• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Jayanta Mallick

Some derivative strategists feel that unless the put-call ratio comes down to 0.70, market may not like to adopt a defensive stance.

FINALLY the liquidity tap has been opened. Foreign institutional investors and the local punters shrugged off their inertia last week.

This week, a double dose of overseas funds flow and short covering in the futures is likely to take the key indices to higher levels. In the mid-cap space fresh ideas may not come up, but selective buyings are likely to keep the broader indices warm.

The FIIs, who until recently have been hedging their cash segment purchases by selling index and stock futures, last week clearly turned net buyers in the derivatives segment.

Shift in tactic: The total buying in the stocks and Nifty futures in the near month contracts now stands at Rs 576 crore and Rs 253 crore respectively in sharp contrast to last month's speculative strategy.

In August, the futures trading showed a complete negative picture. While stocks futures witnessed a selling of Rs 995 crore and Nifty futures had a short figure of Rs 56 crore.

Local speculators also have changed gear - from mid cap to heavyweights in the cash segment. The short-covering in the derivatives generated additional momentum for key indices in the cash segment.

The current put-call ratio is 1.46 in Nifty, highest ever in the history of the index. This is an indication that further short covering is likely this week and this may, in turn, fuel further rise in the Nifty and Sensex.

Majority of the punters on the Dalal Street were waiting for the Nifty level of 1722 points to cover their short positions. As things stand now, the bears have little option but to retreat, at least for the time being. As derivatives figures get reflected on the Street a day late, the market may see put-call ratio in the Nifty climb down on Monday itself.

The combined pressure of FII fund flow and short covering saw the Sensex rise to a four-month high.

Week-on-week, the cash segment benchmark gained 3.56 per cent. The Nifty moved up by 3.89 per cent. In the last 19 trading sessions, the Sensex closed higher on 16 occasions.

How long will this rally sustain? According seasoned overseas fund managers working here, the Sensex is still quoted cheap in term of P/E compared to benchmarks in other emerging markets. However, a major churning in portfolios has already taken place.

From here, the Sensex is likely to add another 200 to 300 points before reaching a crossroads. Some derivative strategists feel that unless the put-call ratio comes down to 0.70, market may not like to adopt a defensive stance. This is a tricky time for retail investors - to take profit or to wait a while.

Fresh entries - even in mid cap stock - are likely to taper off soon. The operators would like to use this week to exit from some counters. So, Street rumour mills will start working overtime. (Certain Gujarati media had predicted collapse of the UPA government at the Centre.)

The fundamentals are likely to guide the long-term investors in the coming few weeks as the perception of the July-September quarter corporate performance is taking shape. The available data suggest an overall positive outlook.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
For effective governance — ICSI proposes independent compliance checking for MFs

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line