Budget 2019: Build-up of short-positions before interim budget boosts market

Budget 2019: Anticipation of announcements from the interim budget as well as expectations of healthy quarterly results led the equity market to rally more than 1.65 per cent as a massive build-up of short positions was witnessed on Thursday.

The market rise came on the day of F&O expiry and ahead of the interim budget which will be presented on February 1.

According to Angel Broking Derivatives Analyst Sneha Seth, the (NSE Nifty50) index recently corrected sharply from the hurdle of 10,950-11,000 points along with decent short formation in the futures segment. 

"As we have an important event of interim Budget 2019 lined up tomorrow (Friday), traders lightened up their exiting positions. This in turn resulted short covering rally of 1.68 per cent on the expiry day," Seth said. 

"Rollover in Nifty during the day was hardly 58 per cent, which is certainly very low to its 3-averages. For the coming series, 11,000 call and 10,700 put options are attracting traders` attention."

Following the US Fed`s decision to keep the interest rates unchanged, which is a major positive for the emerging markets, Foreign Institutional Investors (FIIs) bought a massive Rs 3,006.41 crore worth of stocks on Thursday. 

Consequently, the S&P BSE Sensex closed 665.44 points higher at 36,256.69, while the broader Nifty finished at 10,830.95, up 179.15 points.

"Value open interest in Futures has risen the most in Nifty, Axis Bank, Sun Pharma, Reliance, HDFC, Bank Nifty, Infosys, Titan, TCS and HDFC Bank, among others, along with rise in stock prices suggesting long build-up in them," said Deepak Jasani of HDFC Securities.

"BFSI segment has seen the highest build-up in short positions in futures." 

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Technical data showed that overall open interest (OI) in the F&O market rose from Rs 151,909 crore on January 30 to Rs 243,818 crore on January 31, mainly led by options build-up.

In the futures segment, the value of OI has risen from Rs 151,909 crore on January 30 to Rs 155,941 crore on January 31 due to price rise.

Analysts further opined that announcements in line with market expectations may see the current rally being extended to over 10,900 points level.

However, a disappointing set of news from the interim budget can pull the Nifty lower towards 10,700-point level.

"Technically, with the Nifty breaking out of the narrow two-day trading range and moving up sharply ahead of the interim Budget, the bulls seem to be making a comeback," Jasani said. 

"Unless the Budget disappoints due to poor fiscal numbers and/or aggressive revenue projections, the upward movement could continue for some more time. 10,985 on the Nifty is the next crucial resistance." 

Short-covering ahead of the monthly derivatives expiry, along with a dovish US Fed outlook and healthy large-cap quarterly earning results, pushed the barometer BSE Sensex higher by 665 points on Thursday, while the Nifty finished past the 10,800-mark gaining 180 points.

Investor sentiments were buoyed as global markets surged after the US Federal Reserve decided to keep the interest rates unchanged.