Data in the cash and derivatives markets suggest that the feat might not be easy even after the ruling coalition’s landslide win in the Bihar assembly polls.
Major market constituents like direct retail — who buy stocks directly rather than through mutual funds— and foreign portfolio investors (FPIs) sold shares on Friday despite the ruling Bharatiya Janata Party-led National Democratic Alliance (NDA) victory in Bihar. This signals a likely tug of war between them and mutual funds above the 26,000 level —the benchmark Nifty50 index hit a high of 26,104.2 on 23 October after a year, before selling pressure dragged it down to 25318.43 on 7 November. It bounced to Friday’s closing of 25,910.05, buoyed by the poll results.
While domestic institutional investors (DII) bought shares worth ₹8,461 crore on Friday, especially during the final half hour, when the NDA’s margin of victory became wider, FPIs and retail/HNI clients on BSE sold a combined ₹6,197 crore, per provisional BSE data. This helped Nifty rebound 142 points from the day’s low of 25,768 to close at 25,910. Activity of retail clients on the National Stock Exchange (NSE) on Friday hadn’t been updated as of Sunday.
What’s significant is that besides the cash market sales of ₹1,229 crore on Friday, retail /HNI net sold a cumulative 41,925 index call option contracts, which was in stark contrast to the 49,531 call contracts they were bullish on a day earlier. The buyers were largely proprietary brokers of 19,342 contracts.
“The call selling by retail /HNI is a reflection of the challenge the market has faced in decisively breaking the 26-k level so far,” said Rajesh Palviya, head of research at Axis Securities.
While Palviya believes the Nifty will eventually race to a record high by the year-end, especially if an Indo-US deal fructifies, the prospect of testing the life-high of 26,277.35 hit on 27 September last year “looks tough right now ” because of heavy selling around the 26,000-plus level by retail investors and FPI.
A decisive break above 26,000 entails the market continuously closing above that level for a few sessions.
FPI positioning hints at resistance ahead
Brokers estimate direct retail equity holdings at about ₹30 trillion, against ₹73.76 trillion equity assets of FPIs, according to the latest NSDL data. Mutual fund pure-play equity assets stood at ₹34.77 trillion, according to latest data from the Association of Mutual Funds in India (Amfi).
“This shows any rally from the Bihar victory could face resistance at or above 26,000 levels, reflective in the heavy call selling at 26-k,” said S.K. Joshi, consultant at Khambatta Securities.
On Friday, the 26,000 call expiring on 18 November had the highest number of 181,474 contracts outstanding, which shows this level to be a stiff resistance, per NSE data. The immediate support falls at 25,700.
While FPIs on Friday purchased 5,035 more index calls, they increased their cumulative net shorts on index futures by 9,672 contracts to 169,619 contracts.
“This means even if there is a bump-up in the market on Monday, FPIs expect profit booking above 26,000 levels, which is why they have shorted more index futures than purchased call options,” said Joshi.
Call writers have successively trumped call buyers at the 26,000-mark. For instance, the 26,000 strike call, which traded at ₹102.5 a share (75 shares make a contract) on 23 October, when Nifty hit 26,104.2 points, closed at ₹0.75 on 28 October when the contract expired.
Similarly, the 4 November expiry contract saw the 26,000 strike call closing at ₹0.2 from a high of ₹250 a share on 29 October. Again on 11 November, the 26,000 contract closed at ₹0.10 a share from a high of ₹33 per share on 6 November.
The option’s near-zero settlement price reflects the market’s continued difficulty in taking out 26,000, where call premiums wither if the index slips or stays flat.
