Indian market rallied 3% for the week after the U.S. Senate approved another infrastructure stimulus worth $1 trillion to support the US economy. At the time when rent moratorium was coming to an end, this package acted as a booster shot to global financial market. Although, Nifty has managed to close above 16,000 levels, the risk levels remains highly elevated due to rise in historical volatility. In fact, after the recent up move in BNY India DR TR Index i.e. (Bank of New York Depository Receipts Total Return) and the India 50 ETF, both the indices have hit the resistance of rising wedge. The downside projection is seen at 20% and the pattern is similar to rising wedge appearing January 2008. The breakdown levels of the above mentioned rising wedge is 3% lower and hence one should continue to exercise cautious stance.
The BNY India Select DR TR Index includes both ADR, GDR and Dividend on respective Indian stocks in US and European Markets, while India 50 ETF almost represent Nifty 50 stocks index traded in US markets. Both being highly liquid instrument, they are preferred by both FII and global central banks to participate in buying and selling of Indian stocks via overseas exchange. In fact the price action of India 50 ETF is exactly similar to ratio of NIFTY 50 to USDINR.
List of Stocks included in BNY India Select DR TR Index
|Tata Motors Ltd.|
|Dr. Reddy’s Labs|
|Larsen & Toubro Ltd.|
|Mahindra & Mahindra Ltd.|
|State Bank of India|
In the past three trading session, breadth of the markets has turned negative by 1:2 despite the Sensex and Nifty moving higher. The first sign of reversal are generally seen in the broader markets like Midcaps and Smallcaps index and then are the spread to the larger markets. For the coming week, key levels to watch on closing basis would be 16,000 in Nifty and below which we can expect major unwinding pressure.
Open Interest Analysis (figures in contract outstanding)
On the open interest front, week on week there is no significant change in Index future positions by all three market participants, but DII have reduced short positions in market wide stock futures from 58% to 54.5% after doing aggressive buying in the cash market. FII have doubled their long positions in Index call options while DII have also doubled their positions on Index put options. The retail segment have also seen massive increase in long positions in stock call option by 60% from previous week on back of optimism and continue to remain excessively leveraged in derivatives market. The retail segment has taken risky bet by holding 9.4 lakh of long stock futures, 2.4 lakh of short Index put and 1.2 lakh of short stock put contracts. DIIs which are considered to be informed investor still holds majority of short positions in stock futures.
Author: Nisha Harchekar – M.M.S (Finance) – 16 yrs+ experience as Equity Research Analyst
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