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Nifty Clocks records best gains in 34 months in December F&O series. Can he beat this show in January?

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The benchmark Nifty 50 index rose more than 8% in the December derivatives series, recording its best gains in a series since February 2021. This is also the highest series gain in the index in 2023.

Additionally, foreign institutional investors significantly increased their net long positions, pushing the long/short ratio sharply up from 0.56 to 2.28 at the start of the January series.

Open interest in January Nifty futures at over Rs 301 billion or 13.9 million shares is the highest seen since the April derivatives series, analysts pointed out.

The base with which the new year and January series begins shows the ultra-bullish sentiment prevailing in the market.

However, most analysts have sounded a note of caution and believe that a trend reversal is entirely possible in the current series.

“It is quite evident that FIIs, which were earlier leaning towards a short bias, have now pivoted heavily towards a long bias and their current long positions in future indices account for almost 70% of the total open positions. Such a pronounced bias can introduce volatility and potential malaise into the market, in my opinion,” said Abhilash Pagaria of Nuvama Quantitative Research.

The last time the long-short ratio of FIIs in index futures touched such high levels was in July 2023, and the Nifty 50 saw a sharp decline the following month, analysts pointed out. In fact, historical data also suggests that January was a relatively weak period for the markets.

Over the past 17 years, January has often shown a trend of lower returns, with 11 instances of months ending in negative territory, SBI Securities said in its report.

Although brokerage firm IIFL Securities expects the Nifty 50 to move towards the 22,000-22,200 levels in the current series, it has also not ruled out profit making, possibly in the second half of the series, based on historical trends.

In Friday’s trading, the 50-share index fell 0.1 percent to 21,746.15 points after hitting an all-time high of 21,801.45 points in the last round of December derivatives on Thursday. Since the start of the year, the index has recorded gains of 20%.

The brokerage sees strong support for the index between 21,000 and 21,500.

Sectoral image


One sector that could potentially help the 50-inch Nifty move further is information technology, Pagaria believes.

“In line with seasonality over the past 20 years, the IT index has the highest probability of generating positive returns compared to other sector indices in January. Consistent with our quantitative and dynamic outlook, we have a long bias towards the technology sector,” he said.

In the December derivatives series, the Nifty IT index outperformed the Nifty 50, up almost 10%.

However, the performance of the IT sector depends on the quarterly results and forecasts that companies will offer later in January.

SBI Securities expects Banking, Metals, Pharma, Healthcare, FMCG, Oil & Gas and Consumer Durables sectors to outperform during the monthly series in course, based on turnover data.

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(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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