Indian stocks rose for the fourth straight day on Tuesday, reaching their highest level in the last two months, supported by a decline in crude oil prices and optimism ahead of the US mid-term elections. However, a key contrarion indicator suggests that the market may have entered overbought territory, raising the possibility of a decline as investors sell shares to book profits.
The Nifty closed 1.58% higher at 23,810.85, its highest since 4 September, while the BSE Sensex advanced 1.62% to settle at 76,917, the highest since 1 September. The market capitalization of BSE-listed companies rose by ₹4.5 trillion. Foreign institutional investors turned net buyers for the third consecutive day, buying shares worth ₹6,856 crore on Tuesday, provisional data from NSE showed.
The Nifty is now trading 7.3% above its 52-week intraday low of 22,179.9 on 8 October, triggering expectations that markets might be close to topping out and could witness profit-taking in the short term. The indicator in question is the Nifty aggregate put-call ratio (PCR) open interest which reached 1.52, its highest since 5 January's 1.46, signalling that the market might be overbought.
Open interest refers to the outstanding buy-sell options positions at various Nifty levels.
After the PCR touched a high of 1.46 on 5 January this year when the Nifty was at a record high of 26373.2, the index plunged 16% till October. The rise in PCR above early January levels has analysts advising caution.