Trade Setup: Market Tumbles Ahead Of F&O Expiry Amid Elections, Nifty Likely To Turn Negative For May

As the lengthy May Futures & Options (F&O) series nears its conclusion on Thursday, market participants are left grappling with heightened volatility and a series of losses that have left bulls on edge. The Nifty 50 index, a benchmark for Indian equities, has experienced a sharp decline of 400 points from its Monday high of 23,110, unsettling investors and bringing the index perilously close to turning negative for the series.

The recent downturn follows a robust 1,200-point rally from the May 14 lows, yet the market has shown no signs of recovery during the past three sessions. Wednesday's trading ended with the Nifty at its lowest point of the day, marking the fourth consecutive day of losses. This has raised questions about whether the market's volatility is a form of pre-positioning ahead of the crucial Lok Sabha election results scheduled for June 4, or if traders are merely lightening their positions in anticipation of a volatile reaction to the election outcome.

Despite the turmoil, the Nifty remains up by 130 points for the series. However, Wednesday's low was the lowest in five trading sessions, with the index making lower highs over the past two days. The India VIX, a measure of market volatility, stayed relatively stable at 24, suggesting that investors are bracing for potential turbulence ahead.

One factor complicating the narrative of pre-election jitters is the continued strong performance of government-oriented sectors, particularly defence. This was underscored by positive post-earnings reactions from companies like Mazagon Dock and Cochin Shipyard. Such sector-specific strength provides a counterpoint to the broader market's decline.

The final days of the earnings season have brought reactions from key stocks. Tata Steel, Bata, Cummins India, SJVN, NOCIL, and HOEC, which reported earnings after market hours on Wednesday, are expected to influence market movements. Additionally, major companies like Apollo Hospitals, Gateway Distriparks, Marksans Pharma, and Muthoot Finance are set to report their results on what could be the closing day of this earnings season.

Foreign institutional investors (FIIs) turned net sellers in the cash market on Wednesday, a shift possibly influenced by a block deal in PNB Housing Finance. In contrast, domestic institutional investors (DIIs) maintained their position as net buyers, reflecting a divergence in strategies between domestic and international investors.

The Nifty Bank index, which had outperformed in recent sessions, emerged as the biggest underperformer on Wednesday. Heavyweights like ICICI Bank, HDFC Bank, and Axis Bank saw significant declines, dragging the index down by 1,100 points from Monday's high of 49,688. This underperformance was a sharp reversal from earlier in the week when the Nifty Bank held above the 49,000 mark even as the broader market struggled.

The F&O data provides further insights into market sentiment. Nifty 50's futures across the series saw a 1.6% decline in Open Interest (OI) on Wednesday, with current rollovers at 58.7%. The futures are trading at a premium of 39.1 points, down from 49.1 points earlier. Conversely, Nifty Bank's futures saw a 19.8% increase in OI, with rollovers at 67.7%. The Put-Call Ratio (PCR) for Nifty 50 has dropped to 0.79 from 0.94, indicating a bearish sentiment.

Specific to the May 30 expiry, Nifty 50 strikes between 22,750 and 23,000 on the Call side have seen an addition in OI, while on the Put side, strikes between 22,400 and 22,750 have added OI. Strikes at 23,000 and 22,900 have shed OI, reflecting a complex interplay of expectations as traders position themselves for the expiry.

Several stocks are on the F&O ban list, influencing trading strategies. GMR Airports has entered the ban on expiry day, while Biocon and Piramal Enterprises have exited. Aditya Birla Fashion, Hindustan Copper, and Vodafone Idea remain under the ban, impacting their liquidity and trading patterns.

As the May F&O series wraps up, all eyes are on the upcoming Lok Sabha election results, which are expected to be a major market-moving event. Traders are likely to remain cautious, balancing their positions as they brace for potential volatility. The interplay between institutional movements, sectoral performances, and the final batch of earnings will continue to shape market dynamics in the days ahead.

As the stock market prepares for Thursday's trading session, investors should pay close attention to several key stocks. Here's a detailed look at these companies and the factors driving their potential market movements.

Tata Steel: Tata Steel reported a mixed bag of results, showcasing robust operational performance in its India business while grappling with losses in Europe. The company's India business reported an EBITDA per tonne of Rs 15,080, while European operations, despite posting losses of $39 per tonne, marked their lowest losses in six quarters due to improvements in Netherlands operations.
Despite exceptional items impacting net profit, Tata Steel maintained its net debt at Rs 77,550 crore, consistent with its capital expenditure. The company reported a revenue of Rs 58,687 crore and an EBITDA of Rs 6,601 crore. Additionally, Tata Steel's board has approved the issuance of debt securities worth up to Rs 3,000 crore via non-convertible debentures (NCDs) on a private placement basis. The board also greenlit a $2.11 billion infusion into T Steel Holdings Pte and the conversion of $565 million worth of debt instruments held in T Steel Holdings.

Cummins India: Cummins India delivered impressive quarterly results, with net profit reaching Rs 561.5 crore and revenue at Rs 2,316.2 crore. The company's EBITDA stood at Rs 544.3 crore, translating to an EBITDA margin of 23.5%. This represents a significant 20% increase in revenue from the previous year, while EBITDA surged by 67%, expanding the margin by 660 basis points.

Bata India: Bata India reported a slight decline in net profit to Rs 63.6 crore from Rs 65.6 crore last year, while revenue increased by 2.5% to Rs 797.8 crore. The company's EBITDA remained flat at Rs 182.3 crore, with a marginal dip in the EBITDA margin to 22.8%. Despite sluggish demand conditions, Bata achieved significant growth in e-commerce sales and launched new stores, including its first power EBO in Noida. The company is optimistic about demand revival, bolstered by premiumization through international tie-ups with brands like Hush Puppies and Nine West.

