Follow Nifty Bank Options To Understand Market Recovery
The sharp recovery of the market may be baffling to many but investors should take a cue from Nifty Bank Options.
Indian equity markets pared most of their early losses led by recovery in bank shares, shrugging off fears after Urjit Patel’s resignation as the Reserve Bank of India governor and election result trends showing the Congress leading in at least two of the three key states.
The sharp recovery of the market may be baffling to many but investors should take a cue from Nifty Bank Options. The Nifty Bank Index rebounded after hitting a low of 25,598 in early trade. That happened after State Bank of India Chairman Rajnish Kumar said, “One issue I don’t want to comment on is the RBI governor’s resignation. Post the change of guard at the RBI, it is difficult to predict what will be the change in Feb. 12 circular.” The rebound saw unwinding of the put options.
The Nifty Bank option saw unwinding of put positions at the 26,000 and 26,600 strike. Open interest increased in the 27,000 strike, suggesting a covering of some of the short positions. Open interest for the Nifty Bank December Futures also increased 20 percent, suggesting build-up of long positions.
Strong Buildup In NBFC Options
F&O data suggest significant build-up in open interest in futures of 23 non-bank lenders’ stocks. Mahindra & Mahindra Financial Services Ltd., Ujjivan Financial Services Ltd. and other peers saw an increase in long positions.
About 77 percent of the stocks in F&O universe, including Colgate Palmolive Ltd., Jubilant Foodworks Ltd. and Godrej Industries Ltd., have seen buying positions. That’s a complete turnaround compared with the extreme sentiment going into the state election verdict day with 91 percent of the scrips on negative side since start of this expiry.
About 60 percent of the stocks had seen a short build-up while 31 percent witnessed long liquidation since Nov. 30 until close of trade on Monday. Such an extreme sentiment sometimes acts as a contrarian indicator and it may not be a surprise if market stabilises at the current levels in the near term.