The Hindu Business Line : Outlook for Nifty remains bullish

Business Daily from THE HINDU group of publications Sunday, Aug 06, 2006

Investment World

Features

Stocks

Open-End Mutual Fund

Cross Currency

Rates

Shipping

Ports

Archives

In Depth

Group Sites

The Hindu

Business Line

Sportstar

Frontline

The Hindu eBooks

The Hindu Images

Investment World - Technical Analysis
Markets - Derivatives Markets
Columns - F & O Outlook
Outlook for Nifty remains bullish

K.S. Badri Narayanan

Critical factors
Activity remains low
Discount narrowed to about 10 points

Last week, we had a positive outlook for the Nifty and had indicated a resistance level for the index at 3190-3200.

We had indicated that a move past that level could take it to 3440-3450 levels.

In line with our expectation, the Nifty witnessed a positive trend.

Follow up

Expecting a positive week, we had advised investors to go long on the Nifty with a trailing top-loss to maximise profits.

For investors who had gone long, the positions could have fetched positive returns.

Outlook

The undertone still remains bullish and nothing has changed from last week.

To sustain the bullish momentum, the Nifty will have to pierce the initial resistance at 3190-3200; it could then move to 3440-3450.

On the other hand, if the Nifty fails to sustain at current levels, the immediate support is placed at 3020.

A further dip could take the benchmark to 2840 levels.

In sync with our bullish view, we advise investors to consider long positions on the Nifty.

Though the support level is placed quite wide, investors could place the stop-loss at the day's low levels at the time of entering into a contract.

A trailing stop-loss may be employed to protect unrealised gains.

Investors comfortable with risk could hold on to positions till expiry (August 31) with the stop-loss at 3020, as the chance of the Nifty reaching 3440-3450 levels appears bright.

Volatility view

Implied volatility (IV) of puts and calls witnessed a divergent trend.

While puts IV gained sharply to 35 per cent against last week's levels of 28 per cent, calls IV remained flat at 39 per cent.

Though puts IV surged, calls IV still rules higher than that of puts IV indicating underlying bullishness of the market.

However, annualised volatility on the Nifty rules well above the IV levels.

It currently stands at 40.52 per cent (46.65 per cent). Besides, annualised volatility has been witnessing a declining trend for quite some time; this means the chances of sharp volatility witnessed at the markets a few weeks ago remain rather low.

Put/call ratio

Open interest PCR increased to 1.14 (0.97), while volume-wise PCR declined to 0.93 (1.18).

The increase in open interest PCR indicates a lot of puts positions added as a hedge.

However, with markets witnessing low volumes, particularly on the options side, we cannot infer much from this indicator.

CNX IT: Last week, we had advised investors to go long on CNX IT futures if the spot crosses 4110.

In that event, we had said, it could go up to 4200-4205 levels.

In line with our expectation, the CNX IT spot touched an intra-week high at 4234.95 before closing at 4198.40.

Investors who went by our recommendation would have booked handsome profits.

Titan Industries: The outlook remains positive for Titan Industries.

We advice investors to go long if the spot price moves past the Rs 635 mark. In that event, the stock could touch Rs 680. Risk-averse investors can avoid this strategy.

Market lot for Titan is 411 units per contract.

Securities in ban period

The derivative contracts in the underlying of JP Hydro & Reliance Petroleum have crossed the 95 per cent of the market-wide position limit on August 1 and are currently in a ban period, according to a NSE statement.

Cumulative FII positions as percentage of total gross market position in the derivative segment as on August 3 declined sharply to 32.96 per cent against last Thursday's position of 38.95 per cent.

This indicates an increased retail participation in F&O segment.

(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading).