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| 27 September, 2020, 07:40 PM IST | E-Paper
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Nifty poised to hit new highs after RBI policy: Analysts

Synopsis

FPIs tend to be net buyers of index puts as a hedge to their portfolios.

ET Bureau
MUMBAI: The Nifty could move in a 700-point band after the RBI policy on Thursday, with odds currently in favour of an upside after the event. This could propel the Nifty to test its recent record high of 12,103.05, said derivatives analyst.

The extent of the upside hinges on RBI changing the monetary policy stance to accommodative from neutral or cutting rates by greater than the 25 basis points baked into Tuesday’s closing price of 12,022. However, chances of profit booking increase if the rate is cut by 25 bps or the stance is left unchanged, said derivatives analysts.

The range is based on the price received by an option seller of a 12,000 straddle – combination of a 12,000-strike call and put – expiring on June 27. That price was at a provisional Rs 338 per share (75 shares make a lot) at Tuesday’s close of 12,022. This pegs the upper band at 12,360 and the lower band at 11,684, a 676-point range.

The bullish sentiment is borne out by the open interest put call ratio (PCR) of the Nifty options expiring on June 27. At Tuesday close, this was 1.44, implying sellers have sold more puts than calls on odds that markets would remain steady or rise, enabling them to pocket much of the premium paid by option buyers.

Also, apart from traders, FPIs tend to be net buyers of index puts as a hedge to their portfolios.

Rajesh Palviya, derivatives head at Axis Securities, expects the market could test a new high after the policy. The Nifty made a record high of 12,103.05 on Monday. “Thereafter, the market will wait for further cues from the Budget.”

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1 Comment on this Story

Krishnan Chundharan Chundharan479 days ago
Let this Rate cut be the first test case of new Ministry in Finance sector to please voted public.