play spoilsport, they said. The trajectory of US treasury yields and the dollar will also provide cues during the month, as will the upcoming monetary policy review of the Reserve Bank of India.
The highest open interest among the Nifty 50's call options remains at the 23000 strike price, suggesting that several traders are eyeing the level as a target. On the put side, the highest number of open positions are at the 21000 strike price.
Among sectors, the banking index has fared well during the April series historically and may do well this time around, too, said analysts. "Currently, the positioning in banking appears to be heavily short in my opinion, indicating the potential for some covering-led action, which could result in gains of around 2-2.5% by mid-month," Pagaria of Nuvama Wealth Management, said.
The Nifty Bank, too, had a volatile March series and closed the month with a gain of 2%, with Kotak Mahindra Bank Ltd and IndusInd Bank Ltd being the top gainers. The index's futures also have a low open interest, compared to the last three months and any fresh addition is likely to be on the long side, said another analyst with a domestic brokerage.
The Nifty Bank index is likely to move with a positive bias, with immediate support seen near 46000 levels. The index closed 1% higher at 47578.25 points today. The overall banking sector has witnessed strong rollovers, as have other sectors such as cement, metals, and capital goods, analysts said. End
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