Nifty futures bode ill for markets

F&O OUTLOOK

The Nifty opened on a negative note on Thursday, breached the psychological mark of 3,000 and finally closed at a two-year low of 2,943, down 122 points over the previous day’s close.

According to technical analysts the index below the 3,000 mark will spread the negative sentiment and result in a further decline from the current level.

Analysts at Ambit Capital expect a sharp drop in the index and have pegged the next targets at 2,850 and 2,615. The Nifty options data suggest that the index may find support at the 2,900 level as traders on Thursday bought the 2,900 strike call and sold the 2,900 strike put options.

Earlier during the day, private sector giant Reliance Industries (RIL) led the slide, slipping by 7.6 per cent to Rs 1,215.25, its lowest close since December 2006. The F&O data show that traders have rolled over short positions, which indicate that stocks may see a further decline on account of the poor second-quarter performance. Among banking stocks, ICICI Bank fell by over 7 per cent as F&O traders rolled over short positions of around 1.58 million shares in the November series.

Metal stocks extended their decline on concern that a global recession would slacken demand. Tata Steel and Hindalco were affected the most on account of a build-up of short positions in the derivatives segment. Hindalco declined by around 14 per cent as the stock witnessed a rollover of shorts.

The Nifty October and November futures contracts closed at a discount to the spot Nifty for the first time this month. According to Jitendra Panda, vice-president and derivatives analyst of Motilal Oswal, the Nifty futures trading at a discount means that F&O players expect more selling pressure in the near future, expects mutual funds to see redemption pressure in equity schemes, which will trigger a selling by mutual funds in the near future.