Short Call | Nifty punters switch loyalty, Manappuram, IDFC Bank, Astral in focus, China’s broken model

But it is the technical factors that are in play right now. Open interest as a percentage of market-wide position limit is currently at 108 percent. This must fall to 80 percent for the stock to come out of the F&O ban list. Huge delivery based trades in the stock seen on Friday with over 1.35 crore actually changing hands. This could be interpreted either ways—there were buyers of 1.35 crore shares or that 1.35 crore shares were dumped.

The fall in stock prices indicates desperation on the part of the sellers. If more shares continue to be unloaded and the cash market price weakens, then traders with long positions in the derivatives segment may be forced to unwind their holdings. But if the stock price remains steady, then bears will be forced to cover their positions. Remember, when a stock is in the ban period, no fresh positions can be taken, only existing positions can be unwound or covered. An interesting tug of war appears to be on the cards.

IDFC First Bank

The stock not just held ground in Friday’s bearish session, but also managed to hit a 52-week high. At the same time, short positions in the stock as reflected in securities lending and borrowing (SLB) window have been inching up steadily. Open SLB positions stand at close to 24 million shares, only next to Vedanta, with a similar quantum of open positions. IDFC First Bank is among the stocks that will be included in the MSCI Global Standard Index effective from September 1. Despite the stock hitting a fresh 52-week high,  there has been no surge in F&O positions, particularly in call options.

Astral

August futures of Astral are quoting at a discount to the cash market price, indicating a build-up of short positions. That’s interesting, because Astral is among the stocks that will be included in the MSCI Global Standard Index from September 1. An addition to the index usually means fresh inflows into the stock as funds benchmarked to this index will have to buy the stock in their portfolios. What exactly are the bears betting on?

Parting shot

VIP Industries shares fell around 2 percent on Friday. In an unusually worded resignation letter addressed to the company’s chairman, outgoing MD Anindya Dutta said that as told, he would not be attending the office or work during the three-month notice period.

Rising interest rates

Given the latest surge in retail inflation, a rate cut by the RBI looks unlikely in the foreseeable future. And while the market is not fearing a rate hike either by the central bank, interest rates in the system continue to inch up. Axis Bank has raised lending rates across tenures by 5 basis points and South Indian Bank has raised the rates by 15-20 basis points across tenures.

The money trail

With the Nifty struck in a 200-point range, traders are seen shifting large chunk of their position to relatively more volatile Nifty Midcap Select index. Data shows over 180 percent jump in call open interest and 169 percent jump in put open interest, the biggest rise in open interest across sectors and indices. The 8,675 call on the index saw 16-fold jump in open interest, while for puts, maximum incremental rise in position happened at 8,450.

Traders love volatility, and with the broader markets seeing more action of late, traders are shifting their loyalties to the index which seem to hold the promise of better returns.

Broken model

China’s economic model, underpinned by massive investments in infrastructure, and one that turned it into a global powerhouse, is finally broken, reports WSJ.

“What worked when China was playing catch-up makes less sense now that the country is drowning in debt and running out of things to build. Parts of China are saddled with under-used bridges and airports. Millions of apartments are unoccupied. Returns on investment have sharply declined.”

Collateral damage

“Absent a circuit breaker (i.e. large-scale fiscal stimulus) we acknowledge the sentiment on China is unlikely to reverse sustainably on its own,” Barclays Head of European Equity Strategy Emmanuel Cau said in a research note on Friday, adding that this posed a problem for the UK and US stock markets, which are already facing headwinds from high interest rates.

Copper

Copper prices ended lower for the third consecutive week as the problems in China are expected to affect demand for commodities in general.

“Pessimism over China’s growth prospects is building after the country’s state-owned property developers warned of widespread losses. The recent slide in the Chinese currency has eroded the buying power of local commodities importers, and blunted the impact of lower metals prices,” said a Bloomberg report.

Commodity outlook

But it is still early to say if the Chinese government has thrown in the towel.

“Overall, we expect broad commodity indexes to rise 5–10 percent in the coming quarters in view of robust demand for crude oil, expectations for stronger policy actions by China, and supply discipline (mainly among oil producers),” said broking firm UBS in its report on global commodities titled ‘supply risks reemerge.’

Falling commodity prices was a key driver of corporate profit margins for Indian companies in the quarter gone by. Rising commodity prices will hurt commodity consuming companies for sure. Remains to be seen if will rise high enough to improve sentiment for commodity producers.

Natural gas

The pre-winter seasonal rally of LNG tanker charter prices has started earlier than in previous years, topping $100,000 per day for the first time since early January reports oilprice.com.

“Winter demand in Europe and Asia is expected to drive prices higher in the coming months, while a potential major supply disruption in Australia's LNG export terminals – accounting for 10 percent of global supply – could further tighten the LNG market ahead of the winter season in the northern hemisphere.”

Gujarat Gas

The company has hiked prices of industrial gas to Rs 40.83/scm from Rs 38.43/scm  effective today because of rise in spot LNG prices, reports CNBC-TV18. This is the first price hike after five consecutive price cuts. Some relief for the company’s profit margins, but much will depend on how propane prices move. If propane prices stay steady or do not rise as much as the gas supplied by Gujarat Gas, then industrial users will switch loyalties to propane.

Lithium

Canada’s Summit Nanotech and Australia’s Power Minerals are forming a joint venture agreement to accelerate lithium production through shared asset ownership and development at the Salar de Incahuasi in Argentina, reports mining.com

Argentina possesses the world’s second largest lithium reserves (at 21 percent) and is the world’s fourth largest lithium producer. Chinese mining companies have committed to investing hundreds of millions of dollars in Argentina to secure shore up its lithium reserves.

Shubham Raj contributed to this article.