Nifty tops 24,900, Sensex rallies 700 points as pharma stocks lead gains; volatility spikes

FIIs offloaded equities worth Rs 10,016 crore in the previous session.

Dalal Street opened the Wednesday, May 21 session in the green, as the bulls shrugged off culmination of factors ranging from geopolitical tensions, soaring crude prices, and heavy foreign investor selling. The Nifty 50 and Sensex snapped a three-day losing rally, following favourable global cues from Asian markets.

At 10:25 am, the Sensex was up 726.17 points or 0.89 percent at 81,912.61, and the Nifty was up 224.95 points or 0.91 percent at 24,908.85. About 2112 shares advanced, 989 shares declined, and 142 shares unchanged.

The broader markets reversed their opening losses, with midcap and smallcap gauges gaining 0.4 percent each. Volatility, measured by the India VIX, saw an uptick, with the index rising two percent to 17.75.

On the sectoral front, pharma and healthcare stocks saw a sharp rally in a muted market, the Nifty Pharma soared 1.7 percent, while the healthcare index jumped one percent. On the flip side, consumer durables and O&G indices traded with sharp cuts, sinking nearly a full percent in early trade.

Fresh US intelligence suggests that Israel may be preparing to strike Iran’s nuclear facilities, according to a CNN report citing multiple American officials. The report noted that no final decision has been made by Israel, and opinions within the US administration remain divided on whether such an attack will happen.

As a result, crude oil prices jumped on Wednesday after the report raised fears of escalating tensions in the region. Gold also rose nearly two percent as investors sought safe haven assets. However, Asian stock markets seemed largely unaffected in early trading, with most continuing their upward momentum from the previous session.

Overnight, Wall Street took a breather in trade, snapping the six-session winning streak seen in the S&P 500, while the tech-driven rally also fizzed out. All three key indices closed in the red, with the Dow Jones index slipping 0.27 percent, while the tech-heavy Nasdaq Composite and the broad-based S&P 500 sank 0.4 percent.

On the flip side, benchmarks in Australia, South Korea and Hong Kong all climbed in trade. The KOSPI index rallied nearly one percent, while the Hang Seng index was higher by half a percent. In Japan, the Nikkei 225 and broader Topix index trimmed morning gains to hover marginally below the flatline.

Foreign institutional investors (FIIs) extended their selling streak for the second straight session on Tuesday, offloading equities worth Rs 10,016 crore, their steepest single-day selloff in over two months (Feb 28), according to provisional NSE data. In contrast, domestic institutional investors (DIIs) provided some support to the market with net purchases of Rs 6,738 crore.

VK Vijayakumar, Chief Investment Strategist, Geojit Investments said "Yesterday’s FII sell figure of Rs 10,016 crores is a major  reversal of their big buying in May and if this persists it has the potential to impact the market."

"What caused this sudden reversal in FII activity? A combination of many factors may be responsible: credit rating downgrade of US sovereign debt and the consequent spike in US bond yields, spike in Japanese government bond yields, rising COVID cases in some parts of India and reports of a possible Israel attack on Iran are doing the rounds," he added.

Kotak Securities believes that as long as the market remains below 24,850, the correction wave is likely to persist. On the downside, the market may retest the levels of 24,550-24,500. On the upside, market sentiment may shift if it rises above 24,850. If it does surpass this level, there is a greater potential for it to reach 25,000 and 25,100.

In the derivatives pit, bearish footprints are deepening. Call writers are stacking positions at higher strikes, while put writers continue retreating to lower levels, which is a textbook signal of caution. Heavy call writing at far-off levels shows a upside is capped unless a major buying wave erupts, noted Dhupesh Dhameja, Derivatives Research Analyst, SAMCO Securities.

He further added that the 25,000 strike call now wears the crown with the highest open interest of 1.74 crore contracts, marking it as an immediate resistance fortress. Meanwhile, the 24,500 strike put saw notable additions of 68.65 lakh contracts, making it a sturdy support base. An OI belt between 24,800 and 25,000 has now turned into a firm resistance wall.

Analysts at Choice Broking suggested that given the current environment marked by uncertainty and elevated volatility, traders are advised to adopt a cautious “wait and watch” approach, particularly with leveraged positions.

Booking partial profits on rallies and employing tight trailing stop-losses is recommended. Fresh long positions can be considered only if Nifty sustains above the 24,700 mark. Overall, while sentiment remains cautiously bullish, traders should keep a close eye on key technical levels and evolving global cues.