The Hindu Business Line : Negative outlook for Nifty

AS expected, the market remained firm last week till the presentation of the Union Budget, and turned volatile after that. The introduction of tax on transactions on stock exchanges played spoilsport; this affected the trading volumes on Friday in the derivative segment on the NSE.

Nifty Outlook: The outlook for the market appears to have a negative bias. A higher put/call ratio and a decline in the open interest position provide bearish pointers. The widening negative cost-of-carry also confirms the downward bias. Signals from implied volatility is, however, neutral as it remained around the levels of the previous week for both calls and puts.

As volumes were sluggish following the introduction of turnover tax, the trends indicated by the sentiment indicators has to be viewed with caution. Any positive development on turnover tax following the Finance Minister's meeting with brokers on Tuesday could change the market perception. A cautious approach may be in order for traders.

Volatility view: Implied volatility for both puts and calls remained around the previous week levels of 37-39 per cent and 41-42 per cent respectively. These indicate that there was no significant change in market perception, as traders preferred to stay in a wait and watch mode.

Put/call ratio: The ratio jumped sharply to 0.92 as compared with last week's level of 0.61 on volume basis; on open position-wise also, the ratio increased to 0.78 (0.70). The increase in P/C ratio points towards the likelihood of Nifty opening on a weak note. The lower open positions' ratio as compared to the volume-wise ratio suggests that not too many traders were interested in carrying over their positions, opting to square up.

Index movement: The S&P CNX Nifty began last week on a cautious note and gained momentum till the Budget was presented. On Thursday and Friday it turned volatile; during the week, it moved in a wide range between a high of 1586.5 and a low of 1472.5, before ending the week at 1553.20 with a gain of about 1 per cent over the week.

Index futures: The July Nifty futures closed the week at 1537.65, a discount of 15.55 points to the Nifty spot close. Open interest position improved to 46,349 contracts from last weekend's level of 46,349 contracts. The August Nifty futures closed the week at 1527.30, a discount of 25.90 points to the spot close; open interest position improved to 889 contracts (669 contracts).

The September Nifty futures also witnessed a decline in open interest position on Friday. It closed at 1525, a discount of 28.2 points to the spot.

Nifty Futures trends: The following were common features for the Nifty series:

* * Though the open interest position improved on a week-on-week basis, the build-up was not steady; all the three contracts (July, August and September) saw a decline in open interest position on Friday. This indicates that traders were closing out positions as a fall-out of the introduction of turnover tax. * The futures-spot negative gap (or discount), which showed signs of narrowing down last week, widened this week for all the contracts.

Stock futures: The activity as usual cantered on a few contracts only despite it being the Budget week.

* *Actively traded contracts were Tata Steel, Tata Motors, Reliance, SBI, Maruti, Mahindra & Mahindra, Satyam Computer and Infosys.

* * The discount between the futures and spot for several contracts narrowed significantly; most future contracts now trade at a premium to spot.

* * On a few stocks such as ITC, Dr. Reddy's Labs, Reliance Energy, Ranbaxy, Cipla and HDFC Bank, discounts have, however, widened.

* Implied volatility (for both calls and puts) on most of these contracts remained around the levels of the previous week, indicating a lack of interest on the part of traders; Maruti was exception.

* * Put/Call ratio for Satyam Computer, Tata Motors, Tata Steel, SBI and Mahindra & Mahindra rose while the same for Infosys slipped sharply.

Maruti: While implied volatility on Maruti puts spurted to 62 per cent (58 per cent), the same for calls declined to 55 per cent. While volume P/C ratio jumped sharply to .96 (.49), open positions PCR also rose to .96 (0.46). These indicators point to a weak undertone in the stock.

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