Weak global cues and unwinding of positions by F&O players in the last one hour of trade triggered a sharp fall in benchmark indices, with the Sensex and the Nifty falling by around 3.7 per cent on Thursday.
The Nifty November futures witnessed unwinding of long positions as they closed at a discount of four points to the spot index, while the open interest (OI) declined by 1.03 million shares. Reliance Industries also witnessed unwinding of long positions as the stock was down around 8 per cent, while the OI declined by 112,050 shares.
In other Nifty components too, unwinding of long positions was seen in HDFC Bank, ICICI Bank, ITC, NTPC, Ranbaxy and Reliance Communications. The build-up of short positions was seen in Tata Steel, Bharti Airtel, Hindalco and Steel Authority of India as prices of these stock futures declined between 5 and 15 per cent with a rise in their OI.
The trading in the Nifty options suggests that F&O players expect further corrections with support of 2,850 for the Nifty likely to breach in the near future. This is because there is a decline in the OI at 2,800, 2,900 and 3,000 strike puts as put writers have been unwinding their short positions. Call option buyers were booking profits at the 3,100-3,300 strike calls as they expect that the index is unlikely to move above the 3,000-level. The index is expected to get support at 2,500 as we saw a significant increase in the OI at the 2,500 strike put options.
Technically, the index has support at the 10-DMA (daily moving avergae) level, which is at 2,750. On closing below the 10-DMA, the fall would be sharp, which would take the Nifty directly to the levels of 2,750 and then 2,600 as these are the 50 per cent and 61.8 per cent retracement of the rally from 2,252 to 3,240.