Stock Market Sentiments At Its Nadir In India?
Bearish bets or short positions via Put Options at record high levels
Bearish bets in India's equity options segment have reached an all time high. Data mined by Strike Money Analytics and Indiacharts shows that the total open interest of Puts (a derivative option instrument to take a bearish bet on the market) for index contracts including Nifty and Bank Nifty has reached an all time high level of 5.98 lakh. According to Indiacharts, previous such readings above 5 lakh had shown a bottom for the markets.
Indian markets have come under pressure ever since China announced a stimulus on September 25, which had resulted in foreign money flowing from India to China. Since then, Sensex has declined by more than 4,200 points or 5 percent. During the same time, markets in China and Hong Kong have risen by over 25 percent. Last week, Sensex and Nifty recorded their worst week since June 2022 as they ended the week with a loss of 4.3 percent and 4.5 percent, respectively. The fall in Indian markets was fast as hedge funds and index funds that bet on market momentum were quick to withdraw funds from India and pump it into China. Hence, more than the bear attack in India's markets, it was the genuine flow of money from index funds and hedge funds that led to fall in Indian markets.
Total Call Open interest of the market [stocks and indices] minus total Put Open Interest reached an all time high of 598703 crore. This is the lowest Nifty PCR since 30/05 just before the election results after which the market rallied for two months, said Indiacharts.
"This means that over the last few days of selling in the market, option sellers sold a very large amount of Calls. This combined with a very low Nifty Put/Call ratio at 0.67 means that the market is oversold and getting ready to bounce back. When markets rebound from an oversold condition this becomes the reason behind short covering as well by option sellers," said Rohit Srivasatava, Founder Founder and Market Strategist Strike Money Analytics and Indiacharts.
The data further shows that foreign portfolio investors (FPIs) unwound all their bullish bets or long positions in a matter of six days. From 3.61 lakh contracts long on September 27, the FPIs have turned berish on the markets with net short positions to the tune of 34,724 contracts. When this happened last time when the FPIs were short 30547 in the month of August and the Nifty index gained 1100 points as the FPIs covered their short positions and built longs.
"Will the same pattern repeat needs to be seen. The combined evidence of the market setup shows that maximum panic among traders and investors has been achieved and we are in an oversold market that will bounce back quickly once the trend changes as option writers cover shorts and FIIs start building index long positions again," said Srivastava.
