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    Urjit Effect: Bank Nifty could open 500-600 points gap-down

    Synopsis

    A win of BJP in MP and Chhattisgarh could stem the fall or even result in a pullback rally.

    Bank-1---TSThinkStock Photos
    Chandan Taparia, derivatives analyst at Motilal Oswal Securities, said odds of 25,500 being tested had risen post Monday evening’s developments.
    The Bank Nifty could open at least 500-600 points gapdown Tuesday as a fallout from the RBI governor’s resignation, expect market analysts. Fresh selling in many stocks underlying the Bank Nifty at Tuesday’s pre-opening session would force sellers of Bank Nifty puts to cover their shorts upon market opening at 9:15 am, intensifying the correction to 500-600 points, or more.

    Bank Nifty options expiring this Thursday show maximum support for the index at 25,500 as the 26,000 put, which had the highest open interest (OI), witnessed traders unwinding their short positions in a significant way.

    Analysts, however, added that the gap-down scenario could intensify, or ease depending on the state assembly elections’ outcome. A win of BJP in MP and Chhattisgarh could stem the fall or even result in a pullback rally. A loss in either of the two states, or both, could intensify the fall toward 25,000.

    The governor’s resignation came after the market closure. At end of day, 26,000 put sellers were forced to cover 2.3 lakh short positions as the index plummeted 1.85% to 26,102.65, resulting in cumulative OI of the option dropping to 4.13 lakh shares. This short covering led to the key support shifting lower to 25,500 (5.12 lakh shares) and then to 25,000 (5.09 lakh).

    At Tuesday’s opening, the 26,000 put could witness a further spell of short covering, in addition to a fresh short build up, which could exacerbate the correction. Amit Gupta, derivatives head of ICICI Direct, said odds of a fall toward 25,500 or more had “increased”.
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    Gupta added though that positive results outcome could “counter the fall.”

    The price of the 26,000 put rose by Rs 155 a share (20 shares make a lot) to Rs 270. The seller’s breakeven below which he would begin to lose falls at around 25,700. The forced short covering on Tuesday could result in this level being breached and the market falling toward 25,500.

    Chandan Taparia, derivatives analyst at Motilal Oswal Securities, said odds of 25,500 being tested had risen post Monday evening’s developments. Fear gauge India Vix had risen to 20.73, the highest on a closing basis since October 30, underscoring the higher risks to the downside.

    Abhishek Bansal of Abans Group said Monday’s event had increased risks to the downside.The Bank Nifty index comprises 12 banks led by HDFC Bank, ICICI Bank, SBI, Kotak Mahindra Bank, among others.





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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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