Indian stocks could see more volatility this week as the Nifty struggled to hold above the 25,200 level last week. This key resistance has triggered a battle between bulls and bears, amid heavy selling by foreign investors.
Bears concluded four straight weeks of negative closing last Friday— the Nifty fell by 3.12% from 27 June to 24,837 on 25 July— with heavy open interest accumulating at the 23,900 strike Nifty call option expiring this Thursday.
At closing on Friday, bears raised open positions— outstanding sell positions— of the 24,900 call by a whopping 962% to 86,159 contracts (one contract comprises 75 shares).
“The sale shows that bears are confident, at least for now, of the market remaining below 24,900 by the end of this month,” said Kruti Shah, quant analyst at Equirus.
High levels of call selling reflects trader anticipation of further cuts in the market while heavy put selling indicates bullishness.
Shah said that any downside after four weeks of an 800 point fall would be restricted to 24,500-24,600 levels, given the huge support by DIIs (domestic institutional investors).
“Unless the market breaks the 25,200 resistance convincingly, it faces the prospect of a further cut to 24,500/600, which are strong supports,” added Shah.
Chandan Taparia, derivatives and technical head of research, Motilal Oswal added that the index has repeatedly failed to hold above this level.
“My range for now is 24,500 to 22,500,” he said.
Three failed attempts
Since hitting a multi-month low of 21,743 on 7 April, the Nifty has gained 14% to 24,837. But it has failed three times to sustain above 25,200; each time falling sharply afterward.
On 15 May, it jumped to 25,116.25 but fell 654 points to 24,462 by 22 May. It then bounced back 698 points to close at 25,160.1 on 9 June, only to slip again—this time by 687 points—to 24,473 on 13 June. A final recovery took the index to 25,669 on 30 June, but by last Friday it had fallen sharply once again by 832 points to 24,837.
India lags global peers
Indian markets have underperformed most global peers this year, amid tepid earnings growth and high valuations, forcing FPIs to press the sell button in favour of other emerging markets.
For instance, while the MSCI India Index delivered a gross return of 6.55% in the calendar year through June, other major Asian markets fared better. The MSCI China Index returned 17.46%, MSCI Korea surged 39.69%, and MSCI Taiwan gained 10.43% during the same period, according to MSCI data.
“FPIs are selling India in favour of other EMs as our earnings growth though better than expected doesn’t justify the relatively high valuations,” explained SK Joshi, consultant at Khambatta Securities.
After net buying shares worth ₹8,467 crore in India’s cash market last month, FPIs turned net sellers, offloading ₹20,263 crore worth of equities in the month through 24 July, National Securities Depository Ltd (NSDL) data showed.
The reversal coincides with tepid earnings momentum—while standalone profits for the June quarter rose 22% year-on-year to ₹1.49 trillion, sequential growth was a mere 0.24%, according to Capitaline.
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