Fear index hits 3-year high as oil surprises

A sudden spike in crude oil prices spooked the Indian markets, with the Sensex plunging 495 points to close at 38,645 while the Nifty ended 158 points lower at 11,594 on Monday.

The market came under heavy selling pressure on the back of sharp rise in crude oil price above $74 per barrel and since India being a major importer of crude oil, the high oil price is not good for Indian macros.

Indiabulls Housing, Yes Bank, BPCL, IndusInd Bank and IOC were top losers on the Nifty, while gainers were Bharti Airtel, Wipro, TCS, Tech Mahindra and Infosys.

Among the sectors except IT all other indices ended in red led by energy, bank, auto, metal, pharma, infra and FMCG.

Market View

"After breath-taking rally of past 2 months, a correction was due in the Indian markets; and crude oil has triggered it. Further, ongoing results season has provided mixed performance till date. For the markets to sustain at elevated levels, it's very important for Indian corporate earnings to remain robust," said Jagannadham Thunuguntla - Senior VP and Head of Research (Wealth), Centrum Broking Limited.

Panic is quite palpable as the fear Index, India VIX, rose to its 3-year high amidst the general elections and rising crude oil prices. The INDIA VIX climbed to above 24 levels on Monday which indicates increasing concerns amongst market participants and is a sign of rising volatility in the market.

Technical View

In F&O space, there were fresh shorts in the Nifty; whereas, some profit booking took place in the Banking Index. According to analysts, the Nifty options saw massive call option writing in 11700 and 11800.

"This has also resulted, maximum open interest concentration shifting lower to 11700 from 12000. On the flip side, 11550 and 11600 puts added some fresh positions along with unwinding in 11400, 11700 and 11800 strikes. Highest outstanding contracts in case of put option is firmly placed at 11500, which may act as a strong base now. At current juncture, traders should wait for the follow-up move before initiating any directional bets," said Sneha Seth Derivatives Analyst, Angel Broking.

During the day, Index kept on breaching few key intra day supports one after another. Due to last couple of days' correction, the breakout happened last Tuesday has now been negated. With this, we are very much close to crucial support of 11549. "Traders are advised to keep a close eye on this key level. A violation of this point on a sustainable basis could trigger further correction to see lower levels of 11475 - 11400 or may even get worsen. As of now, we would hope for crude oil to cool off a bit or may be some other development which would act as a savior for our markets, said Sameet Chavan (Chief Analyst-Technical and Derivatives, Angel Broking).

At this juncture, the ideal strategy would be to stay light on positions and take all the above mentioned scenarios into a consideration. It's better not to pre-empt any kind of moves and rather try to adopt a confirmatory approach for a while. As far as resistance levels are concerned, 11653 followed by 11705 would now be seen as immediate hurdle, analysts said.