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After seven consecutive positive expiry sessions, the 50-share Nifty index ended down half a per cent on Thursday, as traders mounted bearish bets on the market a day after the Supreme Court cancelled coal blocks allocated between 1993 and 2008.
The expiry session of the September series derivatives contracts saw the Nifty dip below its key support level of 7,900 before eventually ending the day at 7,911, down 90 points or 1.1 per cent. The BSE Sensex fell by 395 points but recovered part of its losses and settled at 26,468, or down 1.03 per cent.
Rollovers to the October series were in line with market expectations and in some cases, even higher. Yet, the build-up on the short-side was very high, analysts said.
"We saw a good amount of rollovers this session but there was a lot of short-side bias in the market, particularly on the public sector and private sector banking stocks. The mood in the market has gone from euphoric to cautious after the recent news flows," said Yogesh Radke, head of quantitative research, Edelweiss Securities.
Thursday also saw the highest ever volumes on the bourses. The total value of trades put through crossed Rs 8 lakh crore for the first time, to Rs 8.52 lakh crore. (The final figure includes the notional value of derivative contracts, rather than the premium actually paid to execute these). Derivative contracts worth Rs 8.26 lakh crore were traded during the day. The cash market saw another Rs 26,018 crore in turnover.
"The large volume which has accompanied the fall today is a matter of concern. We saw capitulation once markets breached the 7,950 mark. There has been a build-up of short positions in public sector banks, as well as counters in the metal and power sectors. The 7,870 level will be closely watched in the days ahead. If that is breached, we could see another 200-point downside," said Jitendra Panda, chief executive at Peerless Securities.
Experts said the recent SC verdict on the cancellation of blocks had dampened investor and trader sentiment. Analysts said the increase in the number of short positions indicated the markets could remain under pressure in the short term.
Market-wide rollovers stood at 79 per cent, while those of the Nifty were at 72 per cent. Bank Nifty rollovers, at 60 per cent, were slightly above the three-month average of 59 per cent. But these consisted mainly of short positions, as participants have turned cautious on the sector after the recent turn of events.
The SC verdict, followed by Jaiprakash Power Ventures' decision to call off a deal to sell its hydropower business to Reliance Power, weighed heavily on the banking sector, causing it to end down 2.7 per cent.
The declines were led by stocks of the banking and power sectors, largely impacted by the coal-block cancellation. Jindal Steel & Power and Hindalco Industries, most impacted by the judgement, fell by 7.8 and 4.3 per cent, respectively, bringing their two-day decline to about 18 and five per cent.
Some remain more sanguine about the longer term outlook for Indian equities. "We believe the benchmark BSE Sensex index has material upside in the next three years. Sure, it is unlikely to be a straight line. Equities could dip five to 10 per cent in the short run, pummelled by a geopolitical hiccup (pick your poison) or the anticipation of a US rate rise. Any correction, however, is likely to draw in buyers, we think," said a BlackRock Investment Institute India outlook report of this month, titled 'Under new management'.
Near-term triggers would include earnings and action from Narendra Modi's foreign policy activities. "Corporate results and Modi's US trip will be closely watched. If there are no positive cues from either, one could see further correction in the days ahead," said Panda.
