Bulls ride high on India stocks, expecting success of US-Russia talks on Ukraine

Mint

13 hours ago

Bulls appeared to be taking charge of the stock markets on Wednesday, ahead of the Trump-Putin talks, where a breakthrough or an impasse could significantly impact Indian equities. The two leaders are slated to meet in Alaska on Friday in a bid to end the over-three year Ukraine war.
A day after foreign portfolio investors trimmed their index future longs to 7.95%, only 20 basis points shy of the record low of 7.75% on 22 March 2023, in light of the US Fed rate tightening cycle, bulls sold huge quantities of put options between the 24,500 and 24,600 levels, expecting a rally in the markets ahead of the talks. The contracts expire tomorrow.
The Nifty 50 traded 0.6% higher at 24,634 at 1 pm. Amid likely domestic institutional investor buying in the cash market, bulls sold a massive number of puts at 24,600 – the open position at this strike rose by a whopping 227,758 contracts to a total 284,785 contracts.
At 24,550, the open or outstanding positions jumped 148,077 contracts to 193,635 contracts and at 24,500 by 152,528 contracts to 260,034 contracts.
The jump in open positions at these levels indicates that bulls expect the markets to close at or above 24,600, which will enable them to pocket the premium paid by the put buyers, who expect the markets to correct.
"The correction premise (of put buyers) is based on the talks stalling and a continuation of the war, which could impact countries like India that buy Russian oil and have been slapped with a proposed punitive tariff of 25% from 27 August," explained SK Joshi, a consultant with Khambatta Securities.
Other analysts cautioned that it was too early to take such calls because the Indian markets would react to the outcome of the talks only on Monday, with Friday a holiday for Independence Day.
"The market is likely to consolidate in a 24,400-24,700 range ahead of the Russia-US talks in Alaska," said Sahaj Agrawal, head of derivatives research at Kotak Securities. "The reaction to the outcome will be on Monday."
Options data and sentiment for now also suggest a sideways movement, with no major horizon shift on the cards, he added.
The put-call ratio of the weekly options expiring on Thursday stood at 0.99 intraday, which means that for every 100 calls sold, traders had sold 99 puts. On Tuesday, the ratio stood at 0.65, or only 65 puts sold for 100 calls sold.
Time correction
The benchmark Nifty 50 has been in a time correction for 11 months now, which is longer than the nine-month time correction that followed the outbreak of the covid pandemic in 2020. Time correction implies an extended period of stagnant to marginally lower price movement.
The Nifty has fallen 6.25% from a record high of 26,277.35 on 27 September last year to Wednesday's intraday level of 24,634. While the Nasdaq, the UK's FTSE and Japan's Nikkei trade at record highs, Indian stock indices haven't been able to reclaim their previous high even 11 months later.
In the last major down-cycle, the Nifty fell 40% from a high of 12,430 on 20 January 2020 to 7,511.10 on 24 March that year when the pandemic surfaced. However, it reclaimed the high in nine months, closing at 12,632 by 9 November.
The current time correction is due to tepid earnings growth and more lately because of Trump's crushing tariffs on India, which Moody's expects could trim its current fiscal growth estimate by 30 bps to 6%.
"We have been in a time correction for nearly 11 months now and will have to see how the geopolitical events play out to reckon whether we will break through the 26,277.35 record high of last September or test the multi-month low of 21,743.65 of this April," Kotak Securities' Agrawal added.