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C. Raja Rajeshwari

THE outlook for the Nifty is negative for the week ahead. Indicators and movements in the index viewed in conjunction with changes in open interest indicate that the Nifty may remain weak. The patterns in open interest show that there is still pressure from short positions on the index. For most part of the week, even as the Nifty closed higher, the open interest declined. Also on Wednesday, when the index was weak, the open interest increased by 5.7 per cent.

In the week ahead, this build-up could act as a drag on the index. Trading activities in the first two trading days are crucial as the both trading volumes and build-up in open interest is at lower levels a couple of months ago. Hence, if index moves contrary to expectations, then short covering would precipitate the rise to higher levels.

Carrying cost: The implied carrying cost, which was negative at the start of the week, turned positive. This, too, points to a weak trend in the Nifty. Barring a few exceptions, the cost-of-carry has not influenced prices in the way it is supposed to; but it has acted in a contrary manner.

Sentiment indicator: The put-call open interest ratio at 0.8 indicates weakness. The ratio has steadily increased in the previous week. Also, the put-call volumes ratio has been on the higher side at more than 0.65 levels. The increase in both these ratios supports the negative view on the index.

Volatility view: The call-implied volatility has showed a steep rise, which has narrowed the gap between the implied volatility of call and that of puts. There are mixed signals from the implied volatility of puts and calls. The implied volatility of calls has shown a rise in the past week is a positive signal; but the implied volatility of puts has held firm over the past three weeks, which is a negative signal. However, as the implied volatility of calls has risen over the week, investors who had bought into calls at the beginning of the previous week would have gained from change in Vega (change in option premia with changes in volatility).

Contracts on Nifty: The Nifty gained week-on-week as indicated last week. The index rose by 1.5 per cent. The Nifty futures closed 10 points higher than the underlying spot. The most active among the options are 1900 April call (out-of-the-money), 1800 April put (out-of-the-money) and 1850 April call (marginally in-the-money).

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