Regulator's moves may lift mood

F&O OUTLOOK

The stock market regulator’s move to ease some curbs on indirect investments by foreign portfolio investors is expected to lift the sentiment when the market opens for trading tomorrow. The Reserve Bank of India’s (RBI) move to cut the cash reserve ratio (CRR) by 50 basis points to pump liquidity into the market will also boost the sentiment.

The Nifty October futures, which were trading on a par with the spot Nifty ten minutes before the close of session, witnessed a sharp increase in premium thereafter. The Nifty futures closed with a premium of 40 points to the spot market, while the open interest (OI) increased by 3.36 million shares.

The 3,800 and 3,900 call options witnessed an increase in trading volumes in the last one hour of trade, rising by 27 per cent and 30 per cent respectively. The rise took place during the last hour of trade. The OI in the 3,900 strike call was up 46 per cent and that of the 3,800 strike call was up 77 per cent. Interestingly, the outstanding order book position at the close of the day at these strikes was dominated by buyers.

This indicates that the market may see a modest pull-back sometime during the week, with the Nifty target of 3,900 within the reach. However, 3,800, 3,700 and 3,650 strike puts witnessed a short-covering, indicating that some put sellers do not expect the index to rebound above the 3,800 level and feel that it may go below the 3,560 level.

The 3,500 strike put gathered momentum today with 2,920 contracts changing hands at an average premium of Rs 200 a share. This means some F&O players have a bearish outlook on the market and hence are willing to pay a downside premium of 5.7 per cent over the spot Nifty close of 3,602.