The Hindu Business Line : Positive outlook on Nifty futures

Nifty created another new peak last week and closed sharply higher at 3834.75 before hitting an intra-week high of 3842.40. However, during intra-week Nifty faced some rough weather.

Trading activity was also healthy on both derivative and cash segments with volumes picking up steadily. The F&O market added about 2.2 per cent in open interest positions.

Taking a contrarian view, we recommend investors to consider put backspread strategy by buying a 3850-put at Rs 87.05 and two 3750 puts at Rs 53.05. The recommendation could have yielded a decent profit during intra-week when Nifty tumbled sharply on Tuesday and Wednesday.

Outlook

The bullish undertone still remains intact as long as Nifty futures stays above 3695-3700. However, sentiment indicators such as put/call ratio and implied volatility present a mixed indication.

Though the undertone looks bullish, a drop below the support level (3700 points) could weaken Nifty futures sharply. We advise investors to go long on Nifty futures.

However, if the futures weaken it could be sharp. So, investors have to be more vigilant by trailing the stop-loss positions in line with Nifty futures movement to gain maximum profits. Another strategy could be buying into Nifty 3850 calls; it is currently quoting at Rs 60.45.

Volatility view

Implied volatilities of puts and calls improved marginally. Puts IV increased to 21 per cent against last week levels of 19 per cent and calls IV to 20 per cent (16 per cent). Puts IV still ruling higher than that of calls IV indicating some cautious elements in the market.

Nifty's annualised volatility, which has been declining for quite sometime, decreased further to 17.01 per cent (18.67 per cent) indicating some steadiness to the market condition.

Put/call ratio

Open interest put/call ratio decreased to 1.49 (1.5) and volume-wise PCR to 1.25 (1.41).

This indicates that some put positions have been added by market participants to hedge against any fall.

Contango: Nifty futures is now at a premium against the spot index.

Ever since the introduction of Nifty futures, most of the time the futures were trading in backwardation — trailing the spot index.

Noticeably this time, the premium jumped to as high as about 20 points during intra-day trading, but closed with a 7.25-point premium, indicating a positive outlook.

Stock follow-up

Reliance Capital: We presented a positive outlook on the stock and advised investors to go long the counter if it moves past Rs 598. The stock touched our target zone of Rs 610-615, though it ended the week on negative note.

Those who had gone long on the counter would have gained.

Infosys: The stock has been gaining sharply for sometime. We present a negative outlook on the stock. Consider shorting the stock, if the spot price dips below Rs 2,090. In that event it faces a mild support at Rs 2,040; a further dip could take it to Rs 1,835.

FIIs trend last week displayed a mixed picture; they were net buyers on one day and sellers on the other. However, the cumulative FII positions as percentage of total gross market position on the derivative segment as on November 9 increased 28.43 per cent against the corresponding previous week figure of 28.27 per cent.

Securities in ban period: The NSE has suspended the trading in the derivative contracts of SRF, as it crossed 95 per cent of the market-wide position limit on November 6.

NSE advised all clients/ members to decrease their positions in SRF through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action, NSE has warned.

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