Nifty 50 eyes new highs December as macros improve, short bets fall
Informist, Friday, Dec 1, 2023
By Apoorva Choubey
MUMBAI - Improving risk appetite across global markets and covering of short positions by institutional investors suggest that the Nifty 50 could inch higher in the December derivatives series, sustaining a recent uptrend that has helped the benchmark index reclaim the crucial 20000-mark and scale fresh highs, analysts said.
Appetite for global equities improved over the last fortnight as weaker-than-expected inflation and slowing growth in the US, world's largest economy, fanned hope among market participants that the US Federal Reserve could start cutting interest rates in the first half of 2024. These hopes translated into a fall in Treasury yields as well as the dollar index, thereby improving the outlook for quality emerging markets such as India, several market participants said.
As a result, foreign investors pumped $2.3 bln into Indian equities during November. India's headline index gained 6.8% during the November derivatives series, which expired on Thursday. However, mid- and small-cap stocks stole the show, with the Nifty Midcap 150 and Nifty SmallCap 250 indices gaining a massive 12.6% and 14.4%, respectively.
These gains were also underpinned by the fact that foreign and domestic institutional investors rushed to square off their outstanding short positions in index futures and some specific stocks, as the global risk aversion started abating, brokerages said.
Currently, the net short positions of FPIs in index futures outnumber their long bets by 57,000 contracts, Nuvama Institutional Equities said in a report. FPIs, who form one of the largest categories of investors in the Indian derivatives market, were most bearish in November in the last nine months. Their net short positions outpaced long ones by 152,000 contracts at the start of the November series.
Moreover, such investors have turned bullish on stock futures. Their net long positions in single stock futures were at 70,000 contracts, compared with net short positions of 136,000 contracts last month.
"I anticipate the Nifty index to trade within a range with a good chance of Nifty index making a new high in the next few days...stocks are poised for continued success," Abhilash Pagaria, head of alternative and quantitative research at Nuvama Institutional, said in the report.
Given the covering of short positions, the rollover count was lower than usual but the open interest in the Nifty 50's futures is still strong, remaining close to the average of the last three months, according to analysts. Rollovers to the Nifty 50's December futures were at 73% at expiry, higher than the three-month average of 79%, brokerage JM Financial Institutional Equities said.
For the December series, the index is likely to test 20500 points while strong support is seen at 19800 points, according to brokerage ICICIdirect. Today, the index closed at its highest ever closing level of 20267.90 points, up 0.7% from the previous day.
However, a few market participants believe that the gains seen this week make a case for equities investors to maintain a bit of caution, ahead of key events lined up during the month. The aggressive number of long positions held by high net worth individual investors is also a risk, as they could unwind these at the slightest hint of negative news, and trigger an immediate crash in small- and mid-cap stocks, cautioned some analysts.
In what can be seen as a sense of caution among some participants, the 19000 strike put option of the Nifty 50's monthly contracts still has the highest open interest. On the call side, the 21000 strike has the maximum number of open positions.
The December series will be an event-heavy one, with local state elections results, Reserve Bank of India's monetary policy review, and the US Fed's interest rate decision scheduled to be detailed over the next few weeks.
The year-end holiday season may also induce volatility in the absence of liquidity, warned brokerage IIFL Securities. End