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C. Raja Rajeshwari

ACROSS-THE-BOARD buying interest carried the Nifty to the above 1900 level. The weakness in the Nifty mid-week (down by 0.8 points on Tuesday) proved short lived. Riding on the smart gains of Reliance, ONGC and most PSUs, the Nifty has closed the week at 1946.05 points gaining 5.9 per cent on a week-on-week basis.

Substantial build-up of positions was evident in the Nifty, Gail, Tata Steel, Reliance, Bank of India, and Tata Motors. In contrast, January futures on most banks stocks such as Canara Bank, SBI, Bank of Baroda and ICICI Bank witnessed a decline in open interest. The increase in the futures price combined with decrease in open interest indicates that short positions are being closed out. This imparts a bullish view to these bank stocks. MTNL and Shipping Corporation, too, have a positive outlook.

As indicated last week, Ranbaxy and Punjab National Bank (PNB) held firm for most of the week, with an exception on Friday when both stocks closed marginally lower. The decline in open positions of the January PNB futures combined with decline in price adds a cautious outlook for the stock.

The weak ahead: Most of the index constituents such as Reliance, HLL, ONGC, have a bullish outlook. In addition, the decline in the put-call volume ratio and the increase in the Nifty calls implied volatility (IV) adds strength to this outlook.

Factors such as put-call open interest ratio and put implied volatility, however, soften the bullish outlook. For the past six weeks, these indicators have pointed to the weakness in the index, which has not set in as yet. The index has, however, displayed high intra-day volatility and mid-week weakness, which has proven to be short-lived for the past four weeks.

The put-call open interest ratio has increased from 0.60 to 1 - a level that is considered bearish. But this indicator has touched higher levels than this without any significant weakness setting in. Hence, the ratio at this level can be considered as pointing towards a cautious outlook. A sudden spurt in the put open interest vis-à-vis call open interest or closing out of open positions in the futures combined with a fall in the index would negate the bullish outlook for the week.

Volatility view: The IV of calls has increased week-on-week from about 18 per cent to 22 per cent. This points to uptrend in the index as call writers are seeking more premium for the risk undertaken. The put-call IV continued to remain firm in the 21-24 per cent range.

Contracts on indices: The Nifty January futures are trading at a discount to spot. This, however, does not mean weak trends as the futures market still play a limited role in influencing spot prices. On many occasions in the past, negative cost-of-carry has been followed by a firm undertone in the spot market. Such a phenomenon has been seen over the past two weeks too. The open interest of the January Nifty futures has increased by 19 per cent on a week-on-week basis.

The CNX IT Index crossed the 23,000 levels this week. There was weakness in the index for two days mid-week. As the outlook for the heavyweights - Wipro and Infosys — is bullish, that for the index is no different. The sharp spike in the spot price of Infosys on Friday (up by Rs 30.45) and the substantial decline of open positions (9 per cent) indicate a bullish outlook for the stock.

Oil stocks: For the first time since introduction, ONGC and Gail hit the top ten actively traded securities list. There was substantial trading interest not just in these two underlyings, but, also for the contracts on IOC, HPCL and BPCL. The January contracts on ONGC and Gail witnessed a substantial increase in prices and open interest. Gail had the second highest open interest build-up at the close of this week.

The Supreme Court hearing on the HPCL and BPCL disinvestment due on Monday has sparked off interest in these stocks during the past two days. The IV of BPCL options has risen sharply to more than 65 per cent levels. This points to volatile movements in the stock for the week ahead. The IV of HPCL has increased but has not displayed sharp spikes though.

Contracts on FMCG stocks: January futures on HLL and ITC too witnessed increased trading interest over the past week. The spot HLL has gained 6.3 per cent and ITC has gained 4.9 per cent on a week-on-week basis. The January HLL futures traded at an Rs 5 premium to the spot.

Equity options: Most of the call options of banking stocks such as Bank of India, Union Bank, Syndicate Bank and Canara Bank closed the week with a substantial build-up in open interest.

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