A turbulent November saw two massive events, one global and the other domestic.
An unexpected Donald Trump win in the US presidential elections and the demonetisation of Rs500 and Rs1,000 currency notes announced by Prime Minister Narendra Modi upset the markets.
The uncertainty that came along with these events caused nervousness among market participants, who began to book profits soon after the outcome of the US election was announced and continued till the series ended. As a result, Nifty lost 7.5% in the November series, registering its worst fall since August 2013.
A rollover of around 63% seen in the November series is lower in terms of percentage and number of contracts, compared with the earlier series.
A rollover refers to carrying forward a position, either long or short, to the next series. Lower rolls indicate that participants have liquidated their positions.
In the index futures, foreign institutional investors (FIIs) exited most of their longs and formed mixed positions in the last week of the November series. As a result, the long/short ratio fell from 79.20% to 48.90%, highlighted a report by broking firm Angel Broking.
Currently, FIIs’ open positions in index futures are at the lowest in the past two years as they have exited around one-third of their total positions in the last series, the report added.
“FIIs long/short ratio above 70-80% range suggests they have more of long positions in system. While the decreases in this ratio can be due to long unwinding or fresh short formation,” Sneha Seth, equity derivative analyst at Angel Broking, said.
Thus, the December series has begun with light open interest (OI). OI is the total number of outstanding contracts that are held by market participants at the end of the day.
Clarity is yet to emerge on what the actual impact of Trump’s win and the demonetisation would be on the Indian economy, so volatility will remain.
“For now, the risk–reward ratio might not favour fresh shorts because the index and most heavyweights have gone to deep oversold territory. If the Nifty manages to hold above 8,150, a bounce-back towards 8,220-8,300 in the short-term cannot be ruled out; and for the medium term, it could be around 8,480 levels. On the downside, supports are intact at 8,000 and 7,920 levels,” Chandan Taparia, technical analyst, Anand Rathi Share and Stock Broking said.
Meanwhile, information technology, or IT, and pharma stocks have been relatively strong in this volatile phase, and some analysts expect them to outperform, going ahead, benefiting from the rising US dollar.
But for now, caution is the name of the game and, given the ambiguity, some technical analysts advise traders to keep positions light.