The Hindu Business Line : Nifty future may see downward pressure

Though the Nifty index gained 1.23 per cent last week, it witnessed a lot of volatility, particularly on Thursday and Friday. Open interest positions improved mainly for stock futures.

The Nifty December future saw its premium narrowing down considerably. It even went into a discount on one occasion. But the Nifty future closed with a fairly wide premium of 24.1 points on Friday.

Trading in the derivative segment was low-key with average daily volumes hovering around Rs 62,000 crore.

Follow-up: Expecting a break-out in one direction, we had presented two strategies:

(a) Consider going long on the Nifty future if it moves above 6045.

(b) Go short on Nifty future, if it dips below 5875. The market had provided only the first opportunity and those who had adopted that strategy would have booked decent profits.

Outlook

Though the Nifty future was able to pierce the resistance at 5950 and moved upwards to touch its all-time high of 6201.85, it could not sustain at that level.

The trading pattern on Thursday and Friday shows lack of strength in the market. The Nifty future has to cross the 6195-6200 band strongly in order to reinforce the up-trend. On the other hand, a dip below 5875, its crucial support level, would make the Nifty future vulnerable to selling pressure.

We expect Nifty future to fall towards this support level next week.

Recommendation

The Nifty continues to hover at a critical stage. We advise investors to adopt a cautious stance as volatility, particularly intra-day, may be high. Investors can consider going short on the Nifty future keeping the stop-loss at 6092 level.

As we expect volatility, we advise investors to consider booking profits, however small they may be. Alternatively, investors may also consider buying the Nifty 6000 put, which is quoting at a premium of Rs 94.20.

Implied volatility

Implied volatility (IV) of puts and calls remained firm at around previous week’s levels.

While puts IV remained firm at 32 per cent (30 per cent), calls IV stood at 30 per cent (30 per cent). As both the call and put IVs are ruling around the 30 per cent mark, it implies that opinion is evenly divided over the future direction of the market.

Stock futures

Lanco Infratech (Rs 810.55): The stock is at a crucial stage. After witnessing steady gains in the last few days, the stock turned weak on Friday.

While the stock faces resistance at Rs 840, it finds support at Rs 755. We advise investors to consider going short on the Lanco Infratech future keeping the stop loss at Rs 840.

Trail the stop-loss in line with price movements so as to maximise the profit. A dip below the support level could weaken it to Rs 690-695 levels. Risk-averse investors may stay away from this strategy as market lot is 850 unit per contract.

FIIs trend

The cumulative FII positions as percentage of gross market positions on the derivative segment as on December 13 was 35.08 per cent (36.65 per cent on December 6).

FIIs were net sellers last week in F&O segment, particularly in stock futures.

However, they remained net buyers in index options, suggesting that they expected high volatility.

They now hold index futures worth Rs 18,524 crore (17,312.34 crore) and stock futures worth Rs 51,646 crore (Rs 47,937 crore).

This indicates that they have added fresh short positions on both index and stock futures.

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

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