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Defying the popular Wall Street adage of 'sell in May and go away', domestic traders and investors are sticking their necks out and betting on further upsides in the market in the coming days.
Brokers and analysts said the positions these market participants had created in Nifty futures and options suggested they expect the index to rise to at least 6,200, or about three per cent over today's close. The Nifty has risen about two per cent so far in May.
Analysts said the Nifty May call option contracts of 6,200 strikes have seen a sizable creation in positions in the past couple of days. Today, the contract saw a 45 per cent build-up in open interest when the Nifty closed way above the psychologically key 6,000-mark. (NIFTY CLOSES ABOVE THE 6,000 MARK)
"Concentration in Nifty calls is shifting to a higher strike at 6,200 levels, a bullish signal," said Shashank Mehta, derivatives strategist at broking firm Shah Investor's Home.
What is fuelling optimism further is the aggressive writing (or selling) of Nifty puts at 5,900 and 6,000 strikes, suggesting traders and investors do not expect the index to fall below these levels. A put writer or seller is a counter-party to a buyer of this contract. In a basic transaction, a put buyer expects the index or stock to decline, while a seller or writer takes the opposite bet.
The bullish bets this May so far have been a contrast to the trends seen in the same month in previous years, according to analysts. "For long, May has been a tricky month for investors but, surprisingly, we are seeing some conviction on a bullish front this time," said Ashish Chaturmohta, head, technical and derivatives research, Fortune Equity Brokers.
Earlier, investors and traders were expecting the markets to weaken after the Reserve Bank of India disappointed the markets last week with a lower-than-expected policy rate cut and ruled out any aggressive monetary policy easing. Analysts, including Chaturmohta, said the resilience in the market despite the ongoing political uncertainty was also surprising.
Brokers said many traders had built long positions in the Nifty futures at around 6,000; some of them pocketed a premium by selling Nifty 5,900 and 6,000 puts.
"We have observed fresh longs in Nifty futures, which have added 15 per cent to its open interest in the past three-four trading sessions. The total Nifty futures open interest now stands at over two crore (this kind of build-up happens during the middle of the expiry and not this early)," said Mehta.
Analysts said mid-cap stock futures were also seeing activity because of the April quarter results. "In mid-caps, traders are taking delivery and also using stock futures. Most of the activity is happening from retail and high net worth investors," said Chaturmohta.
