A key indication to the fact that the bullish sentiment was at its peak in India’s stock markets has been flashing for the past few days, experts said. On Tuesday, the one month forward futures price of the Nifty index closed at a high premium of 142 points for the December month at 18,386 against the underlying cash price of Nifty.
On November 11, the Nifty December futures were traded at a premium of 190 points above the spot price and the closing was at a record high premium of 164 points higher than the spot price. The Nifty closed at 18,244 on Tuesday while December futures closed at 18,373.85.
Such Nifty premium is on the back of huge long positions of both foreign portfolio investors (FPIs) and India’s domestic retail investors. FPIs currently hold 43,408 contracts of net long positions in the Nifty futures and clients (domestic retail investors) hold 58,117 contracts of net long position in Nifty futures, data curated by Indiacharts show.
“Traders are fearlessly long. The high readings suggest that selling pressure is absent in the market and longs are being forced to roll over at a high price. We may say that longs are willing to pay a high price to hold on to their position,” said Rohit Srivastava, chief strategist, Indiacharts.
Srivastava said usually when FPIs are long in the market, the other side, which is the client side, shows a short position but as of now ahead of the current month expiry, the sentiment is extremely bullish since both FPIs and retail traders are holding long positions.
VIX below 14
India VIX, the gauge of market volatility, is trading at 13.86, which is far below its 200-day average of 20.14.
“A measure of fear in the market the VIX also supports the idea that the market is complacent and fearless of a market decline. All this put together, as we head into the final month of December, points to a possible year end correction in markets. December is also the financial year end for foreign investors who will be in a holiday mood in the second half of the coming month,” Srivastava said.