The derivatives expiry at the end of December 2021 has paved the way for a new phase of bullishness in the market. Nifty and Sensex were able to gain around 3 per cent in just two trading sessions post derivatives expiry. Analysts told business Line The market movement in the last two days indicates a strong uptrend.
In the best first trading day for the Indian market in years, the BSE Sensex closed 929.40 points or 1.60 per cent higher at 59,183.22, while the Nifty 50 closed 271.65 points or 1.57 per cent higher at 17,625.70. Still down 10 per cent from their highs, Indian stock markets are trailing US markets, which are trading near their lifetime highs.
positive global signal
S Ranganathan, Head of Research, LKP Securities said, “As India expands its vaccine coverage, the bulls started the new year as Nifty Bank buoyed by positive global cues with good support from other sectoral indices. Led the rally. Market breadth was positive with many small and midcaps in sectors posting smart gains.”
Experts said that the Indian markets and the US have edged up over the past two days despite the rising number of cases of Omicron in both the countries, which suggests that the market behavior was not as much influenced by the Covid situation as by corporate earnings. Derivatives options writers are believed to have managed to keep the market sentiment subdued with heavy selling of ‘call’ options over the past few months. Derivative option writers are known to control the direction of the market as they generate both ‘call’ and ‘put’ options and sell them to take traders.
“Nifty moved up with rising Put/Call ratio as option writers increased their bullish bets by selling put options. We broke an expanding triangle pattern formed above 17,300 in the last two months, moving from the bottom to the top. Confirms a trend reversal and indicates a potential to go up to 18,500 in the coming weeks in anticipation of the Budget,” said Rohit Srivastava, Head Strategist, India Charts.
According to Srivastava, the downtrend pattern in the market over the past few months was mainly due to heavy selling of ‘call’ options by the writers. Buying a ‘call’ option means a bullish trend in the markets and a put option means a bearish trend. This was one of the major reasons why foreign portfolio investors (FPIs) were selling in November and December. Large FPIs, institutions and brokers are often option writers.
Rally around budget
The government is expected to announce a bumper tax collection in the current fiscal and hence, will have more room to spend in the next financial year. This could be a major trigger for both the pre- and post-Budget rally. After the budget, elections will be held in UP and Punjab. Even after losing in Punjab, BJP seems to be getting a thumping majority in UP. The Uttar Pradesh result is generally accepted as a sign of national elections.
FPIs started 2022 on a positive note. As per provisional figures, he has net bought shares of ₹902 crore in the cash segment. His net purchases in the index futures segment stood at ₹662 crore. He was a seller of ₹346 crores in the stock futures segment. Net bought shares of domestic institutions in the cash market ₹803 crore.
“FPI’s continued buying in the Indian market could be a major factor. Moreover, positivity is in the air as we enter earnings season,” said Kranti Bathini, equity strategist, Wealthmills Securities.
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