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Nifty logs best day in 4 months, rally may fade
Easing oil prices and a stronger rupee supported sentiment, but analysts cautioned that foreign investor outflows could limit the rally.
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Indian stocks surged on Thursday, bucking a global sell-off in artificial intelligence (AI) and technology shares as domestic buying and a rush by traders to reverse their bets against the market fuelled the rally. However, experts do not see the uptrend sustaining as of now as foreign funds continue to pull money out of Indian equities.
The Nifty 50 index closed 1.66% higher at 22,997.35 on Thursday, clocking its biggest rise in percentage terms since June 12. Sensex closed 2.1% up at 74,315.61, seeing a similar highest rise since June 12.
Heavyweights ICICI Bank, Reliance Industries Ltd, HDFC Bank and Bharti Airtel buoyed the index. Domestic institutional investors (DIIs) net bought shares worth ₹3,319 crore, while foreign institutional investors (FIIs) net sold shares worth ₹5,285 crore. However, the FIIs, on a gross basis, bought shares worth ₹ 12,735 crore on Thursday.
The proof of short-covering was visible in the put-call ratio of weekly options contracts on the Nifty, which witnessed a dramatic rise, said analysts.
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The put-call ratio of Nifty options expiring on October 19 jumped to 1.65 on Thursday from 1.01 a day earlier, implying that call sellers were forced to cut their short call positions due to the smacking rally in heavyweights, they said.
“This means that for every 100 calls sold on Thursday, 165 puts were sold, skewing the market in favour of the bulls,” said Sudhir Joshi, consultant at Khambatta Securities.
This ratio shows the number of outstanding puts relative to the outstanding calls. When the ratio rises, it’s a bullish sign as investors and traders sell more puts than calls, hoping to pocket the premium paid by the put buyers who are bearish.
While heavyweight stocks rose, the Nifty Smallcap 250 index fell 1.01% and Nifty Midcap 150 fell 0.8% on Thursday.
FIIs have net sold shares worth ₹38,722 crore in October so far, according to National Securities Depositories Ltd (NSDL) data.
Also Read | Sensex, Nifty open flat day after sharp rebound aided by IT, financial and FMCG shares
The market got a boost from moderating crude oil prices and a stronger rupee. The rupee continued its winning streak for the fifth straight day, rising 23 paise to 95.06 per dollar on Thursday, while benchmark Brent crude oil prices fell 1.3% to $104.63 a barrel, easing worries over inflationary pressures.
Globally, AI and tech-heavy indices saw a sharp correction: South Korea’s Kospi index fell 8.18%, Japan’s Nikkei 225 fell 4.18%, and Nasdaq fell 1.88% on Thursday.
The stocks that saw biggest declines on Nasdaq on 14 October were all AI-focussed companies: CoreWeave, Nebius Group and Marvell Technology fell 15%, 10%, and 8.8%, respectively. The fall in AI stocks globally comes amid worries that the massive spending on the technology may not deliver commensurate gains.
India, with its relatively low exposure to AI stocks, could offer investors a refuge from the global AI turmoil.
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However, for investors to actually move money out of the US markets, “would need a more sustained correction in some of the major AI stocks,” said Christy Mathai, fund manager at Quantum Mutual Fund.
“We may be seeing the beginnings of that in a few stocks, partly because bond yields have risen. But the earnings outlook for US technology companies remains strong, and we are not yet seeing clear signs of a broader earnings slowdown,” Mathai added.
