The sharp rise in the Nifty put-call ratio – a sentiment indicator – shows signs that the Indian stock market rally could be overbought in the near term. When Nifty and Sensex broke new records on Friday, Nifty made 1.73 call options available. It last reached these levels on January 12, 2021.
The increase in PCR means that investors and traders buy more offers than calls. Market participants buy in anticipation of weakness and resort to buying.
Chandan Taparia, derivatives analyst at Motilal Oswal Securities, said, “PCR growth is a positive factor for the market, but excessive growth could turn out to be the opposite. It went from 1.23 to 1.73 in the last two trading sessions.” – It must be cold, and if not, then this excessive positivity may reserve profit. “You have to stay positive,” Taparia said.
Shares closed at new all-time highs on Friday, with Sensex topping 55,000 for the first time and Nifty topping 16,000 for the first time, led by tech and consumer stocks.
While falling inflation boosted the stock market on Friday, factors such as strong retail investor participation, gradual economic recovery amid the Covid-19 pandemic and strong corporate profitability have also helped the stock market lately. 21.6 times more than Nifty’s annual advance.
“The growing report of sales calls indicates that everyone is optimistic about the market and less worried. It can also be seen as an overbought market and there is a possibility of correction,” said Rajesh Palvia, Axis technical director and derivatives. Securities.
Siddarth Bhamre, director of investment and alternative research at InCred Equities, said the market is not overbought. “The put-call ratio is increasing, but this is not a sign of an overbought market, because default volatility has not collapsed. More and more people are buying options, but more because of the belief that the market rally will not continue. Bhamre said. “However, Nifty is growing by forming long positions after exiting the consolidation. Foreign investors also offset their short positions in index futures. “