Markets rally on revived hopes for a Greek deal, traders rush to cover short positions

MUMBAI: Investors, who read the tea leaves on the Eurozone politics right, are laughing all the way to the banks. The prospect of the Greek debt turmoil getting resolved may spark a rally in the stock market over the next couple of days as investors bet that ‘yes’ voters would be in a majority in the referendum on July 5. Traders covered their short positions on Wednesday, driving benchmark indices up by almost 1%.

News of the Greek government backing down from the recent standoff with its international lenders over the debt bailout package bolstered global financial markets on Wednesday. Greek Prime Minister Alexis Tsipras, according to reports, has agreed to accept a bailout that the lenders offered, but with caveats. Investors have perceived this step as a sign that the country’s government expects the outcome of the referendum to be a close call.

Dalal Street gained for second straight day, as the Sensex rose 240 points, or 0.86%, to close at 28,020. The Nifty rose 84 points, or 1.01%, to end at 8,453. India VIX, the volatility index, dropped 6.4% to 15.84, the decline shows investors and traders are less worried about near-term risks in the market.

“Concerns that were weighing Indian markets are now behind us. We are hopeful that the referendum on Sunday will be a ‘yes’ vote,” said Ajay Bodke, head-investment strategist and advisory, Prabhudas Lilladher. “Things are looking positive with monsoon being above normal and government spending staying on a strong trajectory.”


Key indices of European markets were up 2.5-3% on Wednesday as investors hoped of progress in Greece even after it defaulted on a loan from the International Monetary Fund (IMF) on Tuesday. US markets too opened higher on Wednesday.

At home, foreign institutional investors (FIIs) bought Indian equities worth Rs 75 crore on Wednesday. Domestic institutional investors (DIIs) also turned buyers with Rs 52 crore investment, as per provisional exchange data.

FIIs, however, have been building bullish bets on Nifty in the futures segment. Analysts said this has helped markets to recover faster than expected. “FIIs are net long on Nifty futures worth over Rs 5,000 crore. Increase in FII open interest along with index gains is a positive indicator,” said Yogesh Radke, head of quantitative research at Edelweiss Capital. “FIIs have changed their stance in derivatives market since mid-June to net-long positions from netshort.”

Some analysts said the drop in short positions poses a risk to the market as there would be very little support if the market declines. “Nifty can move towards 8,650, provided the index sustains above 8,450,” said Ravi Shenoy, assistant vice president, Motilal Oswal.