The Hindu Business Line : Nifty futures: Calm week ahead

Critical factors
Nifty futures trade on par with Nifty spot
Implied volatility hovers at 30 per cent
Trading volumes weak — settlement week

As predicted in this column last week, Nifty futures remained almost flat despite witnessing heightened intra-day swings. It closed at 4117.65 against previous week's 4073.80, a gain of about one per cent. Spot Nifty closed flat at 4117.35.

However, Nifty futures, which commanded a premium through out the week, are now trading on par with spot Nifty levels.

Overall open interest positions improved marginally at Rs 47,837 crore against the previous week's Rs 43,178 crore.

Expecting a range-bound movement, we had advised investors to short 4200 calls and 3950 puts on Nifty. The position ended in positive territory, albeit marginally, though it would have provided higher returns during the course of the week.

We still expect Nifty to trade in a tight band. While it faces minor support at 4075 and a resistance at 4175, we expect it to move in the range of 4200-3950. A breakout on either side of the barrier could result in a wild swing in that direction. So investors have to watch their positions closely to avoid losses.

We advise investors to consider a straddle strategy. Expecting a strong break out on either of the range, we advise investors to continue the strategy till expiry.

The straddle strategy can be initiated by buying 4100-strike of call and puts.

They are currently quoting at Rs 117.2 and Rs 101.3, respectively. As the options are trading rich, risk-averse investors can stay away from the market.

Put/call ratio

Open interest put/call ratio remained flat at 1.16 against the previous week's 1.15 while volume-wise PCR dipped to 0.85 (0.98). This indicates a lack of activity in the market.

Implied volatility

IV witnessed divergent trend for both calls and puts. While puts IV declined to 27 per cent (29 per cent), calls IV surged to 32 per cent (29 per cent).

The relative firmness in calls' implied volatility suggests sentiment skewed towards bulls albeit mildly.

Backwardation

Nifty futures and the underlying Nifty are trading at similar levels.

After maintaining the premium, Nifty futures surrendered them completely, when the market fell sharply on Friday.

Stock follow-up

IVRCL Infrastructure (Rs 315): We had presented a negative outlook on the stock. We had said that it was facing a resistance at Rs 350 and support at Rs 305 level.

A dip below support level has the potential to take it to Rs 288 and even to Rs 260-65, a move past Rs 350 may take it to a high of Rs 400-425.

We stand by our recommendation though it closed the week slightly higher. The spread between July and May futures on IVRCL Infrastructure narrowed down considerably.

Bharti Airtel (Rs 816): We have a negative outlook on the stock. While it faces strong resistance at Rs 840, it finds support at around Rs 800.

A dip below support level could weaken it to Rs 765 and even to Rs 735-740 level. Consider going short on Bharti Airtel futures once it dips the support level. Trail the stop loss in line with the stock movement so as to maximise profits.

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on May 4 increased marginally to 36.56 per cent against Thursday's position of 38.16 per cent. As the market moved up, it seems retail investors made their presence felt.

FII activity was mixed as they indulged in alternate bout of buying and selling in the market and in between they also churned their portfolios.

They increased their open positions to Rs 14,116 crore (Rs 12,980 crore last week) in index futures and remained neutral at Rs 14,822 crore (Rs 14,223 crore) in stock futures. They currently hold 6,77,916 contracts (6,23,300 contracts) on index futures and 5,41,681 contracts (5,23,394 contracts) in stock futures.

(The opinions expressed in the column are based on technical analysis. There is risk of loss in trading.)

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