Nifty to correct 1-1.5% if oil breaks $65, say F&O analysts

Mumbai: A few equity F&O analysts here are keenly watching Brent crude options traded on Atlanta, Georgia-based ICE. Their interest hinges on the $65 call that expires 19 days from now. The reason: If oil breaks above $65, its adverse impact on the Indian rupee could potentially extend the correction seen in Indian markets on Tuesday by another 150 points to 10,200 in the short term.

Around a third of India's oil imports are Brent crude, causing equity analysts to eye Brent F&O. The $65 option expiring on November 27 has seen its price jump 213% from Friday to $1.13 a barrel (1000 barrels equal one contract) through Monday, as crude jumped 2.5% to $64.27bbl. Over this period, sellers of the call covered their short positions by buying back a significant 3,629 barrels. This reduced the cumulative open interest to 8,272 barrels on Monday from 11,901 barrels of Friday.



A call seller covers his short positions on expectations of the underlying price -crude in this case -rising. However, equity analysts see no reason for panic yet, thanks to surging domestic liquidity into Indian shares.

Amit Gupta, derivatives head at ICICI Securities, expects “the levels around 10,200“ to form a “strong support“ as domestic investors would use market dips to accu mulate shares.

Indeed, mutual fund industry body AMFI data show that cumulative inflows into equity-oriented MFs in the fiscal year through October tripled to `1.51 lakh crore from the same period of FY17.

“10,200 is a strong support," said Gupta, adding that, “fears of a more precipitous fall seemed unlikely for now."

Agrees Chandan Taparia, derivatives analyst at Motilal Oswal Securities. “There's fear of rising oil, pressuring the rupee and in turn affecting the CAD. But that said, I feel there's no reason for panic."