Bears on prowl on F&O expiry day take Sensex down by 1,114 points

PALAK SHAH Mumbai | Updated on September 24, 2020 Published on September 24, 2020

Weak global markets, rising Covid fears, limited action on economy, the other dampeners

India’s stock market correction became more pronounced on Thursday, the expiry day of September F&O (futures and options).

Fears triggered by growing Covid numbers and the lack of major governmental initiatives on the economy front for several weeks now, coupled with the global market fall, are taking a toll on investor sentiment, analysts said.

Another view is that the markets were ripe for a sharp fall this month after a near-35 per cent rally in the Sensex and Nifty and a 40 per cent rise in the Bank Nifty since May. The Nifty and Sensex have declined nearly 8 per cent since their August peaks.

On Thursday, the markets buckled under the unwinding of long positions in the derivatives segment and build-up of shorts in the Nifty and Bank index. The Nifty declined 326 points, or nearly 3 per cent, to 10,805.

The Sensex fell 1,114 points, or 3 per cent, to close at 35,556. The Bank Nifty index fell 721 points, or 3.41 per cent, to close at 20,459, its lowest level in over a month.

The rout in US stocks overnight after Fed officials suggested the US economy was worse than the market was pricing in, worries over resurging Covid cases in Europe, and poor economic data from Western countries also hit sentiments.



‘Healthy correction’

“There is heightened fear of a further fall,” said Rohit Srivastava, Chief Strategist, IndiaCharts. “But market internals suggest the decline in September could be a healthy correction, which could be nearing its end. The volatility index and global bond yields (both inversely proportional to the stock market) do not suggest any panic, as we saw in March. On Thursday, the majority of derivative long positions got unwound and we saw a short build-up.”

Data showed that open interest (OI) in Nifty reached 1.51 crore contracts during market hours, the highest since May. In the Bank Nifty index, the OI touched nearly 26 lakh contracts. The combined OI was more than ₹21,000 crore in the two indices. According to analysts, there were more shorts in the OI than longs after Thursday’s fall. This suggests markets could face support on the downside when short-sellers try to cover their positions in the coming weeks.

FPIs remain net sellers

So far in September, foreign portfolio investors (FPIs) have sold stocks worth ₹7,134 crore in the cash segment. Of this, selling worth ₹1,885 crore was reported on Thursday. In derivatives, FPI selling was ₹1,754 crore in index futures and ₹3,688 crore in stock futures till Wednesday. Data for Thursday are not out yet.

The Nifty and Sensex had gained over 45 per cent in value since the March slump that coincided with the Covid-19 outbreak in India.

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Published on September 24, 2020
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