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The sharp correction in the market this month has caught on the wrong foot several individual traders who were hoping the markets would remain at levels close to their all-time highs.
Derivative analysts said several high net worth individuals (HNIs) and small traders had mounted bullish bets on the Nifty, expecting the market to gain after touching a record high on November 3. Instead, a sharp reversal has forced these traders to cut their positions, with huge losses.
On Wednesday, the Nifty fell for a seventh straight day, ending below the 6,000 mark. The 50-share index has lost about 300 points since touching 6,300-levels during Muhurat trading on November 3.
“The sudden correction in the market, against their all-time highs, has taken several traders by surprise. Most of them do not know whether or not to cut the long positions they had built during the beginning of the month,” said a derivative analyst with a domestic brokerage.
Largely, it is the small traders who are stuck, as foreign institutional investors (FIIs) had begun lightening their positions after the market touched its peak. “Certain retail investors or HNIs who were very bullish after the market touched an all-time high might have been caught off guard. FIIs, however, were well-positioned and not aggressively going long,” said Yogesh Radke, head (quantitative research), Edelweiss Financial Securities.
Experts said considering the strong positive trend, most traders had rolled over long positions from the previous series. But traders, especially FIIs, began to lighten their positions since November 3. “The change in open interest since the market touched its peak on November 3 indicates FIIs have reduced long positions and increased short ones,” said Radke.
Experts have attributed the fall in the market to the drying of exchange-traded fund flows into the Indian market.
Analysts are divided on the market trend. Some expect a rebound due to the sharp correction, some believe the markets could correct further. “There has been a reversal in trend since the Diwali trading day. The market can correct further, compared to current levels. As long as the Nifty stays below 6,170, levels below 5,900 can’t be ruled out,” said Shardul Kulkarni, senior technical analyst, Angel Broking.
“The market has seen quite a sharp correction; there could be a bounce-back. However, it could be gradual,” said Radke.