GMR Airports: GMR Airports reported a narrowing of its net loss to Rs 167.6 crore from Rs 638.9 crore, with revenue increasing by 29.5% to Rs 2,446.8 crore. The company's EBITDA surged to Rs 816 crore from Rs 254 crore last year, with the EBITDA margin improving to 33.4%. Notably, Delhi Airport reached 74 million passengers, and Hyderabad Airport handled 25 million passengers in FY24, contributing to an 11% increase in total passenger traffic. GMR Airports' focus on developing airport adjacency businesses through the GAL Platform signals future growth prospects.

SJVN: SJVN's net profit rose to Rs 61.1 crore from Rs 17.2 crore, aided by tax credits, despite a 4.1% decline in revenue to Rs 482.9 crore. However, the company's EBITDA fell by 22.4% to Rs 239.7 crore, with the EBITDA margin narrowing to 49.6% from 61.3%. SJVN's mixed results reflect the challenges of maintaining profitability in a volatile market environment.

MIDHANI: MIDHANI reported a 30.2% decline in net profit to Rs 46.3 crore, although revenue increased by 17.7% to Rs 405.5 crore. The company's EBITDA fell by 19.8% to Rs 80.4 crore, with the EBITDA margin narrowing to 19.8% from 29.1% last year.

NOCIL: NOCIL saw a 46.6% increase in net profit to Rs 41.5 crore, even as revenue fell by 9.2% to Rs 356.5 crore. The company's EBITDA decreased by 10.4% to Rs 44.6 crore, with the EBITDA margin remaining relatively stable at 12.5%. Despite volume growth, export volumes and selling prices remained subdued, reflecting the challenging market conditions.

Hindustan Oil Exploration Company: Hindustan Oil Exploration Company reported a 33.8% drop in net profit to Rs 70.6 crore, despite a 70.9% increase in revenue to Rs 330.6 crore. The company's EBITDA fell by 24.8% to Rs 115.7 crore, with the EBITDA margin dropping to 35% from 79.5%.

IRB Infra: Significant shareholders intend to sell up to 4% of the company's equity, worth approximately Rs 1,512 crore at the lower end of the price band. This transaction includes a 180-day lock-up period.

Aditya Birla Capital: The company is investing Rs 300 crore in Aditya Birla Housing Finance on a rights basis, signalling a strategic move to strengthen its financial services arm.

Global Market Cues
US stock futures declined on Wednesday night, driven by a significant drop in Salesforce shares following its quarterly revenue miss and weak guidance. This development has weighed heavily on market sentiment, leading to futures tied to the Dow Jones Industrial Average falling by 276 points, or 0.7%. S&P 500 futures slipped by approximately 0.4%, and Nasdaq-100 futures dropped by 0.5%.

The downturn in futures follows a challenging session on Wednesday where the Nasdaq Composite fell by about 0.6%, marking its worst performance in May. Despite an 0.8% gain by Nvidia, the S&P 500 declined by 0.7%, and the Dow Jones Industrial Average slid nearly 1.1%. This broad-based decline saw more than 400 stocks in the S&P 500 ending the day in the red, with all 11 sectors posting losses.

In the bond market, US Treasury yields continued their ascent as investors grappled with economic uncertainties and absorbed a disappointing five-year note auction. The yield on the 10-year Treasury rose by over 7 basis points to 4.614%, the highest level since early May. Meanwhile, the 2-year Treasury yield increased by about 2 basis points to 4.975%. These movements reflect concerns over the state of the economy and the potential for prolonged high borrowing costs.

European stock markets mirrored the US downturn, closing lower on Wednesday. The Stoxx 600 index recorded its worst session since mid-April, ending provisionally over 1% lower with all sectors and major bourses in negative territory. Mining stocks were particularly hard hit, falling by 2.12%. This broad sell-off underscores the pervasive uncertainty impacting global markets.

Oil prices edged down on Thursday as markets awaited the latest U.S. crude oil stockpiles data. Brent futures lost 9 cents, or 0.1%, trading at $83.52 a barrel, while US West Texas Intermediate (WTI) crude fell by 3 cents, or 0.04%, to $79.19. The resilience of US economic activity, pointing to sustained high borrowing costs, has also contributed to concerns over future demand.

In the Asia-Pacific region, markets extended losses on Thursday, tracking the negative moves on Wall Street. Japan's Nikkei 225 fell by about 1.6%, and the broader Topix index dropped by 0.8%. South Korea's Kospi shed 0.72%, with the smaller cap Kosdaq slipping by 0.3%. Australia's S&P/ASX 200 continued its decline from the previous session, falling by 0.42%, led by losses in the mining sector. Meanwhile, Hong Kong's Hang Seng index and mainland China's CSI 300 index traded near the flatline.

Looking ahead, economic data releases are expected from the region on Friday. Japan and South Korea will report industrial production figures, and China will release the official purchasing managers index (PMI) for May. Additionally, inflation data for Tokyo will provide further insights into Japan's economic conditions.

The global market downturn is set to influence the Indian market as well. The GIFT Nifty, trading at a discount of more than 80 points from the Nifty Futures Wednesday close, indicates a gap-down start for the Indian market. Investors are likely to remain cautious, closely monitoring global cues and domestic developments.

The Nifty's recent performance reflects a market in flux, grappling with multiple forces as it heads into a critical juncture. Whether the current volatility is a prelude to a larger move post-election results or a temporary shake-up remains to be seen. Investors and traders alike will be watching closely.