We’re starting off a new month on a high note with the Nifty at 25,000. Although it opened much higher than it closed, 25,000 is still a remarkable milestone. This level wasn’t expected by most market pundits just a few months ago, especially when we were at 21,000 before the elections.
Today, we will discuss a new SEBI report and consultation paper that indicates 52,000 crores have been lost in FNO trading. As a result, certain steps may be implemented soon. Your feedback on this consultation is welcomed, and SEBI will decide the final course of action.
Market Overview
Over the last three sessions, the Nifty touched 25,000, retreated, and then closed today at 25,100. This is a significant achievement, considering that pre-COVID, in January 2020, the Nifty was at about 12,000. In approximately four and a half years, despite the pandemic, the market has more than doubled. The journey has been nothing short of exceptional, with no significant downturns since the COVID drop in March 2020. This continuous rally, despite predictions of overextension and stretched valuations, underscores the remarkable liquidity fueling the market.
Nifty Next 50
Nifty Junior lost some ground today, closing down 0.66%, hovering around 75,000.
Nifty Mid and Small Cap
Mid-cap and small-cap indices also saw declines, down 0.71% and 0.69% respectively. Despite these small setbacks, the overall market remains robust, with averages catching up to price levels.
Nifty Bank Overview
The Bank Nifty remained flat, possibly due to speculation that weekly FNO expiries for Bank Nifty might be discontinued. We’ll have to wait for SEBI’s final norms to know more.
Nifty Heatmap
Public sector enterprise stocks and energy stocks were zooming today. NTPC, Power Grid, Coal India, ONGC, and Reliance all did very well. HDFC Bank, for a change, was up 1.4%, providing significant support to the market. However, Mahindra and Mahindra disappointed post-results, dropping 2.73%. Infosys was down mildly by 0.8%, facing a GST evasion charge of over 30,000 crores. Despite the large-sounding numbers, the actual impact was minimal.
We saw minor gains in Adani Enterprises, Tata Consumers, Nestle India, Maruti, and Sriram Finance. In the Nifty next 50, there was a lot of red. The buying was concentrated in some Nifty stocks and a few Nifty next stocks, but predominantly, it was a day of profit booking for the larger part of the market. Stocks like IRFC, REC, PFC, DLF, and PNB were all down. Siemens, ABB, Bosch, GAIL, Vedanta, Ambuja, and HUL, which were performing well in the past, were soft today. Pidilite, Indigo, IRCTC, Naukri, IOC, and Trent were all down.
Zomato, with great results, was up 2%. Adani Enterprises saw a substantial gain of 12%. Tata Power was up 2.3%, and Adani Green rose by 2.9%. All power and energy-related stocks, including ATGL and Adani Power, saw upward movement.
Sectoral Overview
Real estate and PSU banks saw declines, while metals continued to perform well, gaining 1.97% this week.
Sectors of the Day
Nifty Energy Index
Today, the focus was on energy stocks, which led the sectoral trends with a 2% rise. The energy sector has gained 5.1% this week and 67% over the past year.
Stocks of the Day
Adani Energy Solution
In terms of stock focus, Adani Energy Solution seems to be breaking out. The resistance at 1270 appears to be breaking, and this narrow congestion zone is being taken out. Hopefully, this will provide more room on the upside for it
Story of the Day
The SEBI paper on FNO losses highlighted that 78 lakh FNO traders lost 52,000 crores in FY 24. This revelation has brought attention to the high volume of options trading in India, which accounts for 80-90% of global options volumes. The regulator aims to prevent the Indian market from being perceived as a speculators’ haven.
Warren Buffett’s warning about derivatives being weapons of mass destruction seems relevant today. In FY 24, 92 lakh individuals and firms traded in index derivatives, with 78 lakh of them incurring losses. The loss of 51,000 crores is significant, equating to about 6.5 billion dollars or 25% of the average inflow into mutual funds over the last five years.
SEBI’s consultation paper proposes several measures: limiting weekly options to one index per stock exchange, increasing contract sizes by 2-3 times, and raising margin requirements. These steps aim to curb speculative trading but may inadvertently push smaller traders into riskier positions or intraday trading in cash markets.
While these measures might crowd out smaller traders, they could also lead to lower market volumes and increased impact costs. It remains to be seen how these changes will affect the overall market sentiment and liquidity.
