Market Wrap: Sensex, Nifty end higher on short covering ahead of April F&O expiry

Market observers are of the view that short-covering might have been at play behind the market’s gain despite weak global cues. 

Short covering ahead of the expiry of monthly derivatives contracts is a common thing.

When a trader or investor expects a stock to fall, he may choose to sell the stock at the current price and later buy it back at a lower price to cover his position. This way, he earns a quick profit. 

In simple words, short-covering means buying back the stock that an investor had sold earlier to cover an open position.

Sensex closed 170 points, or 0.28 per cent, up at 60,300.58 while the Nifty rose 44 points, or 0.25 per cent, to close at 17,813.60.

Shares of HDFC twins, Larsen & Toubro, Axis Bank, Power Grid, TCS and SBI remained the top contributors to the gains in Sensex.

Mid and smallcaps also witnessed decent gains. The BSE Midcap index rose 0.27 per cent while the Smallcap index clocked a gain of 0.34 per cent.

The gains of the market were capped due to weak global cues. US markets closed in the red overnight while European stocks also traded lower today as investors remain cautious ahead of key quarterly earnings and US Fed’s meeting next week on May 3.

Sensex extended its gains into the fifth consecutive session but the magnitude of the gain has been slim. After its 5-day winning streak, Sensex is up by just a per cent.

Nifty extended the gains into the third consecutive session. In the last three sessions, Nifty, too, has risen by a per cent.

Meanwhile, crude oil prices rose on April 26 amid reports of falling US crude oil inventories. However, the weak demand outlook due to the global economic slowdown remained an overhang. Brent Crude traded near the $81 per barrel mark. 

The rupee rose 15 paise to close at 81.77 per dollar.

Top Nifty gainers and losers

A majority of stocks ended in the green in the Nifty index. Out of the total 50 stocks, 33 ended higher with shares of Power Grid (up 2.62 per cent), Tata Consumer Products (up 1.51 per cent) and Nestle (up 1.47 per cent) as the top gainers.

On the flip side, those of Hindalco (down 1.13 per cent), Adani Ports (down 1.08 per cent) and Bajaj Auto (down 0.98 per cent) ended as the top losers.

Realty, FMCG indices gain the most

Among the sectoral indices, Nifty Realty (up 1.36 per cent) and FMCG (up 0.71 per cent) remained at the top. Nifty Auto, PSU Bank and Private Bank indices rose up to half a per cent.

The Nifty Bank index closed 0.35 per cent higher with shares of IndusInd Bank, Federal Bank, SBI, PNB and Axis Bank as the top gainers.

Experts’ views on markets

“Investors are likely to have covered their positions ahead of the monthly F&O expiry on Thursday. Markets shrugging off global weakness is an indication that our fundamentals remain intact and investors are willing to stay risk-on in Indian equities. But ahead of the US Federal Reserve policy next month, markets may take cues from global direction to exercise caution,” said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities.

Vinod Nair, Head of Research at Geojit Financial Services said the domestic bourses mirrored the mood on Wall Street as soft economic data and underwhelming earnings dragged US equities to a weak close yesterday.

However, the market gradually recovered after an uptick in US futures, with the earnings of tech companies providing support.

Technical views on markets

Chouhan pointed out that after a reversal formation, the market is hovering between the 17,700-17,830 price range.

“For the bulls now, 17,830 would be the range breakout zone. Above this, the index could move up to 17,900-17,950. On the flip side, the dismissal of 17,700 may accelerate the selling pressure. Below which, the index could slip till 17,650-17,625,” said Chouhan.

Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities observed that the Nifty managed to hold the support of 17,700 after the gap-down opening and the index recovered fully at the end of the session.

“The momentum remains strong and one should keep a buy approach and expect targets of 18,000/18,200 in the near term. The monthly expiry indicates resistance at 18,000 where the highest open interest is built up on the call side,” said Shah.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.