Investors must be cautious amid uncertain times

Spooked by rising Middle East tensions, disappointing Q2 earnings season, heavy FII outflows due to China’s stimulus measures and concerns over high valuations; the domestic market’s fall continued for the fourth straight week ended October 25, marking the longest losing streak since August 2023. BSE Sensex shed 1,822.46 points or 2.24 per cent to finish at 79,402.29 points, while NSE Nifty fell 673.25 points or 2.70 percent to close at 24,180.80 points. In the broader market, ‘visible’ panic selling was seen in several pockets.

After gaining over Rs87 lakh crore in the first half of current financial year, investors have seen their wealth erode by 43 per cent or Rs37 lakh crore in October, the worst in a single month. The world is beset with risks–political, geo-political, fiscal and monetary. But markets choose to look the other way, either being blissfully oblivious or want only negligent. Markets, of course, are entitled to look the other way and be blissfully oblivious or want only negligent. But ignoring risks doesn’t mean they don’t exist. It just means that if and when they fructify, the consequences are that much more pernicious. The next few weeks are crucial given US Presidential Election, state Assembly elections in state like Maharashtra, the demand scenario in festival and wedding season and the food inflation trends. The coming week is a truncated one; Friday is not a trading holiday, but it will just have a very short, one-hour ceremonial Muhurat Session. Overall, the volumes are expected to remain low given the festive season. While staying highly selective; a cautious approach is advised for the coming week.

F&O/ SECTOR WATCH

Overwhelmed by the FII selling in the cash market, the derivatives segment witnessed renewed shorting and for the fourth consecutive week, the Nifty closed in the red. Both the Nifty and the Bank Nifty closed with more than 2.5% loss. In the options segment, on the Call side, the 25,000 strike holds the maximum open interest, followed by the 24,500 and 25,500 strikes. On the Put side, the maximum open interest was seen at the 23,000 strike, followed by the 23,500 and 24,000 strikes. For the Bank Nifty, the prominent call open interest was seen at the 51,500 strike, whereas notable put open interest at the 50,000 strike. More writing was seen in call options compared to put options in both the Nifty and the Bank Nifty indicating selling pressure on any bounce in the market. Implied volatility (IV) for Nifty’s call options settled at 13.39 per cent, while put options conclude at 13.92 per cent. The India VIX, a key market volatility indicator, closed the week at 13.97 per cent. The Put-Call Ratio Open Interest (PCR OI) for the week was 0.86, indicating that call writers are currently outnumbering put writers.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)