FxWirePro: Option sentiment still supports further rise in India’s Nifty50

India’s benchmark stock index, Nifty50 is struggling since last week, as sellers took over control as the index reached record high area.

• On 3rd April Nifty50 touched its August 2018’s record high of 11760 and has since faced selling pressure at every rally. The benchmark is currently trading at 11550 area, down 0.24 percent for the day, and is continuing to struggle.
• The current struggle of S&P500 is also weighing on the index, as the American benchmark, which influences global stocks is struggling to clear 2900 hurdle. A correction in S&P500 is likely to pull Nifty50 lower.
• The focus for Nifty remains on the ongoing election in India, where 900 million people are expected to cast their votes. It is the longest election in the world, which began today and would end next month. The outcome of the election would be the major influencing factor in the months to come. The re-election victory of Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi is widely considered a bullish scenario.
• The local polls suggest that while the victory will be nothing close to BJP’s 2014 showing but the party remains favorite to win.

One silver lining for the bull is the options sentiment, which suggests that the broader trend in Nifty50 is still bullish and the index is likely to rise further.

• Option sentiment, which is a contrarian indicator and calculated using volume data in that has been a reliable guidance provider when it comes to trading Nifty50.

• The most popular option sentiment index is the put-call ratio. When the ratio is above 1 it suggests that retail traders are more active on calls giving the instrument a bearish bias and as it falls below 1, it is a bullish bias for the instrument.
• The ratio is currently at 0.88, which is below 1 and suggests that despite recent sell-off, the broader trend is still bullish.
• However, a near-term correction seems very likely.