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    Tighten your seatbelts: Nifty could touch 10,000 in just a few weeks

    Synopsis

    Open positions in Nifty's 10,000 call options rose by 32%, with the price jumping 4.2%.

    When a trader buys call options of a stock or an index like Nifty, he is expecting it to rise.

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    Mumbai: The Nifty may be on the way to 10,000 in a matter of weeks if activity in the index's equity derivatives contracts is anything to go by . The benchmark stock index, in the midst of a record-breaking run, is 4.2% away from the five-digit milestone, which is increasingly appearing achievable thanks to the gush of domestic flows into the market.

    On Friday , the Sensex closed above 31,000 and the Nifty touched 9,600 for the first time.The Nifty , however, closed below 9,600 but the momentum seen in the last few sessions has convinced traders to bet on the 10,000 mark.

    Open or outstanding positions in Nifty's 10,000 call options rose by 32% on Friday , with the price jumping 4.2%. When a trader buys call options of a stock or an index like Nifty, he is expecting it to rise.

    “There's a sense of guarded cheer now and that's reflected by positions being created at the 10,000 mark in the current series," said Chandan Taparia, derivative analyst at Motilal Oswal Securities.

    So far in 2017, India has been among the top-performing emerging markets with the Sensex rising 16.5% and the Nifty gaining 17.2%. But, the run-up has resulted in India's stock market valuations turning expensive. The Sensex is trading at a price to earnings ratio of 18.53 times estimated earnings compared with the MSCI Emerging Markets Index's 12.93 times.

    But what's keeping the opti mism going is the uninterrupted money flow from domestic institutions -mutual funds and insurance companies -as retail investors are shifting money to stocks with hazy prospects clouding real estate and interest rates likely to drift low er. Provisional data showed that domestic institutional investors (DIIs) bought stocks worth `1,008.6 crore on Friday and foreign portfolio investors sold shares worth `274.1 crore. DIIs have poured in `15,074.5 crore this year including Friday's figures while foreign portfolio investors (FPIs) have bought `51,858.2 crore of stocks this year, which includes investments in various share sales.

    Participants are confident that domestic fund flows will cushion the market in the event of outflows. But foreigners do not seem to be in a rush to exit partly due to the strength in the rupee and with the minutes of the latest US Federal Reserve meeting signaling a cautious approach to rate tightening. Analysts said the activity in Nifty 10,000 call options has risen after the rebound in the market later in the week, following weakness earlier.

    “The breaking of new ground has indeed lifted animal spirits, but that calls for some caution given that the market has more than covered the fall from its previous high over six sessions in just two days through Friday ,“ said investment analyst Hormuz Maloo.

    The 10,000 call option holds open interest (OI) of 1.55 million units. In comparison, the 9,600 call option currently holds the maximum OI of 3.9 million.

    “Interest is going towards 10,000 call option. Interest started in that strike in April series when 2,500 contracts were added,“ said Amit Gupta, head-derivatives, ICICIdirect. “Since it's a long (June) series, there is room for the premium to rise above `10 and go to `15-20.“

    However, the optimism is guarded and analysts say the march to 10,000 will not be without volatility . What adds an element of caution is the fact that though Nifty rollovers at the end of the May series were at a six-month high of 74.09, the cost to roll was a negative 0.15%, implying that June futures were trading at a discount to May futures. One of the reasons for this is dividend payments by heavyweights like TCS and HDFC Bank, the other is that bulls were not aggressive in rolling over their positions. This caused Nifty futures to trade at a 26-point discount to the spot index.

    “We saw long unwinding during the recent correction, so the recent jump was more a result of short covering and the discount between the futures and spot will end once long positions are created,“ said Ashish Chaturmohta, head of derivatives & technical at Sanctum Wealth Management.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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    3 Comments on this Story

    Sanam Mirchandani1169 days ago
    Thank you for the feedback
    narasarao 1170 days ago
    Investors are ready!
    Sudip Bhowmik1170 days ago
    it's almost touching man. Jay ho Modi ji.
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