A day ahead of ceasefire talks between the US and Iran in Pakistan, option sellers initiated trades signalling further volatility in the markets, a probability attested to by a veteran investor and a mutual fund top executive.
The trades, undertaken on Thursday, suggest markets may face upside pressure around the 24,000 level, with downside seen restricted to 23,500–23,000 levels through Tuesday, according to NSE data.
The 24,058 level is seen as a key resistance zone, coinciding with the 50% retracement of the rally from the multi-month low of 21,743.65 on 7 April last year to the record high of 26,373.2 on 5 January.
After a near 4% rally in the Nifty and Sensex on Wednesday, following President Trump’s announcement of a two-week pause in fighting a day earlier, the Nifty fell 0.9% to close at 23,775.10, while the Sensex ended 1.2% lower at 76,631.65 on Thursday.
The decline coincided with profit booking after Wednesday's outsized rally, weekly Sensex options expiry, and caution ahead of the peace talks.
"I think the market behaviour at 24,000 level will need to be watched carefully to ascertain whether the recovery could sustain from the recent low," said Kruti Shah, quant analyst at Equirus Securities.
"The substantial option writing of calls at this level (24,000) shows that it's a strong resistance," she added.
Fragile peace
Other experts also struck a cautious note on bullish expectations from the fragile peace talks, with differences emerging between the belligerents over extending the ceasefire to Lebanon and fully reopening the Strait of Hormuz.
"The war will be over only when Israel wants it to be over and so it will continue in some form or shape and keep crude elevated," said the UAE-based ace investor Shankar Sharma. "The Indian market is going to be in a troublesome situation and returns at the portfolio level will remain muted as they have been for the past couple of years."
Brent crude has risen 33% since the outbreak of the war on 28 February, reaching $96.62 a barrel on Thursday. Over the same period, the Nifty has fallen nearly 6% through Thursday’s close.
The Nifty hit a 52-week low of 22,182.55 last Thursday amid fears of escalation but has since recovered on hopes of a lasting resolution — a prospect that currently appears shaky due to disagreements over ceasefire terms.
"I don't think the war is over yet and market volatility could persist, but I don't think we will revisit last week's low unless the situation worsens from hereon," said Swarup Mohanty, vice chairman and CEO of Mirae Asset Investment Managers (India) Pvt Ltd.
"I will wait and see how the ceasefire unravels, use dips to buy and remain fully invested," he added.
Gap watch
"The uncertainty over the truce implies that that the Nifty could fill the gap between Tuesday's high of 23,153.85 and Thursday's low of 23,682.8," said Sahaj Agrawal, senior vice president (research), Kotak Securities.
"Uncertainty could push the index to fill the gap at 25153.85. Also, in the face of Wednesday's huge rebound, FPIs continued to remain net sellers in cash, showing that they are still in two minds."
Despite Wednesday's sharp rebound, foreign portfolio investors remained net sellers of ₹1335.53 crore in cash, according to depository data. Domestic institutional investors, however, were net buyers worth ₹4168.17 crore, per BSE data.