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Traders in India’s equity market are bracing for volatility on return from the Ram Navami holiday, with option sellers looking at a significant 5% trading range for the Nifty 50 through the month-end. The positioning comes as the Friday deadline for a shaky five-day truce in West Asia looms, leaving investors caught between hopes of de-escalation and the reality of a US military deployment.

"While the sellers are relatively more bullish after the two-day rally, they aren't taking any chances lest last-minute nasty surprises crop up on Friday," said Sudhir Joshi, consultant at Khambatta Securities.

The bullishness of sellers or writers is reflected in the relative number of puts to calls sold as of Wednesday. For every 100 calls sold, the writers sold 124 puts, underscoring their belief that they would retain premiums on the puts sold as markets would rise by 30 March.

The put-call ratio typically ranges from a very bearish 0.70 to an extremely bullish 1.30.

A put seller gains when the market rises or remains flat, while a call seller gains when the market falls or remains flat at the level sold. A higher number of puts relative to calls is sold when sentiment is more bullish.

Still, the range option sellers have baked in is 22,750-23850, based on Wednesday's closing prices for the 23300 call and put options expiring on Monday. The Nifty 50 index closed at 23,306.45 on Wednesday.

March-end marks a Monday monthly expiry, advanced from Tuesday due to the Mahavir Jayanti holiday.

"I think chances of a rally are stronger than of a correction as of now," said independent market analyst Ambareesh Baliga in support of the option sellers' premise.

"If oil eases and exports resume with Iran allowing passage of ships of non-hostile countries, India stands to gain. However, any last-minute escalation can queer the pitch for global financial markets again," he cautioned, given the imminent deployment of hundreds of US marine commandos to the region.

Indian markets rallied alongside global peers on Tuesday and Wednesday as prospects of a de-escalation rose after President Trump paused plans to hit Iran's energy infrastructure for five days through Friday, amid mediation by third parties to resolve the month-long war.

The benchmark Nifty rose 3.5% over two days to close at 23,306.45 on Wednesday. This was while crude plunged 14% from $114.1 to $97.59 over the same period, on rising hopes of a potential resolution to the conflict.

"Retail/HNI (high networth individual) have remained active during previous crises as well, and those with a steady, disciplined, long-term approach to investing have reaped the benefits of buying on dips during such periods," said Dinesh Thakkar, chairman and managing director of Angel One.

"I believe this approach remains relevant for the current situation too, and we should see markets regain their momentum once the crisis stabilizes in the coming weeks," Thakkar added.

Even as markets have begun discounting a speedy end to the war, some analysts have red-flagged the risks of high oil prices for Indian equities, as reflected in the selling by foreign investors.

Foreign portfolio investors (FPIs) remained net sellers amid a falling rupee since the beginning of the conflict on 28 February through 25 March.

FPIs have sold shares worth a record ₹1.16 trillion in India's secondary market in the month through 25 March, per depository data, even as the rupee plunged 3.3% to ₹93.98 per US dollar and crude oil rose 35% to $97.59 a barrel due to the war.

The previous record monthly sales were in October 2024, when the cohorts sold ₹1.14 trillion amid fears of a global trade war.

"For FPIs, rising crude and falling rupee reduce the appeal of Indian equities amid concerns of eroding corporate margins on higher input costs," said Rajesh Palviya, senior vice president (research) at Axis Securities. “Besides, a weaker rupee erodes the dollar returns of FPIs .”

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