Indian Equities Hit Two-Month High As Oil Dips

Indian stocks rose for the fourth straight day on Tuesday, reaching their highest level in the last two months, supported by lower crude oil prices and hopes ahead of US midterm elections. The Nifty closed 1.58% higher at 23,810.85, which is its highest point since September 4. The BSE Sensex advanced 1.62% to settle at 76,917, marking its highest level since September 1. The total market value of BSE-listed companies rose by ₹4.5 trillion. Foreign institutional investors turned net buyers for the third consecutive day, purchasing shares worth ₹6,856 crore.

Market Warning

Despite the gains, a key market indicator suggests that shares may have entered overbought territory, which could lead to a pull-back as investors sell to book profits. The Nifty aggregate put-call ratio open interest reached 1.52, which is its highest reading since January 5, when the ratio stood at 1.46. Open interest represents outstanding buy-sell options positions at different Nifty levels. A ratio of 1.52 means that for every 100 call options sold, traders have sold 152 puts. While a high put-call ratio is normally seen as a bullish sign because traders hope markets will rise, a very high reading acts as a contrarian warning sign that the market might be close to topping out. When the ratio reached 1.46 on January 5 with the Nifty at a record 26,373.2, the index later plunged 16%. A similar reading of 1.50 on September 27, 2024, preceded a 17.25% market fall as global tariff wars raged. Rohit Srivastava, founder of analytics firm IndiaCharts, cautioned that the market may be close to making a top due to the overbought zone.

Oil Prices and Global Trends

Indian equities performed strongly compared to global peers. Since the Nifty's 52-week low of 22,179.9 on October 8, the Nifty 50 gained 5.34%. In contrast, Japan's Nikkei 225, Hong Kong's Hang Seng, and China's CSI 300 fell by 9.93%, 2.51%, and 8% respectively. US indices also dropped, with the S&P 500 falling 3.34% and the Nasdaq Composite falling 8.62%. Brent crude fell over 7% on Monday to $104.80 a barrel after talks between Iranian and Qatari officials raised hopes for a peace deal and stable Middle East supplies, though prices rose to around $106 on Tuesday following reports of renewed US-Iran conflict. George Thomas, fund manager at Quantum Asset Management, noted that easing geopolitical tensions is the main factor that can drive oil prices lower, which is crucial since India depends heavily on energy imports. Among sectoral indices, Nifty Energy, Metal, and PSU indices closed in the red, while HDFC Bank, ICICI Bank, and Bharti Airtel pulled the Nifty higher. State Bank of India pulled the index downward after a one-off gain lowered its non-interest income by 5% to ₹19,066 crore. Shrikant Chouhan, senior vice president of research at Kotak Neo, said the market could swing based on the US midterm polls on November 3, which will determine if Republicans maintain control of Congress.

Context

Put-call ratios and open interest data help traders gauge market sentiment by tracking the volume of derivative contracts in the system. Stock markets in emerging economies like India often react sharply to global commodity prices, particularly crude oil, due to the heavy reliance on imported fuel to meet domestic energy needs.