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Equity Futures: Steel cos set to bleed further as outlook weakens

Informist, Monday, May 23, 2022

 

By Abhishek Saini

 

MUMBAI – Stocks in the steel pack were gripped by bears today as the government’s decision to impose export duty on steel products dented the outlook for the sector. 

 

Shares of Tata Steel slumped to a 13-month low, which triggered significant addition of bearish bets in the stock’s derivatives segment.  

 

The stock slumped nearly 13% to end the day at 1,022.95 rupees as several brokerages lowered their ratings on fear that the export duty would hit earnings. 

 

In the options segment, traders closed positions at the 1,100-rupee strike price put option and shifted to the 1,000-rupee option contract. The contract saw the highest addition of open interest today, and also holds the maximum open interest. 

 

Traders bought further out-of-the-money put options at the 940-, 860- and 980-rupee strike prices, and their premiums jumped manifold. 

 

Among call options, writers were forced to close positions at the 1,100-rupee strike price, given that the stock is expected to remain on a downward trend. 

 

As the stock closed below its previous support level of 1,060 rupees, the next support is seen at 1,000 rupees, said

Kunal Shah, a derivatives analyst at LKP Securities. However, a fall below 1,000 rupees is likely, and the stock could extend losses till 950 rupees, Shah added. 

 

The May futures contract of Tata Steel hinted at unwinding of long positions, with open interest declining around 1% and the contract ending 12.5% lower. 

 

Similarly, JSW Steel saw bearish bets after an aggressive sell-off in its cash counter. The stock also hit an over one-year low of 541.50 rupees.   

 

Traders purchased put options at the 540-, 520- and 500-rupee strike prices, while writing was seen in the 600-rupee call option. Market participants expecrt further correction in the stock till around 500 rupees. 

 

The stock ended over 13% lower at 547.55 rupees today. Open interest in the May futures contract slumped nearly 10%, which hinted at unwinding of long positions.  

 

Meanwhile, bearish bets were also seen in the Nifty 50 after the index gave up initial gains and fell below 16400 points.  

 

Aggressive writing of call options was seen at the 16500- and 16400-point strikes, which halted the upmove in the index to that level, said Shah. 

 

Among put options, fresh additions were seen at the 16300- and 16100-point strike prices, with traders betting on a further fall in the headline index. 

 

The highest open interest, however, remains at the 16000-point put option and the level remains a strong support. On the higher side, resistance remains at 16400 points, analysts said. 

 

A further fall on Tuesday could see the index drop below 16000 points, towards 15800 points. In case of no aggressive selling, the index is likely to remain range-bound, the analyst said.

 

Today, the index ended 0.3% lower at 16214.70 points, while open interest in the May futures contract rose roughly 4%, indicating a build-up of short positions.

 

–Nifty 50 May ended at 16164.85, down 88.40 points; 49.85-point discount to spot index

–Nifty 50 Jun ended at 16163.00, down 86.85 points; 51.70-point discount to spot index

–Nifty 50 Jul ended at 16195.00, down 81.05 points; 19.70-point discount to spot index

 

The total turnover in the futures and options segment of the National Stock Exchange was 69.18 trln rupees compared with 53.85 trln rupees on Friday.

 

The turnover in index options was 64.26 trln rupees compared with 49.70 trln rupees during the previous session. The total premium turnover of the index and stock options was 423.10 bln rupees compared with 378.75 bln rupees on Thursday.

The most-actively traded underlying stocks were Reliance Industries, HDFC Bank, Infosys, Tata Steel, ICICI Bank, Maruti Suzuki India, JSW Steel, Divi’s Laboratories, Steel Authority of India, Jindal Steel & Power.  End

 

Edited by Vidhi Verma

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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© Informist Media Pvt. Ltd. 2022. All rights reserved.

Source: Cogencis

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