Informist, Friday, May 14, 2021

By Joe Milton 

MUMBAI – After the recent uptick in metal stocks, they have entered an intermediate correction phase, which is evident from the short positions initiated in Jindal Steel & Power, Hindalco Industries, Steel Authority of India, and Tata Steel.  

Metal stocks are taking a breather for the time being, and traders could take long positions only after some more correction, said Bhavin Mehta, vice president–derivatives strategist at Dolat Capital Market. 

As the robust earnings for Jan-Mar had already been factored in during the recent upmove of Jindal Steel & Power, investors booked profits in the cash market, and traders added short positions in the May and June futures of the stock. Today, the stock ended at 417.30 rupees, down nearly 9%. 

Open interest in the May futures surged 12% as prices fell in the spot market, indicating build-up of short positions. Correspondingly, bearish bets were taken in the options segment as traders wrote call options and bought put options. 

Similar bearish bets can be seen in Hindalco Industries, where traders added short positions in the May futures, as open interest soared 10%. In the spot market, the stock closed at 382.80 rupees, down 4%. 

Metal stocks are expected to consolidate for the next one-two weeks, said Rajesh Bhosale, technical and derivatives analyst at Angel Broking. But as the overall momentum is still positive, investors could re-enter after this brief correction, he said.  

During the day, investors positioned themselves with bullish bets to capitalise on positive earnings from Larsen & Toubro, which was out after market hours. Traders added long position in the May futures of Larsen & Toubro as open interest rose 6% in the contract.

Options data of Larsen & Toubro suggest the stock could an touch 1,500 rupees and above, as maximum addition of open interest was observed at this strike price, said an analyst. 

The stock ended today with a technical break-out at 1,415.50 rupees, up 2.2%, with a surge in the volume of shares traded. Investors will eye the management's commentary on the impact of the ongoing pandemic and the guidance on the order inflow. 

On the banking and financials front, the Nifty Bank continues to indicate weakness and traders have added short positions in the May and June futures, where open interest has surged 13% and 14%, respectively. 

The rise in open interest comes as the Nifty Bank index fell in the spot market and closed at 32169.55 points, down 0.9%. In the put options segment of the index, maximum addition of open interest was at the 31000 strike price, which will act as strong support.  

Overall, market sentiment remains negatively biased, as the Nifty 50 index failed to sustain above 15000 levels and has retraced back to 14600-14700 points during the week. The benchmark index today closed at 14677.80 points, down 0.1%. 

Traders were writing at-the-money put and call options, and simultaneously high open interest was seen in out-of-the money strike prices. Hence, if the Nifty 50 climbs above 14700 points, closure of positions by option writers will take the index further higher, ICICIDirect said in a note.  

Among out-of-the money call options, high open interest was observed at the 14800, 14900, and 15000 strike prices.  

-–Nifty 50 May ended at 14717.50, up 7.45 points; 39.7-point premium to spot

-–Nifty 50 Jun ended at 14745.85, up 4.90 points; 68.05-point premium to spot

-–Nifty 50 Jul ended at 14790, down 2.55 points; 112.2-point premium to spot

The total turnover in the futures and options segment of the National Stock Exchange was 25.40 trln rupees as against 80.06 trln rupees on Wednesday.

In index options, the turnover was 22 trln rupees as against 77.03 trln rupees in the previous session. The total premium turnover of index and stock options was 189.75 bln rupees as against 202.2 bln rupees on Wednesday.

The futures and options contracts of Tata Steel, UPL Ltd, Asian Paints, ITC Ltd, Tata Motors, Dr Reddy's Laboratories, Reliance Industries, Jindal Steel & Power, State Bank of India, JSW Steel, Hindalco Industries, and Larsen & Toubro were among the most-actively traded.  End

Edited by Avishek Dutta

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