The Bombay Stock Exchange Sensex closed below 9,000 for the first time since December 5, 2008, on selling by foreign investors, who are worried about a fragile world economy and gloomy earnings outlook.
The CNX Nifty managed to close above its most crucial support level of 2,700, but both the Nifty futures closed below the 2,700-mark with a 20-point discount, indicating that markets may open on a weak note tomorrow. Significant short covering was seen in the 2,700 and 2,800 strike puts and fresh shorts were build up in the 2,600 and 2,700 strikes calls indicating that the investors expect the Nifty to trade below 2,700 in the current month series and even below the 2,600 level going forward.
Moreover, the traders were seen buying the 2,500 and the 2,600 strike puts of the February series at an average premium of Rs 106 and Rs 140, respectively indicating that the traders expect the Nifty may go below 2,400 going forward.
Siddhartha Bhamre, a derivatives analyst with Angel Broking, expects the market to weaken further on account of the short build-up by institutional investors. He expects the Nifty to trade below 2,700 and even 2,600 on expectations of weak corporate results.
Reliance Industries (RIL) and financial stocks such as ICICI Bank and Housing Development Finance Corporation have witnessed fresh short build-up and unwinding of long positions. The stock futures of RIL and ICICI Bank closed with discount to spot and added OI of around 1 million shares and 6.9 million shares, respectively indicating a short build-up.
RIL is expected to weaken further if trading in put options is any indicator. The traders were seen unwinding the 1,110 strike put and were buying 1,085 and 1,050 strike puts, indicating that they were expecting the stock to fall below 1,110.
The markets expect Reliance to report a decline in its gross refining margins for the third quarter, in line with public sector refineries. So, the F&O traders are building short positions in RIL and expect stock to trade below 1,000 going forward.
