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Index management props up Sensex

Hectic short-covering during the last hour of trading helped major indices to close at lifetime peaks, reports BSS Reddy.

india Updated: Jan 26, 2007 00:36 IST
BSS Reddy

Hectic short-covering (buying shares to meet prior sale commitments) during the last hour of trading helped major indices to close at lifetime peaks on Thursday, with the fall in the inflation rate from 6.12 per cent to 5.95 providing additional push.

The Sensex jumped 172 points, while the NSE Nifty gained 58 points. The Sensex spurted 128 points in just 16 minutes, starting 2.58 pm.
Reason? A market trick called 'index management'.

"Rollovers were not going strong, leading to operators resorting to basket buying in Nifty stocks. This is intended to boost the price line before squaring off open short positions before expiry, without incurring loss," a market veteran said.

Translated, it means operators pushed up prices in the cash market in order to cut impending losses in the derivatives market.

The rollover positions of Jet, Bharti and Wipro were at 29 per cent, 35, and 48 per cent respectively at about 1 pm, far short of the normal 60 per cent. Last hour volumes boosted the futures and options turnover on NSE to Rs 53,806 crore. 

Huge short covering was also seen in metal stocks, which led the day's rally. BSE Metals index jumped up 4.30 per cent. Its constituents like SAIL, Tata Steel and Hindalco posted robust gains. BSE's Consumer Goods, TECk and Auto indices have also posted gains of over one per cent.

The market breadth is positive with advances beating declines by 10 per cent. "Though results have bettered market expectations, frontline valuations seems stretched. This may shift focus to second-rung stocks," said Nimish Shah of Fortune Financial.